The pros and cons of fixed-term contracts

Fixed-term contracts can be useful for temporary roles – such as maternity cover, project-based work or seasonal demand – but they come with risks that business owners and HR should be aware of and manage carefully.

Day One legal rights and protections

Employees on fixed-term contracts are protected under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002. From the first day of employment, they have the right to be treated like permanent staff, including equal access to pay, conditions, training, and benefits – pro-rated if needed. You can only justify differences if you have good business reasons and the overall package is of equal value.

After four years on successive fixed-term contracts, an employee may automatically become permanent – unless there’s a strong business reason against it. Employers must also notify them of suitable permanent roles.

Tricky areas for employers

1. Pro-rata benefits
   You don’t have to offer every benefit that you have available to your permanent employees – like a company car – but you’ll need to explain why and offer something equivalent if challenged.
2. Ending a fixed term contract
   Simply letting a fixed-term contract expire counts as a dismissal, so you’ll need a fair reason if the employee has 2+ years’ service. Usually this will be redundancy or “some other substantial reason” (e.g. the return of the employee they were covering).
3. Guidance for early termination
   Unless the contract allows for early termination with notice, ending it early may amount to wrongful dismissal. Employers should be sure to include clear early termination clauses in the employment contract.
4. Mitigating circumstances, such as funding uncertainty
   If you rely on external funding, you may be able to justify continued use of fixed-term contracts – but be prepared to defend this at tribunal if necessary.
5. Permanent roles
   Fixed-term employees should, at the very least, be offered the opportunity to apply for the permanent role they’re filling, if one is created. If you don’t want to offer the role to them, then you should try and make it as different as possible from the temporary position.
6. Pregnancy or maternity
   Not renewing a contract during pregnancy or maternity leave isn’t unlawful in itself, but a fair process is essential. Offer priority access to suitable vacancies and provide clear, written reasons for dismissal.

Fixed-term contracts can be practical, but they’re not risk-free. A proactive, fair and transparent approach will help you stay compliant – and avoid costly claims.

Further reading

• The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002