Fixed-term contracts: Friend or foe?
Samantha Murray-Hinde, Moorhead James LLP
Fixed term contracts are contracts which expire at the end of a fixed term, on completion of a
specific task or on the occurrence of a specific event.
They are popular with sports
organisations, where there is a dependency on external funding which may not be renewed
after a fixed period. As the majority of sports organisations operate on four year funding
cycles, they look for their contracts to reflect this.
Fixed-term contracts are viewed as
offering certainty and flexibility, but there are dangers to their use which are often
overlooked. Are they as employer-friendly as one might think?
Rights of fixed-term employees

In addition to rights under the Employment Rights Act 1996, fixed-term employees
have protection under the Fixed-Term Employees (Prevention of Less Favourable
Treatment) Regulations 2002.
This means that they cannot be treated less
favourably than comparable permanent employees (e.g. someone doing the same or
a similar role) as regards the terms of their contract or by being subjected to any
other detriment (e.g. dismissal, bullying, lack of promotion opportunities and selection
for redundancy) by reason of their fixed-term status, unless the employer can
objectively justify the different treatment. To objectively justify such treatment, the
employer will need to show that the treatment:
o
Is to achieve a legitimate aim;
o
Is necessary to achieve that aim; and
o
Is an appropriate way to achieve that aim.
This means that there needs to be a good business reason for the less favourable
treatment and the employer will need to show that it has acted proportionately. Cost
reasons alone are unlikely to be sufficient.
Fixed-term employees are therefore entitled to pro rated benefits that are afforded to
comparable permanent employees, unless the employer can establish that it is not
reasonable in all the circumstances and/or that it is inappropriate to use the pro rata
principle.

Employers should be careful if using successive fixed-term contracts. Employees
who have been continuously employed for four years or more on a series of
successive fixed-term contracts are automatically deemed to be permanent
employees (that is, employed on an indefinite contract) unless the continued use of
such contacts can be objectively justified. This includes cases where the original
contract has been renewed or extended, or where another contract has been entered
into on expiry of the original. It does not include cases where there has only been
one fixed-term contract, of whatever duration, that has not been renewed or
extended. If an employee achieves permanent status, you must send them a written
statement of variation in relation to their terms of employment.

An employee who is dismissed before the expiry of a fixed-term contract may have a
claim for wrongful dismissal unless there is provision in the contract for earlier
termination on notice and the employer has complied with this, or unless the
employer has grounds on which to dismiss without notice.

The expiry / non-renewal of a fixed-term contract amounts to a dismissal for unfair
dismissal and redundancy purposes.
For a dismissal to be fair (assuming the
employee has sufficient service), it must be for a potentially fair reason - capability,
conduct, redundancy, contravention of a statutory obligation or some other
substantial reason. The usual ‘band of reasonable responses’ test will apply as to
whether it was fair to dismiss for that reason.
Points to Consider

Before entering into or renewing a fixed-term contract, consider whether there are
objective grounds for its use and record these grounds.

If the contract has already been renewed and the employee has attained four years’
continuous service (or will do so before the expiry date), consider whether there were
objective grounds at the time renewal took place and record these grounds.

Make sure that the fixed-term contract includes a break clause so that it can be
brought to an end sooner than its expiry date, if need be. In terms of the fixed-term
period, ensure that provision is included for the contract to terminate ‘without the
need for notice’ on the expiry date. That way, the employer is protected in the event
it forgets to serve notice.

Keep track of a fixed-term employee’s length of service in terms of unfair dismissal
and redundancy rights and the expiry date of the contract.

If a fixed-term contract is not going to be renewed, establish in good time the
potentially fair reason that will be relied on. Ensure that a fair procedure is followed
and, if notice is required, that this is given in good time and/or it is paid in lieu.

Audit contract terms and benefits offered to fixed-term employees, looking for
differences to those offered to permanent staff and make any necessary changes or
consider whether the differences can be objectively justified and record these
grounds.

Ensure that fixed-term employees have access to adverts for permanent vacancies.
The use of fixed-term contracts can be beneficial, particularly to smaller organisations where
funding is an issue, but organisations should be careful to ensure that they are properly
drafted and audited.