Expiry of a fixed term contract counts as dismissal and must be fair
Fixed term contracts (FTCs) have been in the news lately, with business secretary Vince Cable suggesting last month that anyone on a zero hours contract should be given a statutory right to request an FTC from their employer. If this proposal is implemented, it could lead to a big rise in the number of employees on FTCs. For employers, however, these contracts are not without problems, particularly when it comes to deciding whether or not to renew them at the end of the fixed term.
Flexibility
A fixed term contract of employment is one that terminates on a specified date or after a set period of time, on completion of a defined task – or on the occurrence or non-occurrence of any other specific event.
FTCs provide flexibility for both employer and employee. They are often used to cover a permanent employee's sickness or maternity leave or where a particular project needs completing.
Fixed term employees enjoy the same employment rights as other employees, with the additional right not to be treated less favourably than a comparable permanent employee, unless the employer can objectively justify the different treatment. This means that they are entitled to the same pay, bonuses and benefits as comparable employees. In addition, employees who have been continuously employed for four years or more on successive FTCs are automatically deemed to be permanent employees, unless the continued use of a FTC can be objectively justified.
Non-renewal
The expiry of an FTC is a dismissal for the purposes of unfair dismissal and statutory redundancy pay. For the dismissal to be fair (for employees with at least two years’ service), it must be for a potentially fair reason and fair in all the circumstances of the case.
One potentially fair reason for the non-renewal of an FTC could be redundancy. However, employers would still have to consider any suitable alternative employment, as well as identifying the pool of employees from which those to be made redundant will be selected. Selecting fixed term employees for redundancy because they are fixed term is highly likely to be unlawful.
The alternative, potentially fair “catch all” of "some other substantial reason" may be relevant where the fixed term employee is covering a permanent post, which may be vacant because the permanent job holder is on maternity leave or long term sickness. However, the fixed term employee has to be aware at the outset that their employment will terminate on the permanent employee’s return.
The ACAS Code of Practice on Disciplinary and Grievance Procedures does not to apply to the non-renewal of FTCs unless conduct or performance reasons impact on the decision not to renew, in which case the code should be followed. In addition, where an employee raises a grievance relating to a proposed non-renewal, the employer should follow the code in respect of that grievance.
Although employers may expect the FTC to terminate automatically at the end of the term without the need for notice, this is not always the case. Some FTCs contain an express notice clause, or notice may be implied by workplace custom and practice if it has always been given in advance of the expiry of an FTC. Even where no notice period has been agreed, statutory minimum notice may be required.
Practical steps
To avoid problems:
- make sure that systems are in place to alert you to the dates any FTCs are due to expire and any notice obligations;
- manage expectations by discussing the expiry of the FTC informally with the employee in advance;
- write to the employee to confirm the date on which the FTC is due to expire, explaining the reason for expiry and giving details of any permanent vacancies you may have;
- meet with the employee before the FTC expires to discuss the situation in more detail;
- follow the meeting with a letter confirming the date of expiry or setting out any alternative decision reached, and offering the employee the right to appeal.
- if necessary, hold an appeal hearing and confirm your decision in writing to the employee.
Helen Burgess is an employment partner at Shoosmiths LLP
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