FIXED TERM CONTRACTS: STILL A USEFUL TOOL OR A GROWING RISK?

With the forthcoming reduction in the qualifying period for unfair dismissal protection, fixed term contracts (FTCs) have been the subject of increasing discussion. The change will inevitably bring more FTC employees within scope of unfair dismissal protection, leading many employers to question whether there is still a role for FTCs.

Our view is that there remains a case for using FTCs, but employers will need to be more careful about explaining the rationale for the arrangement at the outset and ensuring a fair process when the contract comes to an end.

The importance of identifying the reason for dismissal

The two most likely potentially fair reasons for dismissal when an FTC expires are redundancy and some other substantial reason (SOSR). Identifying the correct reason is important because the process required to ensure fairness will differ.

A redundancy situation will only arise where the statutory definition of redundancy is met. This means there must be either a cessation of the business (or the place where the employee works) or a reduction in the employer’s requirement for employees to carry out work of a particular kind.

This means redundancy will not usually apply where an FTC employee has been recruited to cover another employee’s absence, such as family leave or long-term sickness, because the requirement for the work itself has not reduced. In these circumstances, SOSR is likely to be the appropriate reason for dismissal. The Employment Rights Act specifically recognises SOSR where an employee has been engaged to cover an employee absent due to pregnancy, childbirth, adoption leave or shared parental leave.

The position is different where an employee has been recruited for a specific project or to provide additional capacity during a busy period. In those circumstances, there is a stronger argument that redundancy applies when the FTC expires because the work for which the employee was engaged is no longer required.

It is also important to consider whether circumstances have changed during the life of the FTC. For example, a role created initially as temporary cover may become redundant if a restructure removes the role entirely.

Each FTC expiry should therefore be considered on its own facts to determine the appropriate reason for dismissal.

Ensuring a fair process

The process required for a fair SOSR dismissal on expiry of an FTC has traditionally been considered relatively “light touch”. However, employers should still take steps to manage the process properly.

At the outset, employees should understand that they are entering into a contract with a specified end date, why the FTC is being used and that continued employment after expiry is unlikely.

Before the contract expires, employers should hold a meeting with the employee, confirm the position in writing, provide access to the vacancy list and offer a right of appeal if the contract is terminated. Providing access to vacancies is also required under the Fixed Term Employee Regulations.

A redundancy dismissal will require the usual redundancy process, including consultation on the pool for selection, selection criteria, fair selection and redeployment opportunities.

Given the lower threshold for fairness, employers should consider whether treating an FTC expiry as an SOSR dismissal is appropriate wherever the circumstances allow.

Practical steps for employers

To minimise risk, employers should:

• Clearly document the reason for using an FTC and the trigger for expiry when the contract is offered.

• Assess before expiry whether the appropriate reason for dismissal is SOSR or redundancy.

• Consider redundancy where the FTC relates to a specific project or additional capacity that is no longer required.

• Follow a light-touch SOSR process, including early communication, a meeting before expiry, access to vacancies, written confirmation of termination and a right of appeal.

• Follow the full redundancy process where redundancy is the appropriate reason.

The forthcoming reduction in the unfair dismissal qualifying period does not remove the value of FTCs as a workforce planning tool. However, employers will need to be more deliberate about when they use them and ensure the approach taken at the end of the contract reflects the reason the FTC was created in the first place.

If you would like to discuss any of the points raised or talk through your approach, please do not hesitate to get in touch.