Commonly asked questions on the legal issues relating to temporary and agency workers
The main Acts and Regulations covering workers on fixed-term contracts are:
- The Employment Act 2002
- The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034) which implement the provisions of the Fixed-term Work Directive (1999/70/EC) into UK law
- The Fixed-term Employees (Prevention of Less Favourable Treatment) (Amendment) Regulations 2008 (SI 2008/2776).
Fixed-term contracts are also affected by EU law. For example the EU Directive 1999/70/EC and the Framework Agreement on fixed-term work. Although fixed-term contracts work slightly differently in different member states there are some basic rights which apply throughout the EU and many reported cases arise concerning the rights of fixed term workers.
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What is the definition of fixed-term contracts?
Fixed-term contracts are contracts which are:
- made for a specific term or
- which terminate on the completion of a task or the occurrence/non-occurrence of a specified event (other than the attainment by the employee of the normal retiring age, if any, in that position).
Even contracts which have a provision for early termination can be fixed term contracts. In Allen v National Australia Group Europe Ltd  IRLR 847 EAT a project manager had a fixed term contract from 9 December 2002 until 31 July 2003. The contract contained a clause that either party could terminate the contract by giving one week's notice during the first six months of the contract. The employer dismissed the employee for incompetence in January, seven months before the contract was due to expire. The employee won his claim that he had been discriminated against under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002. The provision for earlier notice did not stop the contract being one for a fixed term.
For further information on the relationship between fixed term contracts and notice periods see the related Q&A How can an employee be a fixed term employee if there is a provision for notice in the contract?
What rights do fixed-term employees have?
Employers cannot simply dispose of employees when a fixed term contract ends. Legislation including the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034) give fixed-term employees the right:
- not to be treated less favourably than a comparable permanent employee with regard to terms and conditions of employment
- to be informed of suitable permanent vacancies in the organisation
- to have their contracts automatically converted to indefinite ones after four years (the four years must start after 10 July 2002 and there must be two or more successive contracts)
- not to be selected for redundancy or be unfairly dismissed if the principal reason for the selection was because they were a fixed-term employee
- to make a complaint to a tribunal seeking a written statement which sets out the reasons for any less favourable treatment complained of
- to a written statement listing the reasons for the dismissal (after two years' service)
- not to be unfairly dismissed (after two years’ service)
- to statutory redundancy payments (after two years’ service)
- to a minimum notice period of the agreed ending of the contract
- to a minimum notice period after one month’s continuous service.
The right to no less favourable treatment applies where:
- the less favourable treatment is on the grounds that the employee is on a fixed-term contract and
- the difference in treatment cannot be justified on objective grounds.
Q: Are any employees exempt from the fixed-term employees regulations?
Yes, there are some categories of worker who are excluded from the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002:
- employees on certain government training schemes
- students on occupational placements of one year or less as a part of a higher educational programme
- agency workers, that is those who have an employment contract with a temporary work agency but are placed with and do their work for a third party (although agency workers must be treated in the same way as all other employees with regard to entitlement to statutory sick pay whether they are indirectly or directly employed and regardless of the length of their contract).
Unlike the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, the Fixed-term employees Regulations 2002 apply to 'employees' and not to 'workers'.
Q: Does an employer have to pay fixed-term employees exactly the same rate and benefits as permanent employees?
Yes and no. The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 cover all terms and conditions including pay and pensions. Fixed-term workers have the right to no less favourable treatment than a comparable permanent employee with regard to the terms of their contract.
However, when calculating whether there is objective justification for treating a fixed-term employee less favourably than a comparable permanent employee, the respective terms of employment can be assessed overall rather than compared item by item. Employers can therefore justify objectively different terms and conditions for fixed-term employees by demonstrating that either :
- there is a good reason for not giving the fixed-term employee a particular benefit or
- the value of the fixed-term employee's total package of terms and conditions is at least equal to the value of the comparable permanent employee's total package of terms and conditions.
