Fixed-term and temporary contracts: the benefits and the drawbacks

There can often be confusion as to when fixed-term or temporary contracts can or should be used, and the differences between them. This article will hopefully provide clarity around this difficult area.

What are Fixed-term Contracts?

There are different types of fixed-term contacts, not all of which fall under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (“Regulations”). The Regulations define a fixed-term contract as a contract that, under its provisions dealing with termination, will terminate: on the expiry of a fixed term; on the completion of a particular task; or on the occurrence or non-occurrence of a specific event.

Examples would include: a contract that ends on a specific date; a contract covering a permanent employee's sickness or maternity leave for a set period of time; a contract linked to a specific funding stream, where the contract will terminate on the expiry of the funding; contract due to expire on the completion of a particular project; or a short-term seasonal contract for a set period.

What are Temporary contracts?

In contrast, a temporary contract is more likely to be used where an employee is required for a short period, but the exact period or end date is unknown. This can be, for example, to cover short periods of increased workload. The key difference is likely to be that a temporary contract will not have a fixed end date, but its termination provisions will allow for termination on notice. In this case, temporary contracts can be seen as slightly more flexible, as there is no set time period and the contract can be terminated on notice. This could cover casual and agency workers as well as staff engaged on a temporary basis.

How and why should Fixed Term Contracts be used?

Fixed-term contracts are often used by employers to provide certainty but with more flexibility than a permanent post. A fixed-term contract should only be used where there is a genuine need for the particular employee to be employed on a short term basis for a defined period.

Simply because an employee is on a Fixed-term Contract, does not mean they have fewer employment rights. They are still protected from unfair dismissal (provided they meet the qualifying period) and the Regulations mean they cannot be subject to unfair treatment, for example being excluded from contractual benefits and facilities offered to permanent staff. Fixed term employees enjoy the same statutory and common-law rights as other employees, including the right not to be unfairly dismissed, wrongfully dismissed, or dismissed for a discriminatory reason.

How to end a Fixed-term Contract

It is the provision for termination within the contract that will determine whether the contract is interpreted as fixed-term. It is therefore advisable to include within a fixed-term contract a provision for termination without the need for further notice on a particular date, but that the contract may be terminated earlier with notice.

The same statutory rights apply to fixed-term employees as to permanent employees. This means an employee dismissed before the end of their fixed term may have a claim for wrongful dismissal or unfair dismissal, unless there is provision for early termination. In addition, an employee whose fixed-term contract is not renewed or extended after expiry has the same employment protection as a permanent employee who has been dismissed. It is important to carefully handle expiry of any fixed-term contract and treat this as any other dismissal situation.

Pregnancy and Maternity and Fixed-Term Contracts

Issues may arise where an employee on a fixed-term contract is on maternity leave and the contractual term expires during this maternity leave period. The contract will continue during maternity leave only until the fixed-term expires. If you decide to renew the contract on expiry beyond the period of maternity leave then the employee will be entitled to resume her role.

However, if the contract is not renewed, the expiry and non-renewal will amount to dismissal as outlined above and there could be the potential for a claim if it cannot be shown that the reason for dismissal was not related to her pregnancy/maternity. The law provides additional protection to women on maternity leave, for example the right to return to work and to be offered any suitable alternative employment on return from maternity leave.

Less favourable treatment issues

The general rule here is that fixed-term employees have the right to be treated the same as any permanent employees.
It is likely to be unlawful to select a fixed-term employee for redundancy simply because they are employed on a fixed-term basis. This is unless it can be objectively justified, for example where employees are employed for a particular task and this task is now complete. It could also be justifiable to select on the basis of length of service, provided that the same criteria is applied to any permanent staff equally in the redundancy pool.

Fixed-term employees should be offered access to occupational pension schemes as any permanent staff would be. They also have the right to be made aware of any permanent vacancies and any particular service qualifications for conditions of employment, such as pay scales, must be the same as for permanent employees.

Successive Fixed-term Contracts and permanency

Employers should be aware that employees who have been continuously employed for 4 years or more under successive fixed-term contracts are automatically deemed to be permanent employees at the date of their 4 years’ service being reached, unless continued fixed-term contracts can be objectively justified. This includes where the original contract has been extended or where a new contract has been entered on expiry, but crucially does not apply to a situation where an employee is subject to a 4 year fixed-term contract. However, if that 4 year contract were to be renewed then at that point, the 4 year rule would apply. The usual rules on continuity of employment also apply.

It is therefore vital to keep this in mind where renewing fixed-term employees, and consider whether there is justification to continue on a fixed-term contract as opposed to engaging on a permanent basis. Each case should be assessed individually.

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