Fixed-term employment contracts: Best of both worlds?

When it comes to choosing on which basis to employ your candidates, there is no ‘right answer’. From an employee’s perspective, fixed-term contracts are not as attractive as permanent contracts and for that reason, they can make the recruitment process more challenging. However, if you use them correctly, they can be an effective tool for matching staffing levels with the needs of your business (i.e. if you want to cover a maternity leave or if you are dealing with a specific project). In this blog post, our expert employment lawyer Ashley Gurr will give you an overview of fixed-term employment contracts (‘FTC’) which will help you understand if and when you should consider them as an option.

As the name suggests fixed-term employment contracts are a form of contract awarded to an employee for a specific, defined duration of time.

A fixed term employment contract is much the same in terms of actual content as a permanent contract in that (since it is an employment contract), it should, as a minimum cover off all of the aspects laid down in section 1 of the Employment Rights Act 1996, which includes (amongst other things) the following details:

As with Permanent contracts, these contracts can also include additional clauses such as car allowances, bonuses, commission payments and post-termination restrictive covenants, etc. As a general rule, such additional clauses tend to be not as commonly used in FTCs as they are in permanent contracts.

One benefit is that, if you are an employer, it is a perfect contract type to utilise when you know in advance with a degree of certainty how long that member of staff will be required.  This means that there is no feeling of disappointment when the time comes to part ways. However, if both parties are happy with things at the end of the contract, and want to continue working together, then of course a new FTC can be awarded, or even a permanent contract offered. The cons from the employer’s point of view, is that an FTC may mean that the employee never feels like a ‘fully-fledged’ member of staff, which may disrupt individual and/or team performance, particularly when the contract is drawing to a close and the employee may be seeking other opportunities in this knowledge. The benefits for the employee are that an FTC (although of fixed duration) still allows them to benefit from most employment rights, including holidays etc. Also, for those people that may not wish to take on a full permanent role, FTCs may provide a perfect halfway-house, or may be useful in filling gaps between other permanent roles. The downside for the employee is, of course, that such a contract does not provide the security and ongoing certainty of employment and income that a permanent contract does.

If you are an employer it is important that you are aware that non-renewal of a fixed-term contract is still treated as a ‘dismissal’ for the purposes of the Employment Rights Act 1996. This means that if an employee has been employed for two years or more on such a basis, they would still qualify for an Unfair Dismissal claim. Therefore such contracts are not necessarily much less burdensome from an employer’s perspective than a permanent contract.

Fixed-term contracts tend to be most suitable when it is more convenient for both parties to have a shorter-term, time-limited or project-specific working relationship.

Fixed-term employment contracts are best suited when an employer is looking to fill a role for a project of fixed duration or when there is some other good reason for fixing the term of employment.  They also can work very well for appointments that require an element of work-based training or study for a specified period of time. For example, most Trainee Solicitors undertake a mandatory two-year fixed-term contract, commonly known as a ‘Training Contract’, to qualify as a solicitor. There will of course be equally applicable examples in other industries too. As long as you are, as an employer, aware that many of the employment rights remain the same as for a permanent contract, including protection against Unfair Dismissals, FTCs can be a great option for your business’ needs.   

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The author of this article is LawBrief Ashley Gurr. Ashley Gurr is an experienced Solicitor who has represented SME clients for many years in the fields of Employment Law, Commercial Property and General Commercial.   

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