For example, an employer can compensate a fixed-term employee by giving them a higher salary to replace a benefit provided to comparable permanent staff such as gym membership or health insurance.
Employers may have income protection or replacement insurance for permanent employees, but some policies will exclude fixed-term employees. It appears this may not be a breach of the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002.
For example in Hall v Xerox UK Ltd (unreported, UKEAT/0061/14 11 July 2014, EAT) the insurance taken out by the employer provided income protection for employees who were off work for 26 weeks. Fixed-term contract employees ceased to be covered at the end of their term. An employee was injured and his contract ended three months later and the insurer concluded that he had left the scheme when his first fixed term contract expired, even though the contract had been renewed.
The Employment Appeal Tribunal held that the insurer may have been treating fixed-term employees less favourably, but the employer had not given fixed-term employees less favourable treatment, as there was not an act or omission by the employer.
Q: How can an employee be a fixed-term employee if there is a provision for notice in the contract?
Although it seems confusing, an employee can be a fixed-term employee if there is a provision for notice in the contract. Really such fixed-term contracts are an agreement that both parties will work together, for example for a six month period, unless either of them gives notice before the end of that period.
A fixed-term contract that can be terminated earlier by notice is still a fixed-term contract falling within the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.
Contractual and statutory notice provisions are discussed separately below.
Fixed-term contracts end:
- at a specified date or
- on a specified event, such as the completion of a specific job.
Any termination by the employee or employer before the ‘end event’ occurs could be a breach of contract. Therefore it is common for fixed-term contracts to include notice clauses. This means that either party can give notice to end the contract before the expiry of the fixed term. An employer who wishes to end a fixed-term contract may either:
- wait until the end of the contract or
- give notice in accordance with the notice provision, if there is a clause permitting early termination (for example on one month's notice) or
- agree an early termination with the employee if that becomes necessary or
- end the arrangement early anyway, which will constitute a breach of contract if there is no provision for early termination. (An employee in this position could claim damages for the whole unexpired portion of the fixed term).
Therefore early termination of a fixed-term contract will be a breach of contract unless the contract contains an early termination clause allowing either party to give notice. Once a fixed-term employee has one year's (or two years' if their employment starts on or after 6 April 2012) continuous service, either from a long fixed-term contract or on two or more successive contracts, then there may be a breach of contract claim and an unfair dismissal claim if the employer decides to terminate the contract early.
Employers should also remember that as fixed-term employees have the right not to be treated less favourably than comparable permanent employees, if fixed-term employees have shorter notice periods, this constitutes prima facie less favourable treatment of the fixed-term employees. An employer who uses different notice periods would therefore have to justify the different treatment on objective grounds.
Fixed term employees are not usually entitled to the statutory minimum period of notice given by Section 86 of the Employment Rights Act 1996 (ERA 1996). However it is good practice for employers to provide contractual notice as explained above.
If the contract does allow the employer or employee to end the contract early by giving contractual notice, that notice must be at least the statutory minimum notice period. However the normal statutory notice does not apply at all if the employee is employed under a fixed-term contract of one month or less. For an employee who has been continuously employed for between one month and one year the statutory minimum notice period is one week. (If a fixed-term employee has a contract for one month or less which becomes extended by periods of one month or less at a time until three months is reached, the ERA 1996 provides that the statutory notice provisions apply in the normal way anyway).
Q: Can fixed-term employees be made redundant and does an employer have to make redundancy payments equivalent to those payable to permanent employees when a fixed-term contract expires?
Yes, fixed-term contract employees can be made redundant before or at the end of their term. If the non-renewal of the contract means there will be fewer employees overall, the fixed-term employee is probably redundant.
If the fixed-term employee has the requisite qualifying period of continuous employment, then an employer may have to make redundancy payments equivalent to those payable to permanent employees when a fixed-term contract expires (unless the employer can objectively justify the difference in treatment). Contractual redundancy schemes should not differentiate between permanent and fixed-term employees although they often do.
