Fixed Term Contracts (also known as FTCs) are used widely throughout a variety of industries. They’re one of a number of types of contract employers can use to bring in new staff when the need arises. However, fixed term contracts are not as simple as they first may seem. Consequently, employers need to be sure that they fully understand the complexities and the potential issues they’re exposing themselves to. Here, we take a look at the ins and outs of fixed term contracts, and explore everything you need to know about the subject.
What is a Fixed Term Contract?
Any conversation on the topic of fixed term contracts should begin with a comprehensive definition. So what exactly is a fixed term contract, and how does it differ from other types of contract?
Essentially, a fixed term employment includes any work contract between a business and a member of staff that stipulates the job will last for a specified period of time, or until a particular task or action is completed. For instance, a fixed term employee’s contract may end when a member of staff returns from maternity leave. It could also come to an end when the project they’re working on is concluded, or when a busy period of business comes to an end.
What Kind of Workers Typically Receive Fixed Term Contracts?
Employees are likely to be on a fixed term contract if they’re;
- a seasonal worker who is brought in for a busy period.
- covering for someone on maternity leave.
- covering for someone who has had to take a prolonged period of time away from work.
- a specialist who has been brought in to work on a specific project.
However, there are a number of instances in which employees could meet this criteria and still not be classified as a fixed term employee. For example, they will not be considered a fixed term employee if they’re;
- contracted through an agency.
- on work experience.
- on an internship.
- a member of the armed forces.
How Long Can A Fixed Term Contract Be?
There is no maximum duration for an employee’s first fixed term contract. However, if the employment is renewed at the end of the initial fixed term contract, things are considerably different. In such a case, employees have the right to become a permanent employee after four consecutive years of FTCs with a business. This means that any individual who has had two or more FTCs with a single business switches to a permanent contract at the end of 4 years.
However, there is one major exception to this rule:
If an employer and the workplace union (or relevant staff association) come to a collective agreement, they can scrap or alter the four year limit on consecutive fixed term contracts. Otherwise, it is necessary for the employer to recognise the individual as a permanent employee and for them to be given a permanent contract.
How Do Fixed Term Contracts Become Permanent?
Besides working for a business for four or more years, and having had at least two fixed term contracts during this time, the only other way of becoming a permanent employee is by being offered a permanent position by management. This might occur if an absent employee decides not return from a temporary break, or if a fixed term employee excels in their role or demonstrates a particular aptitude for the work.
Fixed Term Contracts and Contract Extension
If a fixed term contract is coming to an end, but the business would like to retain the employee for a little longer, it is possible to offer an extension. Though this can be discussed face-to-face, it’s usually committed to paper for formal record too. Typically, this takes the form of letter, in which the employer will detail how long the contract will be extended for, an end date, and the reason for the contract extension. The only exception to this rule is the four year rule mentioned above.
What Rights Do Fixed Term Contract Employees Have?
When it comes to the rights of an employee on an fixed term contract, there’s one incredibly important rule to remember:
Employers must not treat an employee on an FTC any less favourably than they do an employee on a permanent contract that’s doing the same, or a similar, job.
Essentially, this means that employees on an FTC are afforded exactly the same rights and privileges as any other employee. They must be on at least the same wage as a permanent employee doing the same job. They must also receive the same benefits, work in the same conditions, and be informed of permanent vacancies within the business. It’s important to note that these standards are the employer’s own, and not those of an associated organisation or a competitor.
Objective Justification – The Only Exception
Again, there is one important exception to the above rule:
This exception is known as objective justification. Objective justification refers to a business’ ability to demonstrate that there is good business reason for treating a fixed term employee less favourably than a permanent employee. For instance, permanent employees might be provided with a company car. An employer may choose not to provide an employee doing the same, or similar, job on a two month FTC with a company car because the costs are prohibitively high. In this case, they would be allowed to do so as they have objective justification.
Other Changes to the Rights of Fixed Term Contract Employees
As we’ve already detailed, there are changes to a worker’s employment status, and consequently their workplace rights, after four years of continuous fixed term contracts. However, a fixed term employee’s rights also change after two years of continuous contracts with a business. After a two year period, employees on FTCs are granted the same redundancy rights as a permanent employee. These can include redundancy pay, a longer notice period, the opportunity to move into a new job, and time off to find a new job. It also means that those being made redundant have to be selected fairly (eg. on the basis of ability or experience) and that they cannot be selected on the basis of age, race, gender, pregnancy, or a disability.
Concluding Fixed Term Contracts
If a fixed term employee has accrued over two years of continuous work at a business and the contract comes to an end, this counts as a dismissal. In such a case, the employer has to demonstrate that there is a just reason for not renewing the contract. They must also provide the employee with a letter detailing the reasons for not renewing the contract and ensure that the worker was not unfairly dismissed.
