UK: "Fixed-Term" Contracts – Still Worthwhile?

Readers of our New Year e-update may recall an alert that the 1st October 2006 will be the 4th anniversary of the Fixed-Term Employees Regulations coming into force. The 10^th July 2006 is also an important date because employees who have been employed on a renewed or extended fixed-term contract, or successive fixed-term contracts, since 10^th July 2002 will today become permanent employees (or employees employed on indefinite-term contracts).

Employees already on a second or subsequent fixed-term contract who do not yet have 4 years’ service, will automatically convert to an indefinite contract when 4 year’s service is attained.

Employees, who have four year’s service as of today but are still on their first fixed-term contract, will not become permanent until their current contact is renewed.

Employees on fixed-term contracts with one year’s service can bring unfair dismissal claims, those with two year’s service can qualify for a redundancy payment, waivers of these rights are no longer possible and claims under the 2002 Regulations have no service requirement. The Regulations provide that the expiry of a fixed-term contract is a dismissal for unfair dismissal purposes. This means that the statutory minimum dismissal procedures under the Employment Act 2002 (Dispute Resolution) Regulations 2004 apply to the expiry of a fixed-term contract just as they would to most other dismissals.

They are still of considerable benefit for covering short term projects, or absence for less than a year.

Employers can also seek to justify the use of longer or successive contracts on objective grounds. Last week the European Court of Justice held in the Greek case of Adeneler & Others v Ellinikos Galaktos that the use of a fixed-term contract must be "justified by the presence of specific factors relating in particular to the activity in question and the conditions under which it is carried out". There is not yet UK case law on the point, but it might be possible to argue that a fixed-term contract of more than four years could be objectively justified for a one-off, medium-duration event like the London 2012 Olympics. This would mean that such a contract would not automatically convert into a permanent contract if it were renewed or extended.

In practice, the automatic conversion after four years may make little difference for employers. If an employee converts from fixed-term to permanent the part of their existing contract that limits its duration "shall be of no effect". Employers should therefore check what the contract says about notice. If it is silent, statutory notice may apply or reasonable notice may be implied. Newly-permanent employees should be notified in writing within one month of the conversion from fixed-term to permanent, of the length of notice they are obliged to give and entitled to receive as permanent employees. Failure to do so (where the employee had not already been informed of the notice requirements) could result in an award of two or four weeks' pay (capped at £290 per week).

Employers should also be aware that a fixed-term employee who has automatically become or believes they have become a permanent employee may request a written statement from their employer to confirm that fact (to be provided with 21 days of the request) and can complain to an employment tribunal if the employer fails to produce one.

In summary therefore: fixed-term contracts are still worthwhile for short term needs or special longer term needs that can be objectively justified.

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Readers should not act on the basis of the information in this article without taking appropriate professional advice upon their own particular circumstances.