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Successive use of fixed-term contracts: proceed with caution
The Fixed-Term Employee (Prevention etc) Regulations 2002 restrict an employer’s ability to use successive fixed-term contracts. The Regulations achieve this by classifying an employee engaged under a fixed-term contract as a permanent employee if all of the following conditions are satisfied:
- the employee is currently employed under a fixed-term contract;
- that fixed-term contract has previously been renewed or the employee was previously employed under another fixed-term contract before the start of the current contract;
- the employee has been continuously employed under fixed-term contracts for a period of four years or more (ignoring any service prior to 10 July 2002); and
- at the time the contract was renewed (or if it was not a renewal, at the time it was entered into) the employer could not objectively justify the use of a fixed-term contract.
Employers take note
The date upon which the employee is deemed to become a permanent employee is the later of (i) the date that the current fixed-term contract was entered into/renewed; or (ii) the date upon which the employee acquires four years' service. Because service prior to 10 July 2002 is ignored for these purposes, it is only with effect from 10 July 2006 that fixed-term employees will acquire permanent status in accordance with these Regulations.
As a result, with effect from 10 July 2006:
- any employee engaged on a second or subsequent fixed-term contract will automatically become a permanent employee if they have four years' service, unless the use of a fixed-term contract was objectively justifiable; and
- any employee who has already been engaged under two or more fixed-term contracts will become a permanent employee as soon as they attain four years' service unless the use of the fixed-term contract can be objectively justified.
However, the Regulations do not impose any limit on the duration of the first fixed-term contract, so an employee engaged under a five-year fixed-term contract will not be regarded as a permanent employee for these purposes unless/until the contract is renewed at the end of the five-year term, or the employee is engaged under another fixed-term contract and the employer is unable to justify the subsequent use of another fixed-term contract.
Practical issues
Administrative convenience is unlikely to justify the use of a fixed-term contract; reasons such as limited funding for a post or a finite task to be performed are more likely to persuade an employment tribunal.
There is very little to be gained from the successive use of fixed-term contracts and little to distinguish them from contracts of indefinite employment. When a fixed-term contract of one year or more expires there is a deemed termination.
A fixed-term employee can no longer waive, in advance, the right to claim unfair dismissal or a statutory redundancy payment. Accordingly, the employer must follow the statutory dismissal procedure prior to termination and it must also have a fair reason for the dismissal - for example, there is no longer a need for that role.