Ten myths about fixed terms
The law relating to fixed-term employees is more complicated than many employers realise. Kevin McCavish exposes the “top ten” myths about fixed-term employees.
Employers often believe that employing an individual on a fixed-term contract will provide greater freedom over employment terms and termination.
In fact, fixed-term employees can enjoy greater legal protection than other employees and there may be no advantage to an employer in using a fixed-term contract.
Recent case law has demonstrated that this fundamental misunderstanding can result in significant legal liabilities for an employer.
It’s not a fixed-term contract if we can give notice before the end of the term
A contract is still a fixed-term contract notwithstanding that it allows for the parties to bring it to an end early by giving written notice. A “pure” fixed-term contract which did not include this flexibility would potentially be very expensive for an employer who wanted to terminate early: they would be liable in damages for breach of contract based on the employee’s remuneration and benefits until the end of the fixed-term.
We can save money by giving fixed-term employees less valuable benefits
Under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (the Regulations) an individual can bring a claim in the employment tribunal as regards any less favourable employment terms (in comparison to a permanent employee doing the same or similar work) or any other detrimental act by their employer on the grounds of their fixed-term status. It is permissible to treat fixed-term employees less favourably if this can be objectively justified but assessing whether that is the case is a notoriously uncertain exercise.
Fixed-term employees can opt-out of any entitlement to statutory redundancy payment
It used to be possible for fixed-term employees to opt out of claims for a statutory redundancy payment and unfair dismissal but both of these exemptions were removed when the Regulations came into force. A fixed-term employee is entitled to a statutory redundancy payment in exactly the same way as a permanent employee i.e. where they have been employed for at least two years and are dismissed as redundant.
We are not at risk of an unfair dismissal claim if we don’t renew a fixed term contract
Many employers don’t appreciate that a failure to renew a fixed-term contract is regarded as a dismissal and therefore a fixed-term employee may be able to claim unfair dismissal if they have the necessary length of service. Consequently the importance of following a fair procedure in respect of any non-renewal should not be overlooked. Even if the ACAS Code does not apply an employer will need to follow a fair procedure in such situations.
The ACAS Code never applies to a fixed-term employee
The ACAS Code states that it “…does not apply to dismissals due to redundancy or the non-renewal of fixed term contracts on their expiry”. However, there may very well be occasions where a fixed-term employee was dismissed early for misconduct or capability and in these situations the Code would be relevant.
We can keep an individual on fixed-term contracts indefinitely
An employee who has been employed on a succession of fixed-term contracts for four years or more may apply to an employment tribunal for a declaration that they have become a permanent employee. An employer may object to this change of status on the grounds that continued employment under a fixed-term is objectively justified, as was held by the Supreme Court in its recent judgement in Duncombe and others v Secretary of State for Children, Schools and Families. However, it is not often appreciated that regulation 8 of the Regulations only applies where there has been “successive” fixed-term contracts. If an employee was employed on a single contract for four years without it being renewed there would be no right to convert it.
Non-renewal of a fixed-term contract is always a dismissal “for some other substantial reason” (SOSR)
There is significant confusion around the reason why a fixed-term contract is not renewed. The assumption tends to be that it must be for SOSR but in many situations it will actually be by reason of redundancy. For example, where an employee is taken on to complete a specific project the termination of their contract on completion is likely to be a redundancy: the employer’s need for employees to carry out work of a particular kind will have ceased or diminished. As a result of this misunderstanding employers may overlook a fixed-term employee’s entitlement to a statutory redundancy payment.
There is no legal risk terminating the employment of a fixed-term employee who is covering maternity leave
The recent case of Victoria and Albert Museum v Durrant demonstrates that employers should not be lulled into a false sense of security when dismissing a fixed-term employee who has been covering for a colleague on maternity leave. Section 106 ERA provides that such a dismissal will be for SOSR and therefore potentially fair if: “…(a) on engaging him the employer informs him in writing that his employment will be terminated on the resumption of work by another employee who is, or will be, absent wholly or partly because of pregnancy or childbirth … and (b) the employer dismisses him in order to make it possible to give work to the other employee …” In this case however the employer failed to make such an unequivocal statement to the employee and therefore section 106 was not engaged. Unless the employer has got the documentation right at the start of the maternity cover they could find that they are not protected when the original employee returns to work.
There is no problem letting all the fixed-term employees go before we make permanent employees redundant
Where an employer needs to make cost savings fixed-term employees are often first in the firing line. It is seen as an easy solution to just let fixed-term contracts expire without renewal. Indeed it may be argued that as an employer has an obligation to look at ways of avoiding redundancies this is actually a requirement to ensure a fair dismissal of permanent employees. However, a blanket policy to let all the fixed-term employees go could be in breach of the Regulations which protect fixed-term employees against detriment on the basis of their status. It may in fact be necessary for employers to go through the exercise of pooling fixed-term employees with permanent colleagues in order to demonstrate a fair selection.
Collective redundancy consultation requirements don’t apply where we are not renewing fixed-term contracts
A failure to renew a fixed-term contact is a dismissal for a reason not related to the individual and it can therefore trigger the collective redundancy consultation requirements in section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. Collective consultation will be triggered where there are proposals to dismiss 20 or more employees (be that permanent or fixed-term) at any one establishment within a period of 90 days or less. In Lancaster University v The University & College Union the employer fell into this trap when it did not renew some of its fixed-term contracts due to withdrawal of third party funding. The Employment Appeal Tribunal upheld protective awards of 60 days’ pay.
Comment
There are plenty of myths around fixed-term contracts and many employers risk falling foul of the law in this area as a result.
As employers engage employees on a more flexible basis because of the current economic climate, we may very well see a growth in litigation concerning fixed-term contracts.
Given the potential legal risks for employers who get it wrong, organisations should seriously consider whether their use of fixed-term employees offers any significant advantage over using permanent contracts.
Kevin McCavish is a partner at Shoosmith. He can be contacted on 03700 86 8802 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..
