Esther Smith, partner at Thomas Eggar, and Martin Brewer, partner at Mills & Reeve, advise on how to correctly handle the issuing and termination of a fixed-term contract.
The question:
I would be grateful if someone could advise me how we should be handling fixed-term contract end dates, in terms of giving notice / sending written confirmation prior to the end date, to inform the individual that their contract is being terminated on the agreed date.
I am sure I read somewhere that written confirmation needs to be sent four weeks prior to the end date, but I can’t find any information and guidance on what should be included in the letter. Do we need to give reason for the ‘termination’ and offer an appeals process?
If the end of a fixed-term contract is regarded as a termination, should we be following the three-step process?
Legal advice:
Esther Smith, partner, Thomas Eggar
In terms of notice, arguably the issuing of a fixed-term contract is itself the serving of notice of termination at the end of that fixed term. However, it is sensible to diarise a reminder to notify the employee on the fixed-term contract that the contract is coming to an end in around a month or four weeks’ time. I am not sure where you have read that you need to give four weeks’ notice, as this is not a statutory provision.
It is always sensible to draft in the ability to terminate the fixed-term contract during the fixed term on notice. This gives you the flexibility to terminate the contract before the end of the fixed term if you need to (for example, if the business needs change) without being liable to the employee for the salary and benefits for the balance of the fixed term.
Moving to your last point, the expiry of a fixed-term contract is a dismissal in law. Therefore, in theory, you ought to be following the statutory dismissal procedures when terminating a fixed-term contract. However, if the employee on the fixed-term contract has less than a year’s service, generally speaking they do not have the ability to bring an unfair dismissal claim and therefore enforce the statutory dismissal procedures. So you may wish to take a view and dismiss without following the procedures.
If the employee on a fixed-term contract has over a year’s service, you need to comply with the statutory procedures and also comply with the general principles of unfair dismissal legislation.
This means you will need to show that you have a fair reason to dismiss and that you have gone through an equal process. The expiry of the fixed term will not be a sufficient reason in itself if the work being done is to continue. If the fixed term was for a specific project that has now been completed, or to cover another employee’s absence who has now returned, then you should be ok.
As with any dismissal, if in any doubt you are better off taking advice on the specifics of the situation you are dealing with to avoid making a costly mistake.
Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information please visit Thomas Eggar.
* * *
Martin Brewer, partner and employment law specialist, Mills & Reeve
The non-renewal of a fixed-term contract is a dismissal for both unfair dismissal and redundancy purposes. A fixed-term contract (more properly now called a limited term contract) is one where the end date is known at the outset (either because the date is fixed or the contract ends on the happening of an event such as completion of a project). However, the fact that it is known at the outset that the employment will end does not mean that there is no process issue.
As the non-renewal is a dismissal, there are two key consequences. First, you must have a potentially fair reason for that non-renewal (dismissal). There is a limited category of potentially fair reasons contained in the Employment Rights Act 1996. These are: conduct; capability; redundancy; statutory bar; retirement and some other substantial reason.
Most dismissals in the context of fixed-term non-renewals are either redundancy (non-renewal because the employer no longer needs the work done) or ‘some other substantial reason’ (for example the non-renewal of an employee on a fixed term contract as maternity leave cover).
Second, you must follow a proper process.
The process applicable depends on the reason for the dismissal, but the principle is that you must not treat the fixed-term worker any less favourably than you would treat a permanent employee in the same circumstances.
At present, at least until it is abolished, this means as a minimum following the statutory dismissal procedure which you can do during the term of the contract (including as to appeals).
In a redundancy case this means doing all the reasonable things you would normally do – consult, select (including considering whether permanent employees should be in the ‘pool’) on an objective basis and seek alternative employment.
The only statutory requirement for a specific notice period to be given is that set out in the 1996 Act (one week for the first two years and one extra week thereafter for each subsequent full year up to a maximum of 12 weeks).
Contractually, many fixed-term agreements do contain notice provisions so that they can be brought to an end before the last day (in case, for example, the employee is seriously under-performing or commits an act of misconduct).
If the drafting of the contract isn’t brilliant, it’s possible that such a notice provision (sometimes called a break clause) might apply to the ending of the contract by expiry (i.e. at the end of the fixed term) so that’s something to look out for.
Finally, yes you do need to give a reason for the non-renewal in two circumstances. First, if you are asked by the employee for reasons you are required to respond within 14 days to that request (failure to do so can give rise to a complaint to an employment tribunal and the remedy is two weeks’ pay) and, second, if you would normally give permanent employees reasons, then not to do so to fixed-term employees is probably less favourable treatment under the Fixed-term Employees (Prevention of Less Favourable) Treatment Regulations 2002.
Martin Brewer can be contacted at: martin.brewer@mills-reeve.com
* * *
