Understanding fixed-term contracts
Meet your legal obligations to fixed-term employees by understanding employment rules
A 'fixed-term contract' is an employment contract that 'in the normal course' will terminate on:
- the expiry of a specific term
- the completion of a particular task, or;
- the occurrence or non-occurrence of any other specific event, except the attainment of retirement age
The key advantage is that employers can benefit from specific skills without the cost of a longer-term commitment.
Fixed-term employees have the right not to be treated less favourably than comparable permanent employees. If you do not treat fixed-term employees in accordance with their legal rights, it can lead to grievances and possibly legal action through an industrial tribunal. This guide explains the rights of fixed-term employees, fixed-term employment benefits and fixed-term contracts and statutory employment rights.
Agency workers, apprentices, serving members of the armed forces, and students on work placements of one year or less that they are required to attend as part of a higher education course, are exempt from fixed-term employment regulations. Also exempt, are people employed on training, work experience or temporary schemes specifically designed to provide them with training or work experience to help them find work, where the schemes are wholly or partly funded by the government or an institute of the European communities.
This guide explains fixed-term contracts and the equal treatment principle and fixed-term contracts and less favourable treatment. In addition this guide outlines the redundancy rights of fixed-term employees, limiting the use of successive fixed-term contracts and informing fixed-term employees about permanent vacancies. Seeking professional advice is also always a good idea in matters of employment law.
Rights of fixed-term employees
How to fulfil your legal obligations by granting fixed-term employees the same rights as permanent staff
Fixed-term employees have the right not to be treated less favourably than comparable permanent employees because they are on a fixed-term contract.
This means you must treat fixed-term employees the same as comparable permanent employees unless there are 'objectively justifiable' circumstances for not doing so (ie there is a genuine, necessary and appropriate business reason).
Therefore they must receive the same or equivalent (pro-rata) pay and conditions, benefits, pension rights and opportunity to apply for permanent positions within the business.
Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations (Northern Ireland), which came into operation on 1 October 2002, employees who have been on a fixed-term contract for four years or longer will usually be legally classed as permanent if their contract is renewed or if they are re-engaged on a new fixed-term contract. The Fixed-term Employees Regulations apply only to 'employees', not to the wider category of 'workers'.
The only exemptions are when employment on a further fixed-term contract is objectively justified to achieve a legitimate business aim or when the period of four years has been lengthened under a collective or workplace agreement.
You also need to make the same tax arrangements for fixed-term employees as for permanent staff.
Fixed-term contracts and the 'equal treatment' principle
Comparing the fixed-term employee with a comparable permanent employee
Fixed-term employees have the right not to be treated less favourably than comparable permanent employees because of their employment status, unless the different treatment can be objectively justified.
Comparing employment conditions
To assess whether they are receiving equal treatment, a fixed-term employee can compare their employment conditions to that of a comparable permanent employee. This means someone working for you on an indefinite or an indeterminate employment contract and in the same place, doing the same or similar work. Skills and qualifications are taken into account where relevant to the job.
Where a fixed-term employee does the same work as several permanent employees whose contractual terms are different, the fixed-term employee can select someone to compare themselves to.
The chances of a claim for equal treatment being successful depend on the employee selecting a similar comparator and whether there are objectively justifiable reasons for their being treated differently.
If no comparable permanent employee works in the same place, a fixed-term employee can choose someone working for you at another premises, but not someone working for a different employer.
An employee will not be a comparable permanent employee if his/her employment has ceased.
Fixed-term contracts and 'less favourable treatment'
How to avoid treating fixed-term employees less favourably than their permanent equivalents
A fixed-term employee has the right not to be treated less favourably as regards the terms of his or her contract. A term-by-term approach is required when considering less favourable treatment in this context.
Less favourable treatment happens when a fixed-term employee does not receive conditions or benefits granted to a comparable permanent employee - or receives or is offered a benefit on less favourable terms.
Examples of less favourable treatment would include not being given a bonus or receiving fewer paid holidays than comparable permanent employees.
If you give training to permanent employees, you must not deny fixed-term employees access to it unless it can be objectively justified. In addition, permanent staff must not enjoy preferential treatment for promotion or redundancy, unless objectively justifiable.
The period of service qualifications relating to particular conditions of employment must be the same for fixed-term employees as for permanent employees except where different length of service qualifications is justified on objective grounds.
Written statement of employment
If a fixed-term employee feels less favourably treated because of their employment status or believes their rights have been infringed, they can request a written statement from you detailing the reasons. You must produce this within 21 days of the request. This is your opportunity to clarify why a fixed-term employee receives particular treatment. The intention is not to allow fixed-term employees to find out what their colleagues are receiving.
If you do not believe less favourable treatment has been given, or you have objective justification for it, the statement should say so. If a package approach is being used, the statement should say that this is why different treatment is occurring in respect of one or more benefits. The statement might be used at an industrial tribunal hearing concerning a complaint under the regulations.
Although a failure to give a written statement has no direct legal effect in itself, the statement is admissible in any proceedings under the regulations. A failure to provide one allows a tribunal to draw any inference it considers just and equitable (including an inference that you are in breach of the regulations) if it appears that the employer deliberately and without reasonable excuse ommitted to provide a statement, or that the written statement is evasive or equivocal. A carefully drafted written statement can avoid such a possibility and should be provided.
What is objective justification?
Less favourable treatment will be justified on objective grounds if you can show that it is necessary and appropriate to achieve a legitimate and genuine business objective.
Objective justification may be a matter of degree. You should consider offering fixed-term employees certain benefits (eg loans, clothing allowances, etc) on a pro-rata basis. Sometimes, the cost to you of offering certain benefits to a fixed-term employee may be disproportionate to the benefit the employee would receive. This may objectively justify different treatment.
