Fixed-term contracts – what you need to know

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The use of fixed-term contracts can give clarity and certainty to employers and employees alike – but for employers, they must ensure they are meeting their legal requirements towards those working for fixed-term periods.

Cecily Lalloo, managing director of Embrace HR, independent HR specialists in private care sector support, discusses the key points of which employers must be aware.

Fixed-term contracts can be a useful way for employers to cover positions for a defined period of time, giving assurance that there is enough resource for particularly busy periods or certain projects, while also affording flexibility.

For employees too, being contracted to work for a fixed period can give clarity around the nature and duration of their role, and what is expected of them during that time.

In such a fast-changing sector as healthcare, where resources may suddenly be particularly under pressure, the option of a fixed-term contract can be an effective tool to bring in people for a defined period.

For example, to cover an absence on maternity leave or a long-term sickness absence.

There are four main types of fixed-term contract:

*Pure fixed-term contracts – these expire automatically, at the end of the term, without the need for notice.

These are quite inflexible as there is no option to terminate the contract early

*Contracts with a notice clause providing for early termination – if notice is not given, the contract will expire automatically at the end of the term

* Contracts stated to be for an initial term, during which notice may not be served – the contract terminates on notice after the initial fixed term has expired

* Evergreen contracts – these renew automatically for another fixed term, unless one of the parties gives notice of termination.

Fixed-term employees are protected by legislation through the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002.

This states that employees on fixed-term contracts are treated no less favourably than permanent employees – so in terms of aspects like pensions or defined benefits, they are comparable.

During their period of employment, employers should review the contractual terms and benefits offered to fixed-term employees and look for any differences from those offered to permanent staff.

Longevity also counts in an employee’s favour, particularly at the point at which a contract expires, which is regarded as a dismissal. Throughout their period of employment, they are entitled to be informed of any permanent roles.

Fixed-term workers will have unfair dismissal rights after being employed for two years, and for those who have been continuously employed for four years or more on a series of successive fixed-term contracts, they will legally – and unless there is justification for the use of consecutive temporary contracts – be treated as a permanent employee.

But in the case of unfair dismissal, fixed-term employees are awarded greater protection, and there are circumstances in which they will be deemed to have been automatically unfairly dismissed.

There is no requirement to have two years of service to bring this claim.

For a dismissal to be fair, it must be for one of the potentially fair reasons set out in legislation, which are:

  • Capability
  • Conduct
  • Redundancy
  • Contravention of a statutory obligation
  • Some other substantial reason.

In this situation, employers will need to establish which reason they seek to rely on, and follow a fair procedure.

Each case will be based on the circumstances at the time.

The use of fixed-term contracts can be beneficial for both sides – but employers must ensure they are adhering to the legal rights afforded to fixed-term employees, and the fact these may increase after two and four years.

For advice or guidance in this area, please contact Embrace HR via