Top tips for avoiding claims in relation to fixed term contracts

April 11, 2013

Fixed term contracts are a favoured tool for employers looking for both certainty and flexibility in their workforce. However, it is a common misconception that fixed term workers have less employment protections than permanent employees. There are a number of points we find often trip-up even the most knowledgeable of HR practitioners.

Can I treat fixed-term employees differently to permanent employees?
Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, employers must not treat workers on a fixed-term contract less favourably than a permanent employee doing the same or largely the same job. This will include things like providing benefits, the opportunity for training or promotion, etc.

Fixed term employees can be treated differently if the employer can show that there is a good reason to do so. This is known as ‘objective justification’. It is sensible to review the benefits offered to permanent employees and to ensure that employers provide benefits to fixed term employees which are on the same terms, or provide equivalent pro-rated or compensatory benefits. If this is not practicable, it is best to obtain legal advice regarding whether the differences can be objectively justified.

Must we notify fixed-term employees of any permanent vacancies?
Fixed-term employees have the right to be informed of any permanent vacancies which are available in the company (even if they aren’t necessarily suitable). This can be done via your intranet or notice boards.

Do I need to go through a process before terminating a fixed term contract?
Although the expiry and non-renewal of a fixed term contract is a dismissal, ordinarily the ACAS Code will not apply. However, it is best practice to go through a short process with the employee if there is not going to be a renewal of their contract.  Note that, after 1 years’ service, fixed-term employees are entitled to a written statement of reasons for not renewing the contract.

If you are terminating employment prior to the end of a fixed term, ordinary unfair dismissal principles apply. The termination should be treated as if terminating a permanent contract and the ACAS Code should be followed if the termination is related to performance or conduct, or a redundancy consultation should be undertaken if relevant.

Does the expiry of a fixed term contract count towards collective redundancy consultation?
Although previously expiries of fixed-term contracts could potentially be caught by the collective consultation requirements, the recent changes which came into effect on 6 April 2013, under the Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment) Order 2013 mean that this is no longer the case.
The expiry of a fixed term contract will only count towards collective redundancy consultation if:

  • your company is proposing to dismiss the relevant employee as redundant; and
  • the dismissal will take effect before the expiry of the fixed term.

What happens if the employee works beyond the end of the fixed term?
If an employee continues working past the end of a contract without it being formally renewed, there’s an ‘implied agreement’ by the employer that the employee is employed on an indefinite term.

Top tips for drafting a contract for a fixed term employee:
1.    Due care to duration
Fixed term contracts can last as long as is agreed between the parties and can be for any period of time you wish. If you do not intend the fixed term employee to obtain ordinary unfair dismissal rights, the fixed term should be for no more than 1 year and 50 weeks in order to avoid the employee gaining the requisite service for unfair dismissal.

A note of caution is required where employees have been employed on several fixed term contracts: they will be automatically deemed to become a permanent employee once their total service is 4 years or more possibly even if there are short breaks between contracts. This will be the case unless use of successive fixed-term contracts can be “objectively justified”, which is difficult to establish and must relate to specific factors relating in particular to the activity being undertaken by the employee in question.

2.    Plan for renewal
Since the use of successive fixed term contracts could lead to a fixed-term employee becoming a permanent employee, on renewal it is important to consider:
a.    whether it is justified/ necessary to continue to use fixed-term contracts for the employee, or whether you can move them to a permanent contract; and
b.    if you do wish to continue to use a fixed-term contract, recording in writing the reasons for doing so.

3.    Include a break clause
To avoid being locked into the term of the contract, it is often recommend that employers include a term permitting them to give notice of termination prior to the end of the fixed term. Without this, termination would be a breach of contract and the employer may be liable to pay the employee the full salary and benefits until the end of the term (subject to the employee’s duty to mitigate losses).

4.    Ending the contract
Fixed-term contracts will normally end automatically when they reach the agreed end date. The employer doesn’t have to give any notice (unless this is required in the contract). If you would like the contract to expire automatically, you should ensure that this is expressly stated so that it is clear that no notice is required for the contract to expire automatically – this will be of assistance if you forget to give notice! Another option is to provide that the contract continues after the expiry of the fixed term but can then be terminated by giving a particular period of notice.


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