Frequently Asked Questions About Fixed-Term Contracts

Updated 8 August 2023

Most employers require employees to complete certain tasks within a particular time frame. Fixed-term contracts outline the terms of employment, rights and responsibilities of both the employer and employee. If you're considering taking employment with a fixed-term contract, it's important to understand the different types of fixed-term contract and how they work. In this article, we explore the meaning of this contract and also answer many frequently asked questions about fixed-term contracts, such as your rights as an employee and remedies for an infringement on these rights.

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What are fixed-term contracts?

Fixed-term contracts are employment agreements between an employer and an employee for the completion of a specific project within an agreed time frame. Unlike other types of employment contracts, the fixed-term contract ends at the expiration of the stipulated duration or upon the completion of the task unless both parties agree to renew the contract. Employees who are casual or seasonal staff members of an organisation, like childminders, delivery drivers and waiters, usually receive a fixed-term contract. Specialist employees for a project or employees covering for maternity leave are often fixed-term employees.

When can I use a fixed-term contract?

There are different types of employment contracts, and the circumstances of each employment determine the appropriate contract to use. Below are different situations where a fixed-term contract may be beneficial:

  • to complete a specific project

  • where the employee is covering for another employee on a long term sickness leave

  • to cover someone on family-related leave like adoption or maternity leave

  • where there funding has been provided for the execution of the project

  • to meet the demands of short-term businesses

What are the rights of an employee under a fixed-term contract?

By law, employers treat employees under a fixed-term contract the same way they treat other employees on a permanent contract. This means that fixed-term employees receive equal treatment to other employees doing the same job and are have unfair dismissal and redundancy rights. As a fixed-term employee, employers also inform you about future permanent positions in the organisation. You receive the same or equivalent packages, pays, benefits and conditions as other permanent employees.

You also have access to an occupational pension scheme unless the fixed-term contract is for a period of fewer than two years. The only exception is where there is objective justification which means that an employee can show good reason for not doing so. For instance, an employer may choose not to offer a fixed-term employee who is on a six months contract a company car if it's considered too expensive for the business. This is irrespective of the fact that another permanent employee doing the same job already has a company car.

Related: What Is Voluntary Redundancy?

Can an employee leave a fixed-term contract?

Just like any other employment contract, a fixed-term employee can quit the contract early, but this is subject to the agreed terms of the contract. For instance, a one-year fixed-term contract may stipulate that termination may occur any time after three months on a two weeks' notice. Where the contract provides a minimum notice period, it's essential to only leave in compliance with the notice time frame. Failure to do so is a breach of contract and you can be found liable.

Related: What Is a Notice Period?

Can a fixed-term contract become permanent?

Where the employer continues to work with an employee beyond the agreed end date of the contract, this is an open-ended contract or an implied agreement to extend the contract. The employer still gives the employee proper notice if they want to dismiss the employee. A fixed-term contract can also become permanent if the employee continues working for the employer for a period of four years or more. This automatically converts the contract to a permanent contract unless the employer is able to provide a good reason why this cannot be the case.

This can also be the case where there is a collective agreement between the employer and the employee to remove the right for automatic conversion to a permanent role. For instance, if a fixed-term contract was meant to last for one year but eventually continues into the fourth year, the fixed-term employment automatically becomes a permanent role.

Related: The differences between contract vs permanent work

What happens when a fixed-term contract ends?

Fixed-term contracts may automatically terminate upon the expiration of the time frame of the contract or completion of the project. If the employer refuses to renew the contract, they dismiss the employee. As an employee in an organisation, you have the right not to be unfairly dismissed after two years of service and one year of service if you started employment before 6th April 2012. Hence, the law requires employers to show 'fair' reason(s) why they don't wish to renew a contract.

You also have entitlement to a written statement of the reasons why the employer chose not to renew the contract after one year of service. If the reason for non-renewal is redundancy, the employee is entitled to a statutory redundancy payment after two years of service.

What happens in the case of early termination?

Where your employer chooses to end your fixed-term contract earlier than the agreed date, then confirm that the contract allows for early termination with notice. Where this is the case, the contract determines the notice period, which can be longer than the statutory period. As an employee, your entitlement includes a statutory minimum notice period of one week where you have worked for at least one month and one week for each year where you have worked continuously for two or more years.

Likewise, as an employee, your employer has an entitlement to at least one week's notice where you have worked for a period of one month or more. Where any party fails to give notice in accordance with contract terms or based on the minimum notice period, they're in breach of contract, and the other party may take legal action. Also, where an employer or employee commits gross misconduct, this may serve as a waiver of the requirement for termination notice.

Read more: How To Terminate an Employee: A Step-By-Step Guide

Remedies for infringement on a fixed-term contract

If an employer terminates your fixed-term contract before the due date or through a process different from the agreed method, this is an unfair dismissal. Some of the examples of an unfair dismissal include:

  • The employer dismissed you for an unfair reason. For instance, asking for maternity leave.

  • Your employer has no reason for dismissing you. For instance, where you have a good job performance.

  • The employer used a wrong dismissal process. For instance, where they did not follow the statutory minimum notice period or the company's dismissal process.

Where these circumstances surround a dismissal, this amounts to a breach of contract, and you can claim damages at an industrial or employment tribunal for remunerations covering the rest of the contract term. You can also receive redundancy or unfair dismissal pay if there is still some reasonable time left before the expiration of the contract.

Related: What is a labour cost? (With tips and types)

What are the benefits of a fixed-term contract?

There are numerous reasons why employers and employees use a fixed-term contract. Below are some of the major reasons why employees prefer fixed-term contracts:

  • They offer flexibility**:** Many employees on a fixed-term contract have flexible hours at work and can set their own schedules. This means that you can afford to spend more time outside work doing other personal things or even working for other employers.

  • Opportunity to earn more**:** Some fixed-term employees have the opportunity to work for more than one employer, giving them a chance to possibly earn more. For instance, a web designer can work for different clients at the same time, causing them to earn more than they would have if they were a permanent employee.

  • Valuable experience**:** You gain valuable experiences that you can add to your CV when you work as a fixed-term employee. Likewise, you can also receive an offer for a permanent position if you perform well at the job.

  • Helps to avoid long-term commitment**:** Some employees prefer not to commit long-term to a particular organisation or company. Fixed-term contracts help you to check how well you fit into the company before considering the possibility of becoming a permanent employee.

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