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If your business uses fixed-term contracts, now is the time to understand how the new unfair dismissal rights could impact you and what steps you can take to reduce risk.
“That’s another fine fix, you’ve gotten me into!” might sound like something uttered in a Laurel and Hardy film. But in this case we are talking about (perhaps) unintended consequences and the Employment Rights Act – specifically unfair dismissals.
Simply put, fixed-term contracts are typically well under two years, meaning that the traditional two-year protection from unfair dismissal was more than enough to cover the natural termination of such contracts.
Now (well, from 1st Jan 2027) the protection is only six months. And typically, fixed-term contracts are often longer than six months, opening up significantly more risk of unfair dismissal to you as employer if you use them.
Even though by its nature a fixed-term contract should have a natural end, it still counts as a dismissal and has the potential to be unfair. You need to ensure you have a fair reason for the dismissal and follow a fair process. The five fair reasons for dismissal are:
The natural end of a fixed-term contract is most likely to be brought about by redundancy (the work/role no longer exists) or be captured under SOSR. You will need to be clear which one it is, and there will likely be actions you need to take from the outset of the contract to protect yourself.
Looking at these two reasons for a fair dismissal in turn…
SOSR –This may most likely be used where the fixed-term contract was designed to resource cover for maternity or adoption leave. Parents returning from maternity leave have a statutory right to return to work.
In cases like these you need to explicitly state in the contract with the employee why the fixed-term role is being created and why it will end on a set date, and then ensure that this bears out. You will also need to follow a fair process – a requirement most likely fulfilled by communicating well with the employee in the lead up to the contract’s end and assessing whether there are any appropriate alternative roles.
Redundancy –Ifredundancy is the fair reason, you will need to follow established redundancy process. This includes thinking carefully about the redundancy pool, and if it is just one person (the fixed term employee) being watertight on the reasons; and performing due consultation and consideration into alternative roles.
Again it will be wise to state that the role is for the fixed term and no alternative role is envisaged in the initial contract.
There is still a two-year service requirement for qualification for redundancy pay.
The reasons for using fixed-term contracts in the first place may be drawn into focus. As well as the family leave or set project cover described above, some businesses choose to use fixed contracts to manage headcount. Others may roll people over on a series of fixed terms, either of which can add complication with employment rights as without a break and no expectation of renewal continuous service accrues.
There are the other fair reasons for dismissing someone (conduct, capability and illegality).
If you need to consider dismissing someone for one of these reasons the approach may vary if it is within the first six months (a lighter touch) or after when full caution should be exercised. Of course, if the fixed term is less than six months anyway, none of what we’ve talked about will be any different to before.
And remember that there is no protection from unfair dismissal at all where discrimination is involved, based on the nine protected characteristics of the Equality Act.
The issues raised in this blog highlight why professional HR support is more important than ever – there is just so much to get right and the risk is considerable. But more than that, doing HR correctly can help you improve culture, drive productivity and take a weight off your shoulders. So talk to us about the best package for you today. Call us on 0117 970 2955 or visit www.hrdept.co.uk
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