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Fixed-term contracts

27 July 2012

If employers decide not to renew fixed-term contracts, are they at risk of claims of unfair dismissal or redundancy?

The issue arose in a recent case where tribunal action was taken by a number of workers whose fixed-term contracts had not been renewed. They claimed that they had effectively been made redundant and that the employer had failed in his duty to consult them. An initial ruling found in their favour but this was overturned on appeal.

The case raises a number of questions around treatment of workers on fixed-term contracts. Generally, such contracts automatically come to an end at their agreed point so employers are not required to give notice. However expiry of the contract without renewal amounts to a dismissal in law. Employers must therefore act fairly and follow any dismissal procedure if necessary.

A range of business reasons should be taken into account in deciding whether or not to renew a fixed-term contract. But the difference between a ‘business’ reason and an ‘employee-related’ reason is not always clear-cut and can potentially leave the door open to a tribunal claim.

Ensuring that contract terms are clearly drafted, and including fixed-term contract workers in any consultation process, can help employers avoid claims for unfair dismissal or failure to consult on redundancy. Employers should bear in mind the two vital ingredients for a viable fixed-term contract: there must be clear agreement in writing as to the duration and a properly evidenced underlying business reason for the fixed duration of the contract (eg availability of funding for the limited period or the duration of a particular order).

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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Matthew Clayton MA LLM (Cantab), CIPP/E
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Mathew Clayton
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