A fixed-term contract is a contract that has a precise end date. For example, a contract is for a fixed term if it states that it ends on 31 December 2008, or that it lasts six months from 1 January 2008. Fixed-term contracts commonly include terms that allow the employer or the employee to terminate the contract before the end of the fixed term. If a fixed-term contract does not include a notice clause of this type, it would be a wrongful dismissal (wrongful dismissal ) for the company to terminate the contract before the end date. The company would then be liable to pay the employee damages equivalent to his or her loss of pay and other benefits for the balance of the fixed term.
Under principles of contract law, a fixed-term contract ends when the end date arrives, without the need for the company to terminate the contract. It is very important to note, however, that the position is different under employment legislation. For the purposes of statutory redundancy payments and unfair dismissal rights, if an employee is employed under a fixed-term contract and the term expires without the company renewing it under the same terms, the employee is treated as having been dismissed. Also, the non-renewal of a task or purpose contract is treated as a dismissal for unfair dismissal and redundancy purposes. Fixed-term and task or purpose contracts are sometimes described as limited term contracts. Whether the employee has the right to claim a redundancy payment or unfair dismissal depends on the reason the contract was not renewed, the length of the employee's service at the date the contract ended, whether the employer complied with the statutory minimum dismissal procedure ( minimum dismissal procedures ) and whether the employer acted reasonably in deciding not to renew the contract.
Take, for example, the situation where a company is considering not renewing an employee's fixed-term contract because there has been a reduction in the work available for the employee. If the employee has one year's service or more, he or she has the right to claim unfair dismissal, so the company should ensure that it follows the statutory minimum dismissal procedure and acts reasonably in reaching its decision not to renew. It should therefore consult with the employee about the non-renewal of his or her contract, ensure that the employee has been selected for redundancy using objective selection criteria, invite the employee to a meeting to discuss the proposed dismissal, give the employee an opportunity to appeal against the dismissal and offer redeployment where possible. The employee will also be entitled to ask for written reasons for the company's decision not to renew the contract (written reason for dismissal). If the employee has at least two years' service, he or she may be entitled to a redundancy payment (redundancy payments).
It should also be borne in mind that a decision not to renew an employee's fixed-term contract on certain prohibited grounds, such as pregnancy or trade union membership (automatically unfair reasons for dismissal ), would automatically amount to an unfair dismissal, regardless of the employee's length of service. A decision not to renew could be challenged as an act of discrimination if it was taken on grounds of race, religion, sex, sexual orientation, age or disability, or if it was for a reason relating to the employee's disability and was not justified.
The practical upshot of these principles is that, where a company is considering not renewing an employee's fixed-term contract, it should ensure that it acts reasonably, and approaches the case in the same way as it would were it considering the dismissal of an employee working under an open-ended contract.