Fixed Term Employees
Article written by Louise Rogers.
I am often asked by employers and HR advisers to either prepare, or advise on, fixed term employment contracts.
There are many reasons why a fixed term contract can be more suitable than a permanent one.
Examples include maternity cover; for the duration of a project; or where the work is of a seasonal nature.
I have set out below the law concerning fixed term contracts; an important recent case; and some practical tips for employers dealing with the dismissal of fixed term employees.
What is a fixed term contract?
There are five types:
1) Pure fixed term contracts – these expire automatically at the end of the fixed term without the need for notice.
2) A fixed term contract which allows for early termination on notice before the expiry of the fixed term. If notice for early termination is not given, the contract will expire automatically at the end of the fixed term.
3) A fixed term contract where notice must be given prior to the expiry date in order for the fixed term to come to an end.
4) A contract for an initial fixed term, during which time notice cannot be served. This then becomes a contract for an open-ended term after the initial fixed term has expired.
5) Evergreen contracts – these renew automatically for another fixed term unless one of the parties gives notice of termination by a particular date.
Only (1) and (2) are fixed-term contracts within the meaning of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (“the Regulations”).
What are the Regulations designed to prevent?
Under the Regulations a fixed-term employee has the right not to be treated less favourably than a comparable permanent employee by reason of this or her fixed-term status, unless the employer is able to objectively justify the different treatment.
The Regulations exclude certain categories of employment including apprentices and the armed forces.
This is a similar protection afforded to part time workers in comparison to those who are full time.
Can successive fixed term contracts become a permanent contract?
Yes: employees who have been continuously employed for four years or more on a series of fixed-term contracts are automatically classed as permanent employees unless the continued use of a fixed-term contract can be objectively justified.
This includes cases where a different contract has been entered into after the expiry of the original contract or where the original contract has been renewed or extended. It does not include a situation where there has only been one fixed-term contract (of any duration) which has not been renewed or extended.
Does a gap between fixed term contracts break continuity of employment?
No, not necessarily. A gap also does not prevent there being a renewal of the contract.
What claims can fixed term employees bring?
In addition to the specific claims of less favourable treatment and automatic unfair dismissal under the Regulations, fixed term employees have the same rights as other employees. This includes the rights not to be unfairly dismissed; wrongfully dismissed; or dismissed for a discriminatory reason.
In the case of unfair dismissal, the Employment Tribunal will consider whether the employer had a potentially fair reason for dismissal, if they had followed a fair procedure and whether they had acted within the range of reasonable responses in treating that reason as a sufficient reason for dismissal.
If an employer decides not to renew an employee’s fixed term contract (whether on the same terms, or at all), this will technically amount to a dismissal. For a dismissal to be fair (on the basis that the employee has the required two years’ service to qualify for unfair dismissal rights), it must be for one of the potentially fair reasons set out at section 98 of the Employment Rights Act 1996 (“ERA 1996”).
d) Contravention of a statutory obligation; or
e) Some other substantial reason.
Usually where a fixed term contract is concerned, redundancy or for some other substantial reason tends to be the reason relied upon by an employer.
The case of Royal Surrey County NHS Foundation Trust v Drzymala deals with the fairness of a decision not to renew a fixed term contract.
The facts of the case involved a locum consultant doctor who had been employed on a series of fixed-term contracts.
Before her current contract was due to expire a permanent vacancy arose. She was interviewed for that vacancy, together with another individual, but was unsuccessful. As a result she was given notice that her fixed term contract would not be extended.
In dismissing her, her employer failed to inform her of her right of appeal or to consider her for any alternative employment.
The employee submitted a grievance and was allowed to appeal. The appeal panel concluded that, had she been allowed to appeal earlier, it would not have made any difference to the outcome to dismiss her.
The Employment Tribunal decided that she had been unfairly dismissed.
This unfair dismissal decision was appealed by the employer. In doing so, the employer tried to argue that it had complied with the non-discrimination regime in the Regulations and therefore the finding of unfair dismissal was wrong.
The Employment Appeal Tribunal (“EAT”) rejected that appeal. It reiterated that the law on unfair dismissal applies to dismissals which arise from the non-renewal of a fixed-term contract. The question of whether a dismissal is fair depends in the normal way on the facts of the case and the application of the fairness test under section 98 of the ERA 1996.
In the circumstances, the Tribunal’s finding of unfair dismissal was upheld.
The EAT agreed that the employee had been poorly treated by the employer when it failed to provide her with a timely right of appeal or consider her for alternative positions.
What practical steps should employers take to ensure a fair dismissal of a fixed term employee?
1) Ensure that they are aware of the dates on which any fixed-term contracts are due to expire and their notice obligations under those contracts;
2) Discuss the expiry of the contract informally with the employee in advance of the expiry date to manage their expectations;
3) Follow a fair procedure to include inviting the employee to a meeting to discuss the expiry of the contract. Explain the reason that a fixed-term contract has been used and the reason for the expiry of the contract e.g. which fair reason for dismissal they seek to rely on. A fair procedure may include, for best practice, following the ACAS Code of Practice on Disciplinary and Grievance Procedures. Where redundancy is concerned, this should include looking for suitable alternative employment for the employee; and
4) After the meeting the employee should be informed in writing of the outcome which will either to be told the date the contract expires or notified of any other decision and offered the right to appeal within a certain timescale.
5) If an employer has any doubts, queries or concerns regarding the dismissal of a fixed term employee they should seek expert legal advice.
Should you require any advice or assistance regarding this article or any other aspect of employment law please contact Louise Rogers at email@example.com or by telephone 020 7408 8888.