Why is redundancy relevant at all?
- The statutory definition of redundancy is basically a reduced requirement for employees to carry out a particular kind of work. Fixed-term contract workers who are no longer required, fall within the classic definition of redundancy.
- Fixed-term employees have the right not to be treated less favourably than comparable permanent employees because of their fixed-term status.
- A non-existent or less generous redundancy payment will be less favourable treatment unless it can be objectively justified.
Employers who provide less favourable redundancy terms to fixed-term employees must therefore be able to justify objectively their policy. The argument by an employer that there is a need to save costs is insufficient.
What are employers' key obligations?
In many cases then the non-renewal of a fixed-term contract will amount to a redundancy and the employee must be treated like any other redundant employee. This means that employers must:
- make a statutory redundancy payment if the employee qualifies with more than two years’ service
- look for suitable alternative employment for the employee, and
- consult individually with the employee.
From 6 April 2013 where an employer proposes to dismiss 20 or more employees (within a 90 day period) who are on fixed-term contracts which have reached their agreed termination point then there are no collective redundancy consultation obligations. However fixed-term employees dismissed before the expiry of the period may trigger collective consultation. For more information see the related Q&A Should employers count employees whose fixed-term contracts are coming to an end for the purposes of collective redundancy consultation?
Therefore if permanent employees would receive a redundancy payment on the termination of their employment by reason of redundancy, then fixed-term employees should too.
The employer will be liable to pay to a redundant fixed-term employee statutory or contractual redundancy pay (if they have at least two years’ continuous service).
If there is no provision for early termination under the fixed-term contract, compensation for loss of remuneration for the rest of the fixed-term period may be payable as well.
This all seems perplexing when it can be argued that by definition a fixed-term employee has no expectation of continuing employment anyway. X v SOS for Education and Skills (unreported, ET/ 2304973/04 8 September 2005) provides a good example of how the law is applied in this area.
The four employees in this case were senior advisers working under a succession of fixed-term contracts with the Department for Education and Skills. Under the Civil Service rules they would be entitled to modest compensation if they faced redundancy whereas permanent colleagues would receive significant redundancy payments. The employees won and obtained a declaration that this difference in treatment breached the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 and won. When their contracts expired they were entitled to substantial redundancy payments on a par with those payable to permanent employees or to be kept on under new contracts.
The difference in treatment with permanent employees was objectively justified as the employees had a reasonable expectation of continued employment beyond the expiry of their fixed-term contracts (possibly even to retirement age) partly due to their succession of contracts. However, on a different set of facts another employer may be able to justify objectively the difference in treatment.
It is worthwhile emphasising that employees, of course need the requisite minimum two-year period to be entitled to redundancy payments.
Q: Should employers count employees whose fixed-term contracts are coming to an end for the purposes of collective redundancy consultation?
The expiry of a fixed-term contract is a redundancy in many cases. Employers do not have to count employees on expiring fixed-term contracts for the purposes of a collective redundancy consultation. It is only those employees on fixed-term contracts which have reached their agreed termination point that are entirely excluded when considering whether collective redundancy consultation obligations apply.
This rule applies to all redundancies where the proposal to dismiss is made after on or after 6 April 2013.
Essential points for employers
- Collective redundancy consultation is triggered where there are proposals to dismiss 20 or more employees at any one establishment within a period of 90 days or less.
- Many terminations at the end of a fixed-term will be redundancies requiring redundancy payments, but this does not mean that collective consultation is necessarily required.
- Fixed-term contracts which end at the point it was agreed they would end are excluded from assessing whether collective consultation legislation applies.
- This means that where fixed-term contracts reach their natural end collective consultation may not be needed concerning the non renewal of those contracts.
- Employers must consult individually with fixed-term employees and employers cannot just treat the expiry of a fixed-term contract as the end of a contract without the need for any other processes.
