Fixed-Term Contracts: What are workers’ rights?

What is a fixed-term contract?

A fixed-term contract is a contract of employment which terminates on a specific date, on completion of a specific task or on the occurrence (or non-occurrence) of another specific event.

Common examples of fixed-term contracts are:

• a fixed-term contract covering a permanent employee’s leave, e.g. maternity or sickness leave;
• a fixed-term contract linked to a funding scheme which pays the fixed term employee’s salary;
• a seasonal contract to provide cover for demand, e.g. Christmas packer jobs.

Fixed-term contracts can therefore provide employers with certainty and flexibility over their workforce.

What rights does a fixed-term employee have?

As well as having the usual rights which permanent employees have, employees working under a fixed-term contract of employment have a number of specific rights afforded to them.

For example, fixed-term employees have protection against less favourable treatment and, depending on their continuous service levels, they may have the right to have their employment converted to permanent rather than fixed-term status. Employees may also, depending on the length of time for which they have been employed, have the right to redundancy pay and have protection against unfair dismissal under their fixed-term contract.

Less favourable treatment

Employees under a fixed-term contract have protection against less favourable treatment in the workplace if that treatment is due to their fixed-term status. This means that no employee with a fixed-term contract should be offered lesser rights than a comparable permanent employee, unless the employer can justify that less favourable treatment.

Less favourable treatment can relate to the terms included in a fixed-term contract or any other detriment suffered by the employee compared to the permanent employee. Examples of common less favourable terms in fixed-term contracts include exclusions from pension membership or from bonus and discount schemes.

‘Any other detriment’ is a widely phrased term and therefore can concern dismissal, harassment, bullying, exclusion from promotion opportunities and, importantly, selection for redundancy on the basis of the employee working under a fixed-term contract.

In practice, the protection from less favourable treatment does not mean that employees with a fixed-term contract always have to receive identical rights to permanent employees. An employee with a fixed-term contract will only be able to bring a claim for less favourable treatment where that treatment is as a result of their fixed term status and where the treatment cannot be objectively justified.

For example, a fixed-term contract excluding the right to be included in a pension scheme might be regarded as objectively justified where the initial start-up fee which would be incurred would outweigh any benefit payable under the scheme. Equally, an employee with a fixed-term contract could still be selected for redundancy from a pool including permanent employees if their selection was for a reason other than the fact they work under a fixed-term contract, e.g. their skills and aptitude.

Permanent status

Unless the employer can justify otherwise, an employee working under a fixed-term contract who has been employed by that employer continuously on successive fixed-term contracts for four or more years will be regarded as a permanent employee.

It is usually a difficult task for an employer to justify why the employee should not be regarded as permanent in such circumstances. However, examples of cases in which a fixed-term employee has been lawfully denied permanent status include where they have been continuously employed to provide cover for sick employees, or where cover is being provided to allow a permanent employee to resume their role after a career break.

Does termination of a fixed-term contract amount to dismissal?

A common misconception about a fixed-term contract is that the expiry of the contract at the end of the fixed-term does not amount to a dismissal. This is incorrect.

The expiry and non-renewal of a fixed-term contract is regarded in law as a dismissal.

This means that any employee working under a fixed-term contract who has two or more years of continuous service is eligible to bring a claim for unfair dismissal where the contract runs out at the end of the term and is not renewed.

Consequently, despite the fixed-term contract stating at the outset that the contract will terminate on a specific date, an employer should serve the correct notice to the fixed-term employee and should follow a fair dismissal process.

Conclusion

Fixed-term contracts can provide benefits to employers where further staff are required to cover absent staff, to work on short-term projects or where the suitability of a job role is uncertain. However, there are complexities involved in using fixed-term contracts and for more stable job roles employers should consider utilising permanent contracts of employment instead.

For more information on fixed-term contracts contact Sophie Allinson at sa@burnetts.co.uk