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Fixed term contracts

HR Consultant Eleanor Morland explains fixed term contracts and important regulations for employers to note.

Fixed Term Contracts

The use of fixed term contracts has increased in recent years and their use can help employers to plan and recruit flexibly to help meet peak periods in demand.  It is important, however, for employers to understand when and how to use fixed term contracts correctly to ensure they keep within the Fixed Term Employee (Prevention of Less Favourable Treatment) Regulations 2002.

Fixed term contracts are used in all types of sectors and industries to assist in planning and managing the work force at times of peak demand. 

What is a Fixed Term Contract?

Fixed term contracts are contracts of employment that are only intended to last for a fixed period of time and that will end automatically in the event of one of the following three situations:

  • On the expiry of a fixed term, for example after 12 months covering maternity leave
  • On the completion of a particular task, such as a project or initiative; or
  • On the occurrence or non-occurrence of any other specific event, such as securing funding for the post.

Employers should note that workers don’t count as fixed term contract employees under the 2002 Regulations above if they:

  • work via an employment agency rather than directly for the employer
  • are a student or trainee on work experience
  • are working under a ‘contract of apprenticeship’
  • are a member of the armed forces

Fixed Term Employee Rights

Employees who are employed on a fixed term contract have the right to be treated no less favourably that a permanent employee doing the same or largely the same job unless the employer can show that there is a good reason or ‘objective justification’ to do so.

When considering whether something could be considered an ‘objective justification’ employers need to consider whether the less favourable treatment is required to:

  • achieve a legitimate aim;
  • is necessary to achieve that aim; and
  • is appropriate to achieve that aim.

An example would be that a permanent employee doing the same job as a fixed term employee on a three month contract has a company car, but the employer can choose not to offer the fixed term employee one for such a short period as the cost is too high for the pro rata period of time.

Employers also need to be careful to ensure that fixed term contract employees get the same pay and conditions as permanent staff, the same or equivalent benefits package, information about permanent vacancies within the organisation and protection against redundancy or dismissal.

Employers should apply the pro rata principle to any pay or benefit that a fixed term contract employee is entitled to.  Under the pro-rata principle, the fixed term employee is entitled to receive such proportion of benefit or pay that the permanent employee is entitled to as is reasonable in the circumstances for example, an employer who offers permanent staff an annual bonus should pay an employee on a six month contract 50% of the bonus.

Successive Fixed Term Contracts and Permanent Status

Under the 2002 Regulations employees who have been continuously employed for four years or more on a series of successive fixed term contracts are automatically deemed to be permanent employees, unless the use of successive fixed term contracts can be objectively justified. 

Termination of a Fixed Term Contract

Most fixed term contracts will usually end when they reach an agreed end date, without the need for the employer to give notice.  Employers, however, should note that the non-renewal of a fixed term contract would be considered a dismissal and if the employee has 2 years’ service then the employer needs to ensure that the dismissal and reason for the dismissal is fair to avoid a potential claim of unfair dismissal.

Employers should note that workers have the right:

  • not to be unfairly dismissed after 2 years’ service
  • to a written statement of reasons for not renewing the contract – after 1 years’ service

Employees will also have the right to a statutory redundancy payment after 2 years’ service if the reason for non-renewal of the fixed term contract is redundancy.

Ending a Fixed Term Contract Early

If an employer wishes to bring the fixed term contract to an end earlier than the agreed end date, then they should make sure this right is included in the terms of the contract.  If the contract is silent about ending the contract early, then the employer may be in breach of contract if they try to terminate the employee’s employment earlier than the end date of the contract.  However, if the contract states that it can be ended early and the employer gives proper notice then the contract may be terminated.

Fixed term contract employees have the right to at least one weeks’ notice if they have worked continuously for at least one month, and one week for each year they’ve worked, if they’ve worked continuously for 2 years of more.  However, employers should check their own contracts as they may specify longer notice periods in their contracts that must be adhered to.

If an employee wishes to end a contract early then they should do so by handing in their notice, providing at least one weeks’ notice If they have worked for an employer for a month or more, or as outlined in their contract of employment.

For more information on the use of fixed term contracts, please contact Eleanor Morland on elm@burnetts.co.uk or 01768 800855.

About the Author

Eleanor Morland profile photo

Eleanor Morland

Eleanor is a HR Consultant at Burnetts.

Published: Wednesday 28th June 2017
Categorised: Education, Employment, HR, Lawyers for Business, Legal Services in Newcastle, Penrith, Small Business / New Business, Tourism & leisure, West Cumbria

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