Fixed-term contracts can be used for employees to work for a specified length of time or to work on a set project. These arrangements can give employers both certainty and flexibility - for example in the following circumstances:

• Where someone is needed for a specific project, such as the implementation of a new system. 
• Where the need for a particular post is uncertain and the employer wishes to carry out a ‘trial period’ before committing to a permanent position for the trialled role. 
• To provide maternity cover, or to cover for someone on long-term sick leave.

An engagement which is not expected to be permanent must say so in the written statement of particulars of employment. This must specify either the period for which the contract is expected to continue, or the date when it is to end.   

A fixed-term contract will usually expire automatically, at the end of the term or project, without the need for notice (although some fixed-term contracts also provide for early termination on notice before the expiry of the fixed term).

Employees working under fixed-term contracts are protected by the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (‘the Regulations’), which require that such employees are treated no less favourably than comparable permanent employees. For example, employers should not refuse fixed-term employees the benefits that they provide to permanent employees, so should not exclude them from pension or other contractual benefits schemes, unless the employer can objectively justify the difference in treatment (see Objective justification below).  

The expiry of a fixed-term contract is treated as a dismissal (for unfair dismissal purposes, that is, it has the potential to be unfair and, subject to the below, an employer will need to show that there is a ‘fair’ reason for not renewing the contract). Fixed-term employees, like other employees, have the right to bring an unfair dismissal claim if they have been employed for two years or more when their employment ends. Although the reason for the dismissal will often be potentially fair (for example for redundancy or ‘some other substantial reason’), employers also need to follow a fair procedure before the contract expires.  

Fixed-term employees who have been continuously employed for four years or more on a series of successive fixed-term contracts will automatically be treated as permanent employees (that is, employed under an indefinite contract), unless the continued use of a fixed-term contract can be objectively justified (see Change in status from fixed-term employee to permanent employee below). 

1. Pure fixed-term contracts – these expire automatically, at the end of the term (or on the occurrence of the event), without the need for notice. These are quite inflexible as there is no option to terminate the contract early and are therefore not very common.  

2. Contracts which contain a notice clause providing for early termination on notice before the expiry of the term – if notice is not given, the contract will expire automatically at the end of the term.  

3. Contracts which are stated to be for an initial term, during which notice may not be served – the contract becomes terminable on notice after the initial fixed term has expired.  

4. Evergreen contracts – these are stated to renew automatically for another fixed term, unless one of the parties gives notice of termination by a set date.  

 Only the first two types fall within the definition of a fixed-term contract under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. This is because under the Regulations, a fixed-term contract means an employment contract that in the normal course will terminate:  

• on expiry of a fixed term  

• on the completion of a particular task; or  

• on the occurrence or non-occurrence of any other specific event.

A fixed-term employee has the right to be treated no less favourably than a comparable permanent employee in respect of either of the following:   

• in relation to the terms of their contract  

• by being subjected to any other detriment by any act, or deliberate failure to act, of their employer.  

In some circumstances, it is possible for employers to treat fixed-term employees more favourably than permanent employees, as there is no similar right for permanent employees to be treated no less favourably than fixed-term employees.   

When seeking to bring a claim, a fixed-term employee must compare their conditions to those of a “comparable” permanent employee. This is an employee who is not on a fixed-term contract, but who is employed by the same employer in the same establishment doing ‘the same or broadly similar work’, with similar qualifications or skills, if relevant. A fixed-term employee must choose an actual comparator. Unlike other forms of discrimination, in this context a claimant cannot rely on a hypothetical comparator.  

If there is no permanent employee comparator in the same establishment, the fixed-term employee will be able to look to employees in the employer’s other establishments to find a comparator. However, they cannot compare their treatment to former employees, hypothetical comparators, or to employees of associated employers.  

Fixed-term employees have the right not to be treated less favourably. This could relate to the terms of their contract compared with those of a comparable permanent employee, or any other detriment. The Regulations specifically state that the right not to be treated less favourably applies in relation to receiving training and being given the opportunity to secure a permanent position in the establishment. For example, fixed-term employees have the right to be informed about permanent employment positions and to be treated fairly if they want to apply for these roles.  

‘Any other detriment’ is construed widely and would include dismissal, bullying or harassment. 

Less favourable treatment can occur where a fixed-term employee is given different contractual terms from a comparable permanent employee or where a particular benefit, whether contractual or not, is provided to a permanent employee but not to a fixed-term employee.  

Examples of less favourable treatment include exclusion from a pension, bonus or private medical insurance scheme. If comparable permanent employees are eligible for pay rises connected to their length of service, but fixed-term employees are excluded from this because of their fixed-term status, this would also be an example of less favourable treatment.  

Fixed-term employees should not be subjected to disadvantages which are not applied to permanent employees. This could include not being given access to promotion opportunities or being selected for redundancy because of their fixed-term status.  

