Many employers are looking at fixed term contracts (FTC’s) as a way of getting things done without having to make an ongoing commitment to employ someone. There are many good reasons for doing so – for instance a temporary upsurge in work, or client requirements that fall outside of the organisation’s core services, project based work, maternity cover or trials of new services or products. Employers like them as they help with effective budgeting (fixed costs) and many employees benefit from operating in a very flexible marketplace these days.
However, there are restrictions on how you can deal with employees on such contracts so here is a brief overview:
For the purposes of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 , a fixed-term employee is one employed under a contract of employment that will terminate on the expiry of a specific term; the completion of a particular task; or the occurrence or non-occurrence of a specific event other than the attainment by the employee of any normal and bona fide retirement age for the position.
Can a person on a fixed-term contract make any claims on the employer if the contract is terminated?
If a fixed-term contract is terminated by the employer before the agreed expiry date, the employee can claim for breach of contract, or for unfair dismissal and/or redundancy pay if he or she has sufficient continuity of service. On expiry of a fixed-term contract, there can be no breach of contract claim, but there can be unfair dismissal and redundancy claims.
Can an underperforming employee on a fixed-term contract be dismissed before the end of the fixed term?
The nature of a fixed-term contract is usually that both employer and employee agree as part of the contract that it will continue for a fixed period, or until an agreed task or project is completed, or until a specified event occurs, for example the return to work of an employee on maternity leave. Thus, any early termination by either party will be in breach of contract. The only exception to this would be in the case of gross misconduct on the part of the employee, which would entitle the employer to terminate the contract without notice. Otherwise, a termination in breach of contract would give the employee the right to claim damages equivalent to the pay and benefits that he or she would have received up to the time that the contract could have been lawfully terminated.
If, however, the fixed-term contract has been drafted to include a notice clause, ie authority for the employer to terminate the contract on notice before the expiry of the fixed term, then termination on notice by reason of the employee’s underperformance will not be in breach of contract. It is not unlawful to include notice clauses in fixed-term contracts.
Quite apart from any potential claim for breach of contract, there may be an unfair dismissal claim from the employee if, at the time the early termination of the contract takes effect, he or she has gained a minimum of one year’s continuous service (or two years’ continuous service if his or her employment begins on or after 6 April 2012), whether on one fixed-term contract or on two or more successive contracts. Although unsatisfactory performance is a potentially fair reason for dismissal, the employer would also have to show that the underperformance was sufficient in all the circumstances to justify dismissal and that a fair procedure had been followed. If the employer was unable to satisfy an employment tribunal on these matters, the dismissal would be unfair.
Can a fixed-term contract be terminated before the end of the term if the post is redundant?
Yes, a fixed-term contract can be terminated by reason of redundancy before the end of the term. Redundancy will be a potentially fair reason for the dismissal. However, if there is no provision for termination with notice under the fixed-term contract, early termination for redundancy will amount to a breach of contract and the employer will be liable to pay the employee compensation for loss of remuneration for the rest of the fixed-term period. The employee will also be entitled to statutory redundancy pay if he or she has at least two years’ continuous service.
The employer must follow the same redundancy procedures that apply to permanent employees, and must ensure that fixed-term employees are not treated less favourably because of their fixed-term status, unless the employer can justify this.
Can an employer set a shorter notice period for its fixed-term employees than for its permanent employees?
The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, regulation 3 provides that fixed-term employees have the right not to be treated less favourably than comparable permanent employees as regards the terms of their contract, unless the different treatment can be justified on objective grounds.
Setting a shorter notice period for fixed-term employees than for comparable permanent employees constitutes prima facie less favourable treatment of the fixed-term employees as regards one of the terms of the employment contract. This will, therefore, be permissible only if the employer can demonstrate that it is objectively justifiable to treat fixed-term staff differently from comparable permanent staff when it comes to notice periods. Less favourable treatment will be justified on objective grounds only if it can be shown that the less favourable treatment is to achieve a legitimate objective, such as a genuine business objective, that it is necessary to achieve that objective, and that it is an appropriate way of achieving it. Each case will turn on its own facts and circumstances.
Alternatively, the employer may seek to show that the value of the fixed-term employee’s overall package of terms and conditions of employment is at least equal to the value of the comparable permanent employee’s total package of terms and conditions of employment.
Under this approach, employers can balance a less favourable term against a more favourable one, provided that they ensure that the fixed-term employment package, taken as a whole, is no less favourable than that of the comparable permanent employee.
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