Fixed Term Facts

We’re often asked about employing people on fixed term contracts (FTC) to test them out ahead of committing to make them permanent.  This blog sets out the difference between permanent and fixed term working arrangements and the merits and risks of employing under a fixed term contract.

Checking an employee out

Using a FTC to assess whether an employee will be suitable for the role limits the number/quality of candidates that will be attracted to the vacancy.  People tend to want permanent roles and good quality candidates won’t leave a permanent job for a temporary one.

Testing out a new employee is best done using a probation period.

So when would you use a short term contract?

A fixed term contract should only be used where there is a genuine fixed-term or temporary need.  For example:

• the role is to cover peak trade (eg Summer or Christmas)
• there is time-limited funding for the role (eg grants)
• the long term future of the role is uncertain (eg a new product, service or market)
• to cover an absent employee such (eg maternity leave)

The legal aspects

Employees working under a FTC are protected by the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 and have exactly the same employment rights as permanent staff so there is effectively no difference other than the expectation that the job will come to an end.

In addition FTCs or cumulative FTC renewals where an employee accrues more than 2 years service entitles the employee to make an unfair dismissal claim (eg if the role continues with another employee, there is a suitable alternative role or where a fair termination process has not been followed) and be entitled to redundancy pay when the contract comes to an end.

Simply not renewing a FTC is not risk-free

The end of a fixed term contract is still classed as a dismissal and an employee could make an employment tribunal claim within the first 2 years of employment if they can associate the ending of a FTC with discrimination or an automatically unfair reason. This is particularly important where the role will be replaced by someone else the expiry of the FTC.

As with the bad press around use of zero hours contracts, employers could find themselves with poor PR by not committing to a permanent contract for a permanent role.  The best employees are no longer seeking jobs on salary alone, they also want to work for ethical employers with a good reputation.

Please contact us if you need any further advice on the right type of employment contract for your business.