The Dangers of Not Renewing Fixed Term Contracts and How the Expiry of a Fixed Term Contract Counts as a Dismissal
Having been in the news lately, highlighted by business secretary Vince Cable, anyone on a zero hours contract should be given a statutory right to request an Fixed Term Contract (FTC) from their employer. If this proposal is implemented, then we can expect a big rise in the number of employees on Fixed Term Contracts. However these contracts can cause employers problems, particularly when it comes to deciding whether or not to renew an FTC when it reaches an end.
Flexibility of Fixed Term Contracts
A fixed term contract of employment is one that terminates on a specified date or after a period of time, or on completion of a pre-defined project.
The flexibility of these projects can benefit both the employer and employee. Quite often, there is a requirement to cover a permanent employee’s sickness or maternity leave or where a particular project needs additional labour to meet completion deadlines.
Fixed term employees can enjoy the same employment rights as other employees, with the additional right not to be treated differently compared to permanent employee. Covered by Employment Law, they are entitled to the same pay, bonuses and benefits as comparable employees. In addition, employees who have been continuously employed for four years or more on successive Fixed Term Contracts are automatically deemed to be permanent employees – unless the continued use of a FTC can be objectively justified.
Non-renewal of Fixed Term Contracts
The expiry of a FTC counts as a dismissal – for the purposes of unfair dismissal and statutory redundancy pay. For the dismissal to be fair (for employees with at least two years’ worth of service), it must be fair in all the circumstances of the case.
By not renewing fixed term contracts, there is a danger of falling fowl to Employment Law and The ACAS Code of Practice on Disciplinary and Grievance Procedures (only applicable if conduct or performance reasons impact on the decision not to renew). Furthermore, where an employee raises a grievance relating to a proposed non-renewal, the employer should follow the code in respect of that grievance.
Even where no notice period has been agreed, statutory minimum notice may be required.
Practical Steps To Avoid Problems
- make sure that systems are in place to alert you to the dates any FTCs are due to expire and any notice obligations;
- manage expectations by discussing the expiry of the FTC informally with the employee in advance;
- write to the employee to confirm the date on which the FTC is due to expire, explaining the reason for expiry and giving details of any permanent vacancies you may have;
- meet with the employee before the FTC expires to discuss the situation in more detail;
- follow the meeting with a letter confirming the date of expiry or setting out any alternative decision reached, and offering the employee the right to appeal.
- if necessary, hold an appeal hearing and confirm your decision in writing to the employee.
If you are an employer or an employee that is struggling to understand the implications of a Fixed Term Contract; please contact our HR consultants on 01223 855441 who are expertly placed to assist you with employment contracts and employment law.