Additional points for employers
- Expiry or non-renewal of a fixed-term contract is classed as a dismissal. This means that employers must ensure that there is a fair reason and fair procedure at the end of a fixed-term contract, otherwise qualifying employees may claim unfair dismissal over the non-renewal of their contract.
- If the fixed-term employee is dismissed after the requisite qualifying period of one or two years then they can bring an unfair dismissal claim; but some fixed-term employees will be able to bring an automatically unfair dismissal claim without any qualifying period, for example where dismissal is related to union membership or activities.
- There may also be union negotiated collective agreements which give rise to an obligation to consult about the termination of fixed-term contracts.
- If a fixed-term contact ends prematurely then those fixed-term employees do count towards the threshold for collective consultation.
- Managers must be trained to understand the issues relating to the non-renewal of fixed-term contracts (including unfair dismissal liability).
An example would be a large music and DVD retailer ABC Ltd wishes to make 22 office staff redundant. Collective consultation applies where there are proposals to dismiss 20 or more employees. However, if three of those employees were IT staff who were employed on fixed-term contracts which are coming to an end anyway, then the employer does not fall within the collective redundancy consultation provisions at all. However there is still a redundancy for those three employees and Individual consultation would have to take place with the affected employees as normal.
A case law example is University of Stirling v University and College Union(unreported, 2015 UKSC 26, SC). This leading Scottish test case reached the Supreme Court which ruled that dismissals at the end of a fixed-term should be taken into account in assessing whether the collective redundancy consultation legislation applies. Whilst this case was still being decided, the government made changes to collective consultation which were introduced on 6 April 2013 anyway. This made it clear that fixed-term contracts reaching their agreed end point will not trigger collective redundancy obligations.
For more information on the remedies available to fixed-term employees see the related Q&A What remedies does a fixed-term employee have for infringement of their rights?
In light of the changes, Acas has produced non-statutory guidance for use in collective redundancy situations.
Q: Can fixed-term employees demand to join the company pension scheme?
Yes. Fixed-term employees should be granted the same rights of access to occupational pension schemes as permanent staff or sufficient compensation so that the overall package of benefits is no less favourable.
Q: What remedies does a fixed-term employee have for infringement of their rights?
The first point to make is that in some ways employees on fixed-term contracts have more rights than permanent employees. Fixed-term employees have all normal rights such as the right not to be unfairly or wrongfully dismissed and to a redundancy payment where eligible. In addition they have the protection of the specific legislation designed to protect them. Some employers persist in thinking that employment on a fixed-term contract removes some of the employment rights that permanent employees enjoy. This is not the case.
There are three main claims available to fixed-term employees whose rights have been infringed under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, the unfair dismissal legislation and the common law. Of course all employees pursuing claims in the employment tribunal from May 2014 onwards will have to take the initial step of contacting Acas early conciliation anyway.
An employee on a fixed-term contract can complain to an employment tribunal if they feel their rights under the Regulations have been infringed. If the tribunal upholds the employee's complaint it can order compensation, make a declaration as to the employee's rights and recommend that the employer takes certain action to remove the adverse affect on the employee.
An employee on a fixed-term contract may also be able to claim unfair dismissal if their contract is not renewed. To qualify, the employee will have to meet the requisite qualifying period (of one or two years) and also have the right not to be unfairly dismissed (that is, they must not be in an excluded category). The employer must show a fair reason for the dismissal and that they acted reasonably. If the reason for not renewing a fixed-term contract is redundancy as the role was no longer required, then the employer must follow the organisation’s redundancy policy. Failing to do so would more than likely make the dismissal unfair.
The possibility of such a claim can arise if the employer handles the termination without following the requisite procedures, if there is not a fair reason to dismiss or if the dismissal is not fair in all the circumstances. For example, this may occur where there is inconsistency of treatment between several fixed-term employees whose contracts all come to an end and one is renewed but the others are not. The employer will be exposed unless it can show that there was a good reason and proper procedure was followed when selecting some employees in preference to the other. If a fixed-term employee feels that they are being treated less favourably, then before presenting the above claims in the tribunal they should usually raise a written complaint under the employer’s standard grievance procedure. Depending on the employer’s procedure they may wish to raise it with their manager informally first. They may also ask the employer for a written explanation of why the less favourable treatment has occured.
