Updated for 2014.
Fixed Term Contracts have always been popular with employers as a way to fill a ‘gap’ for a temporary period, but we also know they can be abused. Here we look at what a Fixed Term Contract actually is, what protections they have in law and what happens when they expire.
Fixed Term Contracts are given by employers on the basis that the contract will terminate at a future date when a specific ‘term’ expires – e.g. the completion of a particular project or task, the occurrence or non-occurrence of a specific event (covering for an employee who is on sick or maternity leave, for example).
People on Fixed Term contracts (FTC’s) will be PAYE Employees.
When you are employed on a Fixed Term Contract your written statement of terms and conditions (or your Contract of Employment) should state the date the contract is expected to end and the reason it is for a fixed-term period. FTC’s are covered by their own legislation called the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002.
These Regulations are designed to:
- Prevent less favourable treatment of fixed-term employees in comparison with their permanent colleagues. Employees on fixed-term contracts are entitled to the same terms and conditions of employment (e.g. perks, holiday entitlements, bonus schemes, training, in redundancy situations, in promotion situations, pension schemes, access to permanent job vacancies) as permanent employees. However, employers can justify giving those on FTC’s less favourable treatment than permanent employees for certain, genuine business reasons
- Prevent the successive use of fixed-term contracts, where a permanent contract should be given
However, bear in mind:
- These Regulation do not apply to workers (e.g. casual staff, agency temps) or freelancers / contractors (an Italian case that went to the European Court of Justice in June 2013 ruled that agency workers do not have rights under the EU Fixed-Term Work Directive. Agency Workers are not specifically excluded from these Regulations and there are calls for the UK Government to tighten up this aspect).
- They do not apply to Apprentices – see our Guide to Apprenticeships here.
- A ‘comparable’ permanent employee is someone who works for the same employer, doing the same or a similar job
- An employer is under no legal obligation to offer a post-holder on a fixed-term contract the same job if it is made permanent; they must give them access to apply for permanent vacancies though (unless this lack of access can be objectively justified)
The Regulations say that where an employee has been continuously employed on successive fixed-term contracts for four years or more (from 10th July 2002), he / she should automatically receive permanent status, unless:
- The employer has an objective reason (at the point your contract was last renewed) for not offering a permanent contract that justifies a renewal for a further fixed term period
- Your Employer can change the time limit (from 4 years) if they have a ‘workforce’ or ‘collective’ agreement in place to do this, but you should be made aware of this agreement
When you have 4 years continuous service you can ask your employer for a written statement confirming that you are now a permanent employee and are no longer employed on a Fixed Term Contract. If your employer fails to give you this statement (when you have requested it) or gives you a statement of reasons why you must remain on a FTC that you don’t agree with, you can state a grievance and possibly make a claim to an Employment Tribunal. For more information on continuous service read our new Guide here.
What happens when Fixed Term Contracts expire?
The expiry of a FTC is a ‘dismissal’ in law and all employees have a right not to be unfairly dismissed. Employers must follow a fair procedure to ensure that there is a fair dismissal – if they do not an employee who has at least one year’s continuous service (or two years continuous service if they started their employment on or after 6th April 2012) may be able to make a claim for unfair dismissal at an Employment Tribunal.
In many cases where a FTC expires, the reason for dismissal will be redundancy (as the requirement for the employee to do the work has ceased or diminished and there is a reduction in the number of employees). Therefore the employer must follow a fair redundancy procedure which includes:
- An obligation to consult with the employee about the forthcoming expiry of their contract and consider alternative employment/redeployment
- That the selection for redundancy must be fair and not made purely on the basis of the employee’s fixed term contract status – there must be an objective reason for the redundancy
If the employee has at least 2 years continuous service, he / she will be entitled to a statutory redundancy payment. Until 2002 employees on fixed-term contracts could legally be asked to sign a ‘redundancy waiver’, whereby if their contract lasted for 2 years or longer they would waive their right to a statutory redundancy payment on termination of their contract – this is no longer allowed (unless the waiver was signed before 1st October 2002 and the contract has not been renewed or extended since this date).
Other reasons to legitimately end a Fixed Term Contract is for capability, conduct or SOSR (some other substantial reason). SOSR is often used if the fixed term contract was given to cover for maternity or sick leave and the permanent employee returns and the person on the fixed-term contract is no longer needed. However, appropriate procedures need to be followed including consultation with the individual and looking for alternative jobs.
So for example, if you were:
- Bought in to cover someone else (i.e. who is on maternity or sick leave)
- Were employed to do a project that is going to end
It may be that there is no other work available that you can do, and your contract will end. There is still a possibility that you could have a claim for unfair dismissal if you were not advised, when you started, of the specific purpose of the fixed-term contract and the correct ‘dismissal’ procedures were not carried out to end the contract.. You may also have a claim for redundancy payment (see above).
If you are unhappy about your Fixed Term Contract ending you should be given the right to ask for an appeal under your employers dismissal or redundancy procedure.
Your employer does not have to give you notice if your contract is ending on its expected date, although they may do this. However your employer may be able to terminate your contract before its nominated end date, if this is written into your contract, by giving the appropriate notice period (this must be at least the statutory minimum notice periods applicable to your situation).
If you do not have a notice period in your Fixed Term contract and the contract does not allow for early termination, but the contract is ended early, except where the employee has committed gross misconduct, this may be a breach of contract and you may be able to claim damages at an Employment Tribunal for your earnings during the remainder of the contract term.
In both situations you may be able to claim for unfair dismissal and / or redundancy pay if you have sufficient continuous service (you cannot claim for breach of contract if your contract expires on its proper end date or you are given notice that the contract can end early where this is written into your contract, and you are given the correct notice period that is written into your contract).
Whatever the reason for ending the contract early, your employer must follow the appropriate dismissal or redundancy procedures.
If your Fixed Term Contract ends on its expiry date and it is not renewed, or you are given notice to end it early, and you have one years continuous service with your employer (or 2 years if your employment started on or after 6th April 2012), you are entitled to ask for a written statement from your Employer explaining the reasons why your contract is ending.
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.