Ending a fixed term contract is still a dismissal

Ending a fixed term contract is still a dismissal

November 12, 2023

I was reading about a Finance Director today who had decided they would offer a retainer to someone ending their fixed term contract. The feeling of the FD was that if you pay someone for 6 hours a week you can avoid holiday pay. You can’t. This would be a classic situation where the FD would use a fixed term contract.

Fixed Term Contracts are a useful addition to many employer’s contract collection. We often find they are desirable in the following situations:

  • Project-Based Work: When a company undertakes a specific project with a clear end date, they might hire individuals on fixed-term contracts. This is common in industries like construction, IT, and research, where projects have a defined timeframe.
  • Cover for Permanent Staff: Fixed-term contracts are often used to cover for permanent staff who are on leave, such as maternity or long-term sick leave. This ensures that the role is filled during the absence, but the contract naturally ends when the permanent employee returns.
  • Seasonal Work: Certain industries, like tourism, agriculture, and retail, have peak periods where additional staff is needed. Fixed-term contracts are ideal for hiring seasonal workers to cope with increased demand.
  • Probationary Periods: Sometimes, employers use fixed-term contracts as an extended probationary period to assess a new employee’s suitability for a permanent role.
  • Funding-Dependent Positions: In sectors like academia, research, and non-profit organizations, positions are often dependent on external funding, such as grants or donations. Fixed-term contracts are used here as the employment is contingent on the availability of these funds.
  • Training or Internship Programs: Employers might use fixed-term contracts for trainees or interns, where there is an understanding that the employment is for a specific period of training or work experience.
  • Regulatory or Legal Requirements: Certain roles, particularly in the public sector or government, might be governed by regulations that stipulate fixed-term employment, often linked to specific initiatives or programs.
  • Trial Projects or New Ventures: If an employer is trying out a new business line or project, they might opt for fixed-term contracts initially to mitigate risk

What’s the risk of Fixed term contracts?

Renewing or ending a fixed-term contract

Fixed-term contracts offer flexibility for both employers and employees. However, employers must be aware of the legal implications, including rights of fixed-term employees under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, which prevent less favorable treatment of fixed-term employees compared to permanent employees. When a fixed term contract comes to an end and isn’t renewed, its a dismissal.

Ending a fixed-term contract on the date it was agreed it would end

Fixed-term contracts will normally end automatically when they reach the agreed end date. The employer doesn’t have to give any notice.

If a contract isn’t renewed

This is considered to be a dismissal, and if the employee has 2 years’ service the employer needs to show that there’s a ‘fair’ reason for not renewing the contract (eg, if they were planning to stop doing the work the contract was for).

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 year’s service

They may be entitled to statutory redundancy payments after 2 years’ service if the reason for non-renewal is redundancy.

If the employer wants to end the contract earlier

What happens depends on the terms of the contract. If it says:

  • nothing about being ended early, the employer may be in breach of contract
  • it can be ended early, and the employer has given proper notice, the contract can be ended

Minimum notice period

Fixed-term employees have the right to a minimum notice period of:

  • 1 week if they’ve worked continuously for at least 1 month
  • 1 week for each year they’ve worked, if they’ve worked continuously for 2 years or more

These are the minimum periods. The contract may specify a longer notice period.

If an employer ends a contract without giving the proper notice, the employee may be able to claim breach of contract.

Working longer than the contract’s end date

If an employee continues working past the end of a contract without it being formally renewed, there’s an ‘implied agreement’ by the employer that the end date has changed.

The employer still needs to give proper notice if they want to dismiss the worker.

If we can be of any assistance with any aspect of HR and employment law you can book a Discovery Call here.

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