Wrongful dismissal/breach of contract
An employee on a fixed-term contract may be entitled to damages for wrongful dismissal: this is a payment up to the end of the contract period. What many employers do not realise is that if a specific length is defined in the contract, that is a part of the contractual terms. For example, if the offer of a fixed term contract is for one year, any attempt to end the contract early would entitle the employee to damages payment up to the end of the contract period. It is therefore very important when offering a fixed-term contract to provide for the fixed-term to be ended early by providing that the contract is until a specified date unless ended early by the employer on giving a specified period of notice.
What if the fixed-term employee has performed unsatisfactorily? In this situation the employer should remember the following:
- Ideally there will be a provision for early termination in the fixed-term contract. (For further information on this see the related Q&A How can an employee be a fixed term employee if there is a provision for notice in the contract?)
- If the fixed-term employee has committed gross misconduct the employer may be entitled to terminate the contract early without notice, although the appropriate procedures should still be followed.
- If a fixed-term employee with one year’s (or two years' if their employment starts on or after 6 April 2012) continuous employment has an unsatisfactory performance (falling short of gross misconduct), then the employer would still have to show that the performance was bad enough to justify dismissal and that a fair procedure had been followed.
Q: Is it still possible to employ people on a series of fixed-term contracts rather than offer them a permanent contract?
The legal effect of engaging employees on a series of fixed-term contracts will vary depending upon the redress the employees are seeking. While it is possible to employ people on a series of fixed-term contracts rather than offer them a permanent contract this will be the exception rather than the rule. If the employer is attempting to avoid the employees accruing other employment law rights, then this is unlikely to succeed. If there is no good reason to keep staff on a succession of fixed-term contracts, those staff should be made permanent.
For most practical purposes under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, if an employee has four year's continuous service under a fixed-term contract (or contracts), the contract will be treated as if it were a permanent contract unless the continued use of a fixed-term contract can be objectively justified.
The Regulations state that to be entitled to the permanent contract:
- the employee must have been placed on two or more successive fixed-term contracts and
- to calculate the period of four years continuous employment the time before 10 July 2002 is discounted (see the related FAQ What rights do the fixed-term employees have?
It is also theoretically possible to justify the continued employment of an employee under a fixed-term contract for several years on objective grounds; however, employers should not rely on this exception as it is hard to show objective justification. The employer would have to show a legitimate and genuine business objective and that it was both necessary and appropriate to achieve that objective by continuing the use of fixed-term contracts, which will rarely be the case.
Once the four years' continuous service has gone by, an employer should write to the employee confirming the conversion of the contract into a permanent one. Unless there is an express variation with the employee's consent, the terms of the fixed-term employee's contract will remain the same following conversion into a permanent contract.
Regardless of the provisions of the Regulations, perhaps the most important point is that the expiration and non-renewal of a fixed-term contract is a dismissal. If an employee has at least one year's service (or two years' if their employment starts on or after 6 April 2012), they will have a claim for unfair dismissal if the employer fails to renew the contract without a fair reason and without following a fair procedure. For more information see the related Q&A What procedure should an employer follow when a fixed-term contract is not being renewed to avoid unfair dismissal claims?.
Case law examples
Webley v Department for Work & Pensions,  EWCA Civ 1745, CA. Although it may be unfair dismissal not to renew a fixed-term contract, non-renewal of a fixed-term contract does not also amount to less favourable treatment under the Regulations.
