Fixed-term contracts

The rights of fixed term employees are covered by the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, which came into force on 1st October 2002.

What is a fixed-term contract?

A fixed term contract is a contract that will end:

On the expiry of a fixed term (e.g. you employ someone for three months)
On the completion of a particular task (e.g. you employ someone to create a database)
On the occurrence or non-occurrence of any other specific event (e.g. cover for maternity leave)

The Fixed-term Employee Regulations only apply to employees. They don’t cover agency workers (‘temps’) who have a contract with an outside company, apprentices, or students and other trainees on work-experience placements or temporary work schemes.

Fair treatment of fixed-term employees

The general rule is that, except where there's good reason, employers may not treat fixed-term employees less favourably than permanent employees doing the same job, including:

The same pay and conditions
The same or equivalent benefits package e.g. sick pay, holiday, access to training, annual subscriptions, clothing allowances and travel card loans
Access to an occupational (company) pension scheme
The right to be informed about permanent employment opportunities in the organisation

However, fixed-term employees don't have the right to the same pay, conditions and benefits if their overall terms and conditions, although different from those for permanent employees, are just as good or better. For example, an employer can choose to give fixed-term employees better pay instead of pension rights.

What happens if workers are continuously employed on fixed-term contracts?

The Regulations state that if a fixed-term employee has been continuously employed for four years or more (and there hasn't been a break between contracts), the contract will be regarded as one of indefinite duration (the employee will now be a permanent employee).

Employers are allowed to use fixed term contracts for more than 4 years with the same employee, if it is objectively justified. It will need to be shown that the use of a further fixed term contract is:

Necessary to achieve a legitimate objective
An appropriate way to achieve that objective.

Collective agreements or workforce agreements can modify this four year limit.

Ending a fixed term contract

Normally, a fixed term contract comes to an end automatically once it has reached its agreed end point - there is no need for an employer to give notice. However, caution should be taken in this regard.

Not renewing a fixed-term contract is treated as a dismissal, so if the contract is not renewed fixed term employees also have full redundancy rights once they attain a year’s continuous service (albeit there is no entitlement to redundancy pay until two year’s continuous service).

Employers should act fairly and reasonably in the circumstances otherwise the employee may be able to make an unfair dismissal claim (once they have a minimum of one year's service).

Fixed-term contracts and redundancy

Fixed-term employees with two or more years’ service, have the right to statutory redundancy payments if they are made redundant before or at the end of their contract.

Fixed-term employees cannot be excluded from the statutory redundancy payments scheme, but may be excluded from contractual schemes, if this is objectively justified.

Fixed-term employees should not be selected for redundancy purely because they are on fixed-term contracts, unless this is objectively justified.

Fixed-term employees should receive the same level of redundancy payments as permanent employees, unless different treatment is objectively justified.

Unfair dismissal

In certain circumstances, fixed term employees may bring a claim for unfair dismissal even though they have had less than 12 months service, predominantly where a contract is not renewed and the employee held a reasonable belief that it would be renewed. This is because legislation protects fixed term workers from less favourable treatment.

What action should be taken where an employee feels they are being treated unfairly?

A fixed term employee has the right to ask their employer for a written statement setting out the reasons for less favourable treatment if they believe this may have occurred.

The employer must provide this statement within 21 days.

When the four year period has expired, the fixed term employee has the right to ask their employer for a written statement confirming their contract is permanent or setting out objective reasons for the use of a fixed term contract beyond the four year period. The employer must provide this statement within 21 days.

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Reviewed and updated by the HR Services Partnership - April 2010.

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