A fixed-term employee may also be deemed to have suffered from less favourable treatment if their employer fails to carry out a particular action. This will be the case if the action is normally carried out for permanent employees – for example, if an employer fails to carry out appraisals for fixed-term employees but does so for its permanent staff. There could also be instances of less favourable treatment if an employer imposes additional conditions on fixed-term employees which it does not impose on its permanent staff. This could be where a fixed-term employee has to meet additional targets in order to be eligible for the same bonus as a permanent employee doing the same role. 

The right not to be treated less favourably will only apply if the treatment is because the employee is fixed-term and if that treatment cannot be justified on objective grounds. The burden of proof is on the employer to prove the reason for any less favourable treatment. What might amount to objective justification is considered further below. 

Under the Regulations, the pro rata principle sets out that a fixed-term employee is entitled to receive such proportion of the pay or benefits to which a permanent employee is entitled as is reasonable in the circumstances. This will consider the length of the contract and the terms on which the pay or benefit is offered, that is, they are entitled to pro rata treatment. If they do not receive this, the Regulations operate so that there is a presumption that the employee has been treated less favourably, unless the employer can show that doing so would be inappropriate or unreasonable in the circumstances.  

An example would be an employer who offers permanent staff an annual bonus. To comply with the pro rata principle, the employer should pay an employee on a six-month contract 50% of the bonus, unless there is a particular reason why it is not appropriate to do so. If employees are provided with or offered benefits over a specified period of time, for example an annual gym membership, employers should consider whether it is possible or appropriate for them to offer the benefit to fixed-term employees on a pro rata basis in proportion to the duration of their contract.  

It may be possible for an employer to establish that it is not reasonable in all the circumstances, or it is inappropriate to use the pro rata principle. One example would be a comparable permanent employee who has a company car. The employer would probably be able to argue that it would not be reasonable to offer a fixed-term employee on a three-month contract a car, as the cost would be too high in light of the length of employment. 

Fixed-term employees have the right to request from their employer a written statement of the reasons for any less favourable treatment. The request must be made in writing and the employer must respond within 21 days. This could of course carry weight as evidence in any proceedings brought under the Regulations.  

In response to the request, employers should ensure that they provide the reasons for any actual difference in treatment, or a denial of less favourable treatment with an explanation. If a fixed-term employee’s overall employment package has been designed so as to compensate them for any additional benefits that permanent staff receive, this should be explained to them. In order to be able to do so, it is helpful for employers to undertake an audit of fixed-term employees’ terms of employment so that they can identify any potential discrepancies.  

The right to request reasons for less favourable treatment does not apply where the treatment in question is dismissal, and the employee is entitled to a written statement of reasons for dismissal (which they will be if they have two years’ continuous service, or are dismissed when pregnant or after childbirth in circumstances in which maternity leave ends by reason of the dismissal).  

If an employer deliberately fails to reply to a request for a written statement of reasons without a reasonable excuse, or if they do not respond with a sufficient reply, a tribunal will be entitled to draw adverse inferences against them, including a finding that the employer has acted unlawfully in breach of the Regulations.

If an employee is able to establish less favourable treatment or detriment, the burden of proof shifts to the employer to identify any justification for this.  

An employer may be able to objectively justify why it is treating fixed-term employees less favourably than permanent employees. When looking at whether treatment could be justified, employers should consider whether the less favourable treatment:  

• has a legitimate aim  

• is necessary to achieve that aim  

• is appropriate to achieve that aim.  

In determining whether less favourable treatment is justified on objective grounds, it is possible to consider the fixed-term employee’s terms of employment as a whole and whether in total they are at least as favourable as the terms of a comparable permanent employee. If they are, the less favourable treatment will be objectively justified.  

It is also possible for an employer to rely on any differences between a fixed-term employee’s role and that of their permanent comparator. The employer may be able to argue that these differences provide objective justification for the less favourable treatment. Although the jobs must only be ‘broadly similar’ for a claim to be brought, the tribunal is able to take into account any differences that exist when analysing whether the threshold for objective justification has been met.

Fixed-term employees are entitled to additional protection against unfair dismissal under the Regulations. There are a number of circumstances which will result in a fixed-term employee being deemed to be ‘automatically’ unfairly dismissed. There is no requirement to have two years’ service in order to bring an automatically unfair dismissal claim.  

The circumstances that will result in a finding of automatic unfair dismissal are if the reason or principal reason for the dismissal is that the employee has done (or the employer believes or suspects that they have done or intend to do) any of the following:  

• brought proceedings against the employer under the Regulations  

• requested a written statement of reasons for less favourable treatment or of variation 

• given evidence or information in connection with proceedings brought by any employee under the Regulations  

• otherwise done anything under the Regulations in relation to the employer or any other person  

• alleged that the employer infringed the Regulations (unless the allegation is false and made in bad faith)  

• refused (or proposed to refuse) to forgo a right conferred on them by the Regulations  

• declined to sign a workforce agreement for the purposes of the Regulations.  

