Fixed Term Contracts - Mind the Trap
- Mike Clyne
- 5 days ago
- 2 min read
A recent update (from Lewis Silkin) covered the issues around how a fixed term contract (FTC) arrangement with an employee used to be a little simpler but with the Employment Rights Act changes coming into force in January 2027, their use has some worrying pitfalls that employers need to be aware of.
Quick summary:
FTC employees cannot be treated less favourably than permanent employees
When a FTC expires and isn’t renewed, this is a dismissal for unfair dismissal and/or entitled to a statutory redundancy payment (SRP)
Currently, unfair dismissal (and SRP) rights don’t come into force until two years’ service
Unfair dismissal rights will be applicable from six months’ service with effect from 1st January 2027 (although to be entitled to SRP an employee will still need two years’ service).
There are ‘fair’ reasons for dismissal including ‘some other substantial reason’ (SOSR) and redundancy
If an employer were to take someone on to cover a maternity leave (or other parent type leave), then as long as the employee had been informed in writing when they are made the FTC offer that it will be terminated when the individual returns to work; this should be a fair reason for the dismissal. Section 106 of the Employment Rights Act 1996 provides that an employee may be regarded as having been dismissed for SOSR in these circumstances.
However, this just means that there is a potentially fair reason for the dismissal. The employer still needs to go through a fair process, including consultation and considering the availability of alternative vacancies.
I think that this potential anomaly, whilst not one that happens all the time, has the potential for unintended consequences i.e. why would a business take this risk if they don’t truly need to cover the role for which an employee has gone on maternity leave?
Employers should also consider SOSR and redundancy terminations that are not maternity cover related. Where a FTC has been offered to cover a particular piece of work or a project that is time limited, every effort should be made up front to inform the employee that their work will be time limited. This in itself is not a get out of jail free card against an unfair dismissal claim but it should certainly help.
Steps for employers to consider:
Where possible, keep FTC to less than six months
Ensure individuals are told up front that the FTC is time limited, AND the reason why it is so AND that their employment will end on completion of the particular project, or when the colleague on family leave has returned to work, Include this, in writing, in the FTC
Give the proper notice to terminate the FTC (even though the termination date may have been in the original contract) and the reason why you will not be renewing / extending the contract
As always, this article is written for general guidance and does not constitute definitive advice for all situations. You should take the necessary advice as required.