Duncombe and others v Secretary of State for Children Schools and Families  IRLR 331 and  IRLR 498 SC. Fixed-term contracts will automatically convert into a permanent contract after four years unless the employer can objectively justify the continued use of a fixed-term contract. To be able to argue objective justification the employer should record their reasons relating to that justification in writing. In this case a teacher at a European School was employed under a succession of fixed-term contracts and applied to the tribunal for a declaration that he was permanently employed. The Secretary of State argued that European Schools are governed by an EU law which limit the maximum total period of employment in such schools to nine years. It was argued that the existence of this nine-year rule justified the continued use of fixed-term contracts and it was also argued that the employees did not enjoy protection from British unfair dismissal laws anyway.
The Court of Appeal held that the teacher had won and that he was a permanent employee. The continued use of fixed term contracts was not justified. Justification must relate to the specific task or employment. It was also held in the Supreme Court that the employment had an overwhelmingly close connection with British employment law, more than any other system of law, and that there was therefore protection from unfair dismissal. A number of factors led to this conclusion including that the employer was the government of the United Kingdom and the terms and conditions of the employment contracts were clearly governed by English law.
Victoria and Albert Museum v Durrant (unreported, EAT/0381/09/DM 10 May 2010 EAT). Employers must give to any fixed-term employee a very clear written agreement which covers the length of, and termination of, the contract. Fixed term contracts are often used to deal with maternity cover. These contracts must make it very clear that the temporary employment will end when the permanent woman employee returns from maternity leave. The same principle applies where the cover is for additional paternity or other leave. Normally section 106 of the Employment Rights Act 1996 gives the employer a potentially fair reason to dismiss if the employer informs the fixed term employee who is doing the maternity cover that the employment will be terminated on the resumption of work by the employee who was absent because of pregnancy or childbirth. However the Employment Appeal Tribunal held that in this case the Employment Rights Act 1996, Section 106 did not apply to the employee. No clear notice had been given to him at the outset of the fixed-term contract that his employment would terminate on the return of the woman from maternity leave.
Kucuk v Land Nordrhein -Westfalen (unreported, C-586/10 26 January 2012, ECJ). In this German case the European Court of Justice held that it was not a breach of the Fixed-Term Working Directive for an employer to employ a member of staff on a number of fixed-term contracts to provide temporary cover for absent staff (e.g. due to maternity leave). Applying the relevance of this to the UK, an employer could objectively justify keeping the same person employed on an uninterrupted series of contracts for a number of years for maternity and other cover, provided that there is a legitimate and genuine business objective.
Q: What procedure should an employer follow when a fixed-term contract is not being renewed to avoid unfair dismissal claims?
There is no specific procedure that applies when a fixed-term contract is not being renewed. The most important thing that an employer must do in this situation is follow their own dismissal or redundancy procedure as applicable. Some employers will have a specific procedure for the non-renewal of a fixed-term contract.
A fixed-term contract will usually terminate on a specified date, or on the occurrence of a specified event, such as the completion of a task. However, before it elapses, employers must communicate with the employee about the expiry.
Dismissal at the end of a fixed term
Some employers may not remember that non-renewal of a fixed-term contract can constitute a ‘dismissal’ for unfair dismissal purposes. Under the Employment Rights Act 1996, the non-renewal of a fixed-term contract is treated as a dismissal.
It will therefore be necessary for the employer to:
- consider why it is not planning to renew the fixed-term contract;
- assess whether the worker meets the relevant qualifying criteria – for example that they are an employee with one year’s continuous service (or two years’ for employees starting employment on or after 6 April 2012);*
- decide which of the fair reasons for dismissal in the Employment Rights Act 1996 applies (for example, conduct, capability, redundancy or some other substantial reason) – in many cases the reason will be redundancy, as a specific piece of work has come to an end;
- follow fair procedure in selecting and dismissing the fixed-term worker.
*For information on the April 2012 changes to the unfair dismissal qualifying period see the Q&A on the qualifying service period for unfair dismissal in our Unfair dismissal Q&As.
Employees are not usually entitled to the statutory minimum notice under section 86 of the Employment Rights Act 1996, although it would be good practice for employers to provide some notice to the employee (see ‘How can an employee be a fixed-term employee if there is a provision for notice in the contract?’).