Additionally, all employees have the right not to be subjected to any detriment by any act, or any deliberate failure to act, by the employer on any of the above grounds.  

A detriment will be made out if a reasonable worker would or might take the view that they had been disadvantaged in the circumstances in which they had to work.

In terms of bringing a claim for detriment, this must be lodged within three months of either the date on which the detriment took place, or the date of the last in a series of similar acts or failures. Once a detriment is established, the burden of proof shifts to the employer to justify it. 

Under the Regulations, fixed-term employee’s also have the right to be informed of permanent vacancies in the business/organisation that they are a fixed-term employee for. They also have the right to not be treated less favourably on the grounds of their fixed-term status in relation to any opportunity to secure a permanent position.  

In theory, there is no limit on the compensation available to a fixed-term employee who has made a successful claim for less favourable treatment. However, any sum awarded should be just and equitable and have a connection to the financial loss that the employee has suffered as a result of the less favourable treatment.  

If a claim relates to an ongoing difference in contractual terms, tribunals can take into account past losses when determining the amount of compensation that should be awarded. However, compensation should only be calculated as far back as 1 October 2002, which is when the Regulations came into force.  

An additional remedy that fixed-term employees can seek from the tribunal is a declaration of permanent employment status. This is provided that they have previously requested a written statement of permanent terms of contract from their employer. Assuming the employee is still employed, the tribunal is also able to order the employer to take whatever action is necessary in order to remove or reduce the adverse effect on the employee caused by the employer’s unlawful treatment. If an employer fails to comply with such a recommendation, an employee may be awarded additional compensation. 

Non-renewal  

The Employment Rights Act 1996 provides that not renewing an employee’s fixed-term contract will amount to a dismissal. An employee with sufficient service will therefore be able to bring an unfair dismissal claim. For a dismissal to be fair, it must be for one of the potentially fair reasons set out in legislation:  

• capability  

• conduct  

• redundancy  

• contravention of a statutory obligation  

• some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held (SOSR).  

The fact that the contract provided for expiry on a certain date will not be a fair reason for dismissal.  

Employers will need to establish which reason they seek to rely on, and follow a fair procedure. In many cases, the non-renewal of a fixed-term contract will be potentially fair by reason of redundancy, but this will of course depend on the circumstances.  

Redundancy  

Generally speaking there will be a redundancy situation if the employee is not being replaced because the business needs fewer employees to do work of a particular kind. There may also be a redundancy situation if the business, or part of it, is closing.  

However, employers must be mindful that the usual obligations regarding searching for suitable alternative employment apply, and those with two years’ service or more would be entitled to a redundancy payment. It this situation the employer should also carefully consider the breadth of the redundancy pool and whether any selection criteria discriminate on the basis of fixed term status.  

If an employer is proposing to make 20 or more employees redundant within a 90-day period, it must undertake a collective consultation process which involves consulting with employee representatives. However, the expiry of a fixed-term contract will not count towards dismissals for collective redundancy consultation purposes, unless the contract is being terminated early by reason of redundancy.  

Some other substantial reason  

An employer will be able to rely on ‘some other substantial reason’ as potentially fair where the fixed-term employee was replacing an employee who is absent on family leave or due to suspension on medical or maternity grounds. The fixed-term employee is dismissed to allow that person to return to work, and the fixed-term employee was informed at the outset that their employment would terminate on that employee’s return to work.  

Acas Code  

The Acas Code of Practice on Disciplinary and Grievance Procedures expressly states that it does not apply to the non-renewal of fixed-term contracts. This does not mean, however, that procedural fairness is irrelevant. For example, as we have seen, non-renewal of a fixed term contract does amount to a dismissal and could result in a claim for unfair dismissal. The dismissal process must therefore be fair regardless of its specific application, and the Acas Code provides a good benchmark of what such a process should look like. In terms of grievances, were a grievance to be raised about non-renewal of a fixed term contract, it would, again, be advisable for an employer to follow the Acas Code. Also, if a fixed-term employee is dismissed before the expiry of the fixed-term for misconduct the Acas Code will apply as normal. By extension, there is certainly an argument that the Acas Code applies to non-renewals that are influenced by conduct of performance and a rigorous process is therefore important in those situations too.  

Wrongful dismissal  

Wrongful dismissal is a dismissal that is in breach of contract. It differs from unfair dismissal in that fairness is not relevant; the only consideration is whether or not a term of the contract has been breached.  

An employee who is dismissed before the end of a fixed-term contract may have a claim for wrongful dismissal. This is unless the contract contains a provision for earlier termination on notice and the employer has complied with that provision. Or if the employee has committed a very serious breach of contract (such as an act of gross misconduct) which entitled the employer to dismiss without notice. The employer may have to pay damages up to the amount the employee would have been entitled to had they worked until the end of the term. Although the Acas Code does not apply to dismissals due to the non-renewal of a fixed-term contract, it may still be relevant for employers to follow it if dismissing for conduct or capability reasons, to ensure that the dismissal is fair. 

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