What is a Fixed-Term Employment Contract?

As an employer, you may wish your employees to work for you for a set period only. For example, this can be useful if you require them for a specific project, cover extra business, or work where other employees are absent. Employing your staff on an employment contract for a set period can offer you flexibility as well as reassurance regarding the length of time your employee is with you. Where an employee is working for you for a fixed time, they may be on a fixed-term contract. 

This article will explain what a fixed-term contract is and what might not be classed as a fixed-term contract. It will also explain how to end and renew fixed-term contracts. It is essential to be aware of the rules about fixed-term contracts, as if you end them incorrectly, an employee could claim unfair dismissal against you.

What is a Fixed-Term Contract?

A fixed-term contract is where an employee has an employment contract directly with your business, which states when the contract ends. This could be by:

• specifying a date the contract ends;
• stating that the contract ends when a particular task is finished; or
• identifying the occurrence of an event or failure for an event to occur.

An employee with this type of contract is a fixed-term employee. This can include: 

• those carrying out work as maternity cover;
• casual or seasonal employees employed for a busy period for a duration of up to six months; or
• an employee who is a specialist working on a specific project.

Contracts Which Are Not Fixed-Term Contracts

You should be careful not to mistake some employment contracts for fixed-term contracts where they are not. For example, the following employment contracts may appear initially as fixed-term contracts, but they are not:

• an ‘evergreen contract’ which means renewal is automatic after each fixed-term, or instead, you can serve notice; and
• a contract where notice may not be served during a fixed period, but the contract is considered open-ended after this.

The following also indicate that a person carrying out a role is not doing so as a fixed-term employee:

• their employment contract is with an agency rather than you;
• the person is on work experience placement;
• a ‘contract of apprenticeship’ is in place; or
• the person belongs to the armed forces.

How to End a Fixed-term Contract

As this contract specifies when it ends, you do not need to give your fixed-term employee notice. Instead, the employment contract automatically comes to an end. Therefore, if you wish to end your employee’s fixed-term contract earlier than the specified end time of the contract, you should only do so if there is mention of this within the employment contract. Where there is not, you are in breach of the contract. 

Additionally, if you do end the contract early, you must give the required notice. Otherwise, you could breach the contract. If the contract does not specify the amount of notice necessary, you must give the legal requirement, which is:

• one week for those who have worked for less than one month; or
• where your employee has worked for you for at least two years, one week’s notice per year they have worked for you.

Further, if your employee wishes to end their fixed-term contract early, they must give you one week’s notice unless the contract states longer. This is the case where they have worked for you for at least one month.

Renewing Fixed-Term Contracts 

As an employer, you have the option to renew your employee’s fixed-term contract. However, if you decide to offer less favourable terms, your employee may negotiate the terms with you. Where there is no agreement, and the contract is, therefore, not renewed, your employee has the right to pursue a claim for unfair dismissal.

Once you have renewed your employee’s fixed-term contract for at least four years, the fixed-term employee becomes a permanent employee. However, if you have a good business reason to refuse permanent employee status, you may do so. Likewise, where the fixed-term contract initially lasted for four years and is then renewed after this period, the employee automatically becomes a permanent employee. A fixed-term employee can also become a permanent employee where you have extended the contract. 

Indeed, you may decide not to renew your employee’s fixed-term contract. However, if your employee has worked for you for two years or more, you must have a fair reason for deciding to terminate the contract. Otherwise, a court could consider this to be an unfair dismissal. 

Further, it may be the case that you do not formally renew your employee’s fixed-term contract, but they continue to work for you. In this instance, there will be an implied agreement in place. Therefore, if you later dismiss this employee, you must still give them the required notice period.

Key Takeaways

Fixed-term contracts can be beneficial for you as an employer and likely a type of employment contract you will use at some stage. First, however, you should understand the rules regarding this type of employment ocntract. For example, you should abide by the rules about renewing or ending a fixed-term contract. Otherwise, your fixed-term employee may have a case for unfair dismissal. Also, you must treat your employees on fixed-term contracts equally to your permanent employees. They have the same rights, so they should not be discriminated against.   

If you need help understanding fixed-term contracts in England and Wales, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.

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