An example of this may be where a fixed-term employee is on a contract of three months and a comparator has a company car. You may decide not to offer the car if the cost of doing so is high and the need of the business for your employee to travel can be met in some other way.
Less favourable treatment in relation to particular contractual terms is justified where the fixed-term employee's overall package of terms and conditions is no less favourable than the comparable permanent employee's overall package.
How do employers objectively justify different conditions?
You can argue that there is objective justification for treating the fixed-term employee differently.
Alternatively, you may prove that the value of the fixed-term employee's overall terms and conditions at least equal the value of those of the comparable permanent employee.
You will need to consider whether less favourable treatment is objectively justified on a case-by-case basis, either comparing term-by-term, or comparing a package of terms and conditions.
Fixed-term employment benefits
Employment benefits that can be offered to fixed-term employees
Some employment benefits such as season ticket loans, health insurance or staff discounts can be offered on an annual basis or over a specified period. Where a fixed-term employee is not expected to work for this period, you might offer it in proportion to the contract duration ('pro-rata').
For example, if the contract is for six months, the employee should receive half of an annual benefit. If the contract is for four months, they should receive one third.
If this is not possible because the cost to you would outweigh the benefit to the employee, you can claim objective justification for not offering the benefit.
You need to consider whether less favourable treatment is objectively justified on a case-by-case basis. See fixed-term contracts and 'less favourable treatment'.
Access to occupational pension schemes
You must offer fixed-term employees access to occupational pension schemes on the same basis as permanent staff, unless different treatment is objectively justified.
For example, if a pension scheme has been closed to new permanent employees, new fixed-term employees need not be offered access, even if their permanent comparator has access. It is important that the point at which employees have joined a company in order to have been offered access to the scheme is the same for fixed-term as for permanent employee, unless a difference is objectively justified.
You do not need to offer special alternative benefits (eg contributions to a private pension scheme) to fixed-term employees who decide not to join a pension scheme, unless this option is offered to comparable permanent employees.
In certain situations, it may not be necessary to offer all fixed-term employees access to occupational pension schemes. For example, where an employee is on a fixed-term contract which is shorter than the vesting period for a pension scheme, or you offer the employee a salary increase equivalent to employer pension contributions paid to permanent staff, you may be able to justify excluding them from the scheme. See know your legal obligations on pensions.
In addition, the Pensions (No.2) Act (Northern Ireland) 2008 introduced obligations on employers to provide access to and contribute towards, a workplace pension scheme for eligible employees.
Introduced in October 2012, every employer must enrol workers into a workplace pension if they meet certain criteria. See automatic enrolment into a workplace pension.
Redundancy rights of fixed-term employees
Grant fixed-term employees their legal redundancy rights
Fixed-term employees have a right to statutory redundancy pay if they have been continuously employed for two years or more. Redundancy is defined in statute and the Labour Relations Agency (LRA) can provide you with information and advice on redundancy.
When a fixed-term contract terminates and is not renewed, the employee is dismissed. The reason for this dismissal will not always be redundancy - this will depend on whether you are laying off employees of the type that the fixed-term employee is, or whether there is some other reason for not renewing the contract (for example, the fixed-term employee was covering for an absent member of permanent staff).
Fixed-term employees cannot be excluded from the statutory redundancy payments scheme. However, they can be excluded from contractual schemes if this is objectively justified.
Fixed-term employees should receive the same level of redundancy payments as permanent employees unless different treatment is objectively justified.
You also need to consider whether fixed-term employees are being treated fairly in relation to other elements of redundancy packages, eg have they the same access to specialist job search services as comparable permanent employees. Different treatment may be objectively justified and it is more likely to be so if the fixed-term employee did not expect their employment to last longer than the term of their first contract.
Selection for redundancy
Fixed-term employees cannot be selected for redundancy simply because of their employment status. Where fixed-term employees have been brought in to complete a particular task or as cover over a peak period, you can objectively justify selecting them for redundancy at the end of their contracts.
Length of service (Last In First Out) should never be used as sole/main criteria in a redundancy situation as it may indirectly discriminate on the grounds of age (and potentially religion where an employer has been taking positive action to address an underrepresentation from one community in their workforce). It can be used in conjunction with other criteria, or perhaps applied in tie break situation.
Fixed-term contracts and statutory employment rights
Handle fixed-term redundancies legally when tasks or events are completed
If an employment contract terminates when a task is completed or an event occurs or does not occur, this is legally classified as dismissal.
This gives fixed-term employees the same statutory rights as permanent employees or others on different fixed-term contracts, including the right:
- not to be unfairly dismissed (after one year's continuous employment)
- to a written statement of reasons for dismissal (after one year)
- to statutory redundancy payments (after two years)
Limiting the use of successive fixed-term contracts
When renewed fixed-term contracts become permanent
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 results 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 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.
Informing fixed-term employees about permanent vacancies
Fulfil your legal obligations to fixed-term employees when permanent positions arise
You must inform fixed-term employees of permanent vacancies in your organisation, and give them the same opportunity as others to apply for such roles.
You should inform fixed-term and permanent employees of such vacancies at the same time and in the same way. Displaying a vacancy notice where all employees can see it or emailing the vacancy to all staff members will usually enable you to do this effectively.
Finally, under the regulations a fixed-term employee may present a claim to an Industrial Tribunal that he or she has not been informed of available vacancies or that they have suffered a detriment, or less favourable treatment. If you receive such a complaint you can contact the Labour Relations Agency (LRA). Its conciliation service applies to such claims. See details of the LRA's dispute resolution services.