If an employer wants to terminate a fixed term contract before the agreed upon end date, the process is largely determined by the specific terms of the contract. If the original contract dictates that the employer can terminate the employment before the designated end date, then they are not in breach of contract. However, if there is no mention of early termination in the original contract, the employer may well be in breach of contract.
Fixed Term Contracts and Notice Periods
If a fixed term contract comes to its natural end on the given date (or upon the agreed upon action or task being completed), an employer is required to give no notice period. This is because the notice is effectively written into the contract. However, if the FTC is to be terminated before the given end date, different rules apply. After one month of continuous work, a fixed term employee has the right to one week’s notice. Having worked continuously for two years or more, a fixed term employee has earned the right to one week’s notice for each year they’ve worked. As an example – if they’ve worked continuously for three years, they must be given three weeks notice or any contractual period of notice, if longer.
Fixed Term Contracts and Redundancy
Not all dismissals are classified as redundancies. However, as a general rule, if a business is not going to replace the dismissed employee, the dismissal will be defined as redundancy. If the fixed term employee has at least two years of continuous service, they will be entitled to statutory redundancy pay. If permanent employees in the same, or a similar, job are entitled to an enhanced redundancy package, the fixed term employee may also be able to claim the enhanced package. This is due to the fact that fixed term employees must be treated no less favourably than permanent staff. If the employee has held contracts for less than two years, the fixed-term employee will not have the requisite level of service to be entitled to redundancy payment.
Fixed Term Contracts and Maternity Leave
As mentioned previously, it is unlawful to treat fixed term employees less favourably than a permanent employee. This same rule applies to those persons taking maternity leave. As with employees on a permanent contract, any fixed term employee that has worked for a business for at least 26 weeks when the baby is 15 weeks away from being born, is entitled to statutory maternity pay and leave.
If an FTC comes to an end or is terminated because of an employee’s pregnancy, their taking leave, or their statutory maternity pay, the dismissal is unfair and unlawful. If an employee has two years of continuous contracts with an employer, their contract is not renewed, and the business is not likely to replace the employee, they are redundant. In such a case, a fixed term employee on maternity leave must be offered a suitable vacancy in the business if one exists.
Benefits of Fixed Term Contracts to an Employer
Fixed term contracts can be of enormous benefit to employers in a number of ways:
The principal benefits of a fixed term contract to employers revolve around acquiring specialist skill sets and covering short periods in which staffing may fall below optimal levels. For instance, FTCs are of particular use when;
- it’s necessary to bring in highly skilled or specialised workers for a specific project or product. The employee is able to offer their talents for the necessary period and the contract can come to an end when the business no longer requires them.
- a business needs to temporarily replace an employee that’s on sick leave or is taking maternity leave.
- a business wants to trial an employee before taking them on as a permanent worker.
Disadvantages of Fixed Term Contracts to an Employer
Alongside these benefits, there are a number of drawbacks too:
- Fixed term contracts can occasionally dissuade talented and well-suited individuals from applying for a job. Compared to permanent contracts, FTCs offer far less long term job security – a factor many highly skilled workers desire and demand.
- It’s also important to consider the hidden costs associated with high staff turnover. FTCs, by nature, are short. This means persistent use of FTCs will see employees coming and going on a regular basis, all of whom will need to be inducted into the business and given some training.
- New employees can also be expected to work at a slower pace than more experienced workers during their first weeks of employment.
All of these factors can affect productivity and make fixed term contracts an expensive way to do business.
The Benefits of a Fixed Term Contract to Employees
For some workers, a permanent contract will always be considered better than a fixed term contract. However, in some instances, an FTC offers an individual the opportunity to;
- acquire specific skills.
- develop their understanding of a particular role.
- gain more experience.
- use the FTC as a springboard to a permanent position within a company.
The Disadvantages of a Fixed Term Contract to Employees
On the other hand, fixed term contracts don’t offer the same job security and stability as a permanent contract. By definition, they’re bound to end after a relatively brief period of time. For many people, this is the single biggest drawback of FTCs and can be enough to put many potential employees off applying.
Employees on fixed term contracts are often thought to have fewer rights and protections than their co-workers on permanent contracts. However, this is not the case. Used in the right way, FTCs are an excellent means of resolving staffing issues in a number of situations. They offer flexibility, allow employers to bring in staff with highly specialised skill sets for a brief period of time, and ensure that businesses are fully staffed throughout the year. However, FTCs also provide workers with a number of safeguards that prevent their temporary status from being abused. For employers, it’s vitally important that they a have a thorough understanding of such contracts before they begin to use them.