The relationship between redundancy and fixed-term contracts is complicated and employers must set aside time to think about this. It maybe tempting simply not to renew the contract without any further process. However this is risky because employees on fixed-term contracts can claim unfair dismissal (often unfair selection for redundancy) when dismissed at the expiry of the fixed term.
By following a careful procedure and considering alternative employment, employers will be able to ensure that any dismissal is ‘fair’ and minimise the risk of an employee claiming unfair dismissal. It is worth emphasising again that many employees on fixed-term contracts are protected by redundancy legislation and, as their post is often being made redundant, a redundancy procedure should be followed. For further information on this see ‘Can fixed-term employees be made redundant and does an employer have to make redundancy payments equivalent to those payable to permanent employees when a fixed-term contract expires?’
The fair steps for employers to take when dealing with the end of fixed-term contracts should include at least the following stages as part of a redundancy or dismissal procedure, although the procedure may be adapted to different circumstances, for example for a shorter fixed-term contract.
- Remind employees A reasonable period before a fixed-term contract is due to end it is advisable to remind the employees in writing of the potential end date. A six-month period may be sensible, depending on the length of the contract.
- Arrange a meeting Well in advance of the end date a meeting should take place with the employee in which they are reminded that the contract is due to end on the given date and the prospect of the contract being renewed or extended is discussed. If the existing contract cannot be renewed or extended, the employee should be warned of this or any alternative positions discussed. The employee should say if they wish to be redeployed if an appropriate position can be found. If there is uncertainty over the future of the work, the employee should be given as much information as possible on the prospects of the contract being renewed or extended. The employee should be warned of the risk of dismissal at the end of the term. This meeting should be followed up by a letter which confirms the risk of dismissal at the end of the fixed term.
- A further reminder before the contract is due to end A further meeting with the employee, say three months before the end of the contract, may be appropriate. The employee should be updated on the situation regarding the possibility of renewal, extension or termination of the contract. It should be explained that if the existing contract cannot be renewed or extended or an alternative position secured, the employee will be dismissed on the given date. Again, this meeting should be followed up by a letter.
- Suitable alternative work Any suitable alternative work should be considered and offered to the employee before the end of the employee’s current employment.
- Dismissal A reasonable time (at least a month) before the scheduled end of a fixed-term contract, a dismissal notice should be sent confirming the expiry of the fixed term and including information on redundancy pay and the right to appeal. There is normally no notice period if employment is expected to end on the date specified in the contract.
- Redundancy payment. Employees on fixed-term contracts which end are entitled to a statutory redundancy payment if they have worked continuously for the employer for the requisite qualifying period of two years. Whenever a redundancy payment is made, the employee must be given a written statement showing how the payment has been calculated.
- Appeal Fixed-term employees have the right to appeal against notice of dismissal on grounds of redundancy. Although this may seem odd, they may have identified another role that they can do or they may disagree that the role is redundant.
It may also be necessary to consult staff representatives on collective redundancies.
Employers can also choose to follow the structure contained in the Acas Code of practice on disciplinary and grievance procedures. Although the Code does not specifically apply to non-renewals of fixed-term contracts (or to redundancy dismissals), following the Acas procedure when a fixed-term contract expires has some benefits. Employers need to be careful; and the prudent employer will continue to follow a procedure which encompasses at least the three main steps applicable under most procedures (that is letter, meeting, appeal) to try to minimise the risk of any claims. In many cases, the employee will be aware that the employment may not be renewed and may waive their right to a formal meeting under the procedure offered by the employer.
If the fixed-term worker is automatically selected, then in addition to a potential claim for unfair dismissal, this could also amount to less favourable treatment contrary to The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034).
Expiry of multiple fixed-term contracts
Some larger employers may have a number of employees on fixed-term contracts. Employees on fixed-term contracts which reach their agreed termination point are excluded from collective redundancy obligations (Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment) Order 2013).
