Understanding fixed-term contracts

If a fixed-term employee has their contract renewed or if they are re-engaged on a new fixed-term contract when they already have a period of four or more years of continuous employment, the renewal or new contract takes effect as a permanent contract (unless employment on a fixed-term contract was objectively justified or the period of four years has been lengthened under a collective or workplace agreement).

If however a fixed-term employee has had their contract renewed at least once before the four-year period has elapsed, the employee's contract will become permanent after they have completed a total of four years' service. The only exceptions are when employment on a fixed-term contract can be objectively justified, or if the period of four years has been lengthened under a collective or workplace agreement.

Continuous employment usually means employment without a break, although breaks for strike action and time spent out of work appealing against unfair dismissal (if the employee is subsequently reinstated) will not break continuity. The interval between contracts that result in continuous service being broken is determined by case law and statute and varies according to the circumstances.

Renewing or extending fixed-term contracts

If an employee has a fixed-term contract renewed before or extended beyond the four-year statutory limit (or beyond the limit agreed in any applicable collective or workplace agreement), the contract will be regarded as one of indefinite duration.

An employee whose contract is renewed as a fixed-term contract, or re-engaged under a fixed-term contract, after the four-year period has the right to ask you in writing for a written statement to confirm that they are now a permanent employee. You must produce the statement within 21 days and if you maintain that the employee is still fixed-term, you must explain the reasons why. The statement may be used at an industrial tribunal hearing if your employee decides to make a claim. See the written statement.

Once the employee's contract is regarded as permanent, statutory minimum notice periods apply unless longer periods are contractually agreed.

The limitation on successive fixed-term contracts will apply only where the employee has been continuously employed for the whole period. An employee may be continuously employed even where there is a gap between successive contracts. See continuous employment and employee rights.

Fixed-term contract renewal may be justified on objective grounds if it is necessary and appropriate to achieve a legitimate objective, for example, a genuine business objective.

Collective and workplace agreements

Such agreements provide an alternative scheme for preventing abuses of fixed-term contracts and can be made to vary the limit on the duration of successive fixed-term contracts upwards or downwards, or to limit the use of successive fixed-term contracts by applying one or more of the following:

• a limit on the total duration of successive fixed-term contracts
• a limit on the number of successive fixed-term contracts
• a list of permissible objective reasons justifying renewals of fixed-term contracts

You and your employees may agree on reasons for renewing fixed-term contracts, including the specific needs of particular professions, for example, professional sport and theatre. It is important that these reasons do not permit the abuse of successive fixed-term contracts.

A collective agreement is made between an employer or association/group of employers and trade union representatives. A workforce agreement is made between representatives of a workforce and an employer.

Workforce agreements can apply only to groups of employees whose terms and conditions of employment are not covered by a collective agreement. Where a union is recognised to negotiate terms and conditions of employment any variations must be made through a collective agreement.

See work effectively with trade unions.