The changes to the unfair dismissal qualifying period from 2 years to 6 months is well documented. Please refer to our other newsletter Changes to the Unfair Dismissal qualifying period will affect who and how you’re hiring from July
However, what is less documented is how that affects the use of fixed terms contracts.
The reduction in the qualifying period or unfair dismissal claims from 2 years to 6 months from January 2027 will apply to all employees including those on fixed term contracts.
Current law on fixed-term contracts
Employees working under fixed-term contracts in Great Britain have the same statutory employment rights as permanent employees – you could say they have greater rights. This means employers can’t operate a “two tier” system, with fixed-term employees receiving fewer benefits or otherwise being treated as inferior.
The expiry and non-renewal of a fixed-term contract is treated as a dismissal for unfair dismissal and redundancy purposes. Simply reaching the contractual end date is not, on its own, a fair reason for dismissal. This is the case even if the employee knew from the start that their employment was intended to be temporary. This means that currently an employee with more than 2 years’ service on a fixed term contract, can bring an unfair dismissal claim.
Why do employers use fixed term contracts?
There are many reasons to use fixed-term contracts. They are most commonly used where the job is time bound. For example, a seasonal job over Summer or Christmas, to cover maternity or long term sickness absence or where funding is available for a particular project.
What will be the situation after January 2027?
Where a fixed term contract is more than 6 months duration, employees will be able to claim unfair dismissal if the contract expires without renewal on or after 1 January 2027.
Fixed term contracts of less than 6 months will not be affected – but bear in mind the statutory or contractual notice period.
Where an employer uses a fixed term contract and has decided not to renew the contract, if the employee has acquired 6 months service by 1st January 2027, the employer must identify a fair reason not to renew the contract and follow a fair procedure when not renewing it.
Where there are no issues relating to the employee’s performance or conduct, the potentially fair reason will usually be either redundancy or some other substantial reason (SOSR). Which of those applies matters because it will drive the process that needs to be followed.
Either way, the employer must be able to show a tribunal (if a claim is brought) that they have acted with the range of reasonable responses in treating that reason as a sufficient reason for dismissal.
The exception to this is where someone is employed on a fixed term employee specifically to cover an employee who is absent on family related leave, such as maternity leave.
It is important that the fixed term contract sets this out in writing at the outset, and that their employment will be terminated when the person they are covering resumes work. Where this is the case, their dismissal will be deemed to have happened for the fair reason of ‘some other substantial reason’.
The fair reasons for dismissal which will apply to fixed term contracts
There are 5 potentially fair reasons for any dismissal:
- Conduct,
- Capability,
- Redundancy,
- Illegality,
- Some other substantial reason (SOSR) justifying the dismissal.
When deciding which of the above reasons is applicable, it will be related to why the fixed term contract was given in the first place.
SOSR
SOSR is most likely to apply where a contract was entered into for a clear, genuine and time-limited purpose which has come to an end, for example family-leave cover or a specific project. In these cases, it is essential that the purpose of the role and the circumstances for termination are communicated clearly to the employee at the outset, and that the employer can show that the purpose has genuinely concluded at the end of the fixed term.
Redundancy
Redundancy will apply where the requirement for the work the employee is carrying out has genuinely reduced or disappeared. In those cases, you will need to follow the usual redundancy principles, including thinking carefully about the selection pool.
In some cases, it may be a pool of one with just the fixed-term employee, though care would be needed in that situation. Consultation and consideration of suitable alternative roles will also be required. However, the right to statutory redundancy pay will still require two years’ service.
Performance and Conduct
If there are performance and/or conduct issues during the contract, those will need to be dealt with as you normally would.
What Practical actions can employers take
The practical impact of this is that managers will need to act much earlier than the end of a fixed-term contract; it will no longer be possible to let a contract of six months or more expire without unfair dismissal risk.
A fair process will still be required, but in practice this is likely to involve communicating with the employee in advance about the proposed end date and considering whether there are any suitable alternative roles.
Some points to consider
- Plan and consider – before issuing a fixed term contract, consider how long it is needed for.
- Monitor current fixed term contracts – a fixed term contract of less than 6 months will be easier but keep an eye on notice arrangements when terminating it. Even a day over the 6 months enters the period of protection and will require a formal process.
- Be clear from the outset – when issuing the contract, ensure the individual is clear about the arrangements of the contract and its expiry. Ensure it is set out in the contract, especially so with maternity cover.
- Review current contracts – review any fixed term contracts which are currently being renewed each year.
- Follow a fair process – as the end date approaches, meet with the employee, consider other roles they might be able to do. Confirm in writing when their contract is ending and the reasons for this.