However the early expiry of such contracts before their agreed termination point may potentially attract the collective consultation obligations under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULCRA).
The following points are worth remembering:
- Employees on fixed-term contracts which are coming to an end are now no longer counted towards the total number of employees to be made redundant for the purposes of assessing if the collective consultation legislation applies.
- Fixed-term contracts of under three months are also expressly excluded from the collective consultation provisions.
- Employers have to hold a collective redundancy consultation under section 188 of the TULCRA only if a minimum of 20 employees are made redundant and some fixed-term employees can count towards this threshold.
- Failure to consult on the expiry of those fixed-term contracts can result in protective awards being made.
This area of law is complex and legal advice should be taken.
At the very least, employers should be aware that using fixed-term contracts does not necessarily make their life any easier than using ‘normal ‘open ended contracts which are terminated by notice.
For more information on redundancy and collective consultation and protective awards, see ‘Should employers count employees whose fixed-term contracts are coming to an end for the purposes of collective redundancy consultation?’ and our Redundancy collective consultation Q&As.
Q: What happens if an employer allows a fixed-term contract to expire and the employee continues working past the specified date?
If an employer allows a fixed-term contract to expire and the employee continues working past the specified date, then the law will imply continuation of the arrangement as an open ended contract. This means that the employee’s contract has been extended without a fixed termination date. In the absence of any provision to the contrary, this will be subject to the statutory minimum periods of notice. Pre-existing terms and conditions from the original fixed-term contract will form part of the on-going implied agreement.
If an employee continues working past the expiry of the fixed-term contract, employers should issue a further written agreement which complies with the provisions governing written particulars and confirms the continuation of the employment and that the pre-existing terms are still applicable. (See the FAQ on what should be in the written statement of employment particulars in our Terms and conditions of employment Q&As for more information).
Q: Once a fixed-term contract converts into a permanent contract do the terms and conditions have to be exactly the same?
For most practical purposes, under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, if an employee has four years' continuous service under a fixed-term contract (or contracts), the contract will be treated as if it were a permanent contract. The employees are automatically deemed to be permanent employees unless the continued use of a fixed-term contract can be objectively justified. The original terms and conditions are usually preserved.
The permanent contract will therefore normally follow on from the fixed-term contract: the continuous service will start on the day that work on the fixed-term contract started.
When a fixed-term contract becomes a permanent contract, then at least the notice period provisions will change and the employer must give written details of that change and any other changes. Any other changes will have to be agreed between the employer and employee.
In the UK the automatic conversion means that the same terms and conditions are usually preserved after the conversion. However an EU case has held that when a fixed-term contract is converted into a permanent contract, the terms and conditions do not need to be identical. However, in order to protect the employee, where the nature of the work remains unchanged, the new terms must not be unfavourable. This case appears to have little impact in the UK owing to the automatic conversion referred to above - Huet v Université de Bretagne occidentale (unreported, Case C 251/11 3 March 2012, CJEC).
Q: Are any future developments expected in the area of fixed-term contracts and fixed-term employees?
The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 are not long established law and therefore significant developments may arise from case law, although there have not been many reported cases to date. Some ECJ cases involving the application of similar provisions in other EU member states occasionally provide interesting guidance and form part of imminent future developments.
Possible areas highlighted for reform before the current government came into power related to defences to fixed-term work claims. At present an employer has a defence if they can show that overall the fixed-term employee is no worse off than the comparator permanent employee. However, in equal pay cases a term-by-term approach is used. This discrepancy has been challenged by the TUC and so any increase to fixed-term workers' protection in this way may be revisited sometime in the future.
In a referendum on 23 June 2016 the UK voted to leave the EU. For information on what Brexit will possibly mean for employment law read the blog by our Public Policy Advisor (Employer Relations).
We have also set up a resource hub on our website where relevant resources and details of our ‘Brexit’ activities will be published.
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