Fixed-term employment contracts – pros and cons for an organisation
Written by Hannah Kennedy on 12 February 2021
For many employers, it is important to have flexibility in their workforce. However, when assessing the fixed-term contracts, pros and cons, employers may not always be aware of the fact that the law provides employees on such contracts with more rights than they may first realise. In this blog, we explore the key factors surrounding the advantages and disadvantages of fixed-terms contracts to help you make informed decisions about your employment arrangements.
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One of the predominant advantages of fixed-term contracts is that they can be very useful to cover a period of maternity leave or long term sick leave. It may also cover a job where funding has been provided to undertake a specific task. A fixed term contract may cover some seasonal work.
Some employers may use short fixed-term contracts as a probationary period of sorts to see how the employee works, what they bring to the table and how they fit into their organisation.
They can also be great when an employer has a strict budget as they can predict labour costs more easily.
It can hard to recruit for. Job applicants may not find the prospect of a short contract as attractive as a permanent option.
If, for whatever reason, they don’t work out, an employer may wish to terminate the contract early. However, if the contract has been drafted to disallow early termination, unless they have committed an act of gross misconduct, the employer may need to pay them for the time left on their contract. Depending on the circumstances, this can be costly.
Pros and cons of fixed-term contracts aside, fixed-term employees are entitled to a number of rights:
- Fixed-term employees have the right to not to be treated less favourably than comparable permanent employees. Less favourable treatment would include not receiving employee benefits available to permanent employees, for example, being excluded from a bonus or free gym membership because of their fixed-term status.
- The only exception is if the employer has a good business reason to justify not giving the fixed-term employee a particular benefit or showing that the value of the fixed-term employee’s total package of terms and conditions is at least equal to the value of that of the comparable permanent employee.
- An employee employed for four or more years on successive fixed-term contracts may automatically become a permanent employee. This is unless the employer can demonstrate a good business reason to not do so or there is a collective agreement which eradicates this right.
- Fixed-term workers may be entitled to a redundancy payment if they have worked continually for two years or more. This would be the case if the reason for the non-renewal is redundancy.
- They have the right to be informed by their employer of available vacancies in the establishment they work in.
Things to be aware of
The non-renewal of a fixed-term contract constitutes a dismissal in law, which means that they may be able to claim unfair dismissal if they have over two years’ service. Therefore it is important to dismiss an employee for a fair reason and follow a fair procedure.
To prevent claims arising in the future, make it clear from the start that the position is temporary. Draft the fixed term contract so that the employment relationship terminates on a specific date or on a specific act occurring. An example would be the return of the employee from maternity leave.