This week the experts, Adam Partington and Esther Smith, advise on whether you can justify fixed term contracts.

The question: Justifying fixed term contracts

What is deemed to be an objectively justified reason for using successive Fixed Term Contracts?

We have several staff on Fixed Term Contracts. I know that employees on fixed-term contracts have the right to convert to permanent employment once they have worked under one or more fixed-term contracts for four years, unless the employer can objectively justify continuing to offer work on a fixed-term basis only.

One of our posts is funded externally by the government, so if we get the funding we renew the fixed term contract. We are now in the 5th year of using a FTC to the post-holder. 

Is reliance on external funding an objectively justified reason for using successive FTCs? Or do we now have to confirm her in post as a permanent employee?
 

Legal advice:
 

Adam Partington, solicitor, Speechly Bircham

When an employee has been continuously employed under successive fixed-term contracts for a period of four years or more, the employee will automatically become a permanent employee unless the continued use of a fixed-term contract can be objectively justified by the employer. Case law suggests that employment can be continuous even where there are breaks between the fixed-term contracts. Any period of continuous employment prior to 10 July 2002 is to be disregarded when calculating this four-year period.

Government guidance states that the continued use of a fixed-term contract can be objectively justified where the employer can show that the fixed-term contract is needed as a necessary and appropriate way of achieving a legitimate objective (for example, a genuine business objective) and is a proportionate way of achieving that objective. Each case should be considered individually. It is open to employers to agree objective reasons as part of a collective or workforce agreement but it is unclear from the information provided whether such a collective or workforce agreement is in place.

Case law indicates that the successive use of fixed-term contracts needs to be ‘justified by the presence of specific factors relating in particular to the activity in question and the conditions under which it is carried out’. One example of such justification might be the reliance on the Government funding referred to in the question, particularly if that funding is only for the term of the contract. Further, the reliance on the Government funding, and uncertainty over whether it will be granted, may be a sound business reason for continuing to use fixed-term contracts.

Fixed-term contracts may be a necessary, appropriate and proportionate way of dealing with this situation. However, this can only be decided on the facts of each individual case in relation to which you should seek specific legal advice. The employees may seek to assert that they are permanent employees and it would be safer to assume that, if litigated, the courts are likely to construe the employer’s justification narrowly and in favour of the employee.

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Esther Smith, partner, Thomas Eggar

Yes, external time limited funding is probably one of the few situations that would amount to objective justification for continuing to employ people on a fixed term contract.  It is clearly objective, and the fact that it is largely beyond the employer’s control helps with this argument.

In any event, once an employee has over a year’s service under a fixed term contract, there is little benefit in continuing to employ them under a fixed term agreement, other than the mutual understanding that the on going position is likely to be time limited and therefore not secure, but then in the current economy lots of people think that their future is not secure!

If you had a permanent employee working on a project that had to be terminated due to the cessation or withdrawal of external funding, you would have to handle the situation in the same manner as you would if the employee was employed under a fixed term contract (and had over a year’s service).

So arguably there is not much to be gained from maintaining her on a fixed term contract, and by moving her on to a permanent contract you at least avoid an argument as to whether you have objective reasons for continuing to employ her on a fixed term in excess of four years!

Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.