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Fixed term contracts – keys considerations & points in practice

Many employers use fixed term contracts to engage employees for a defined period, and in certain industries, such as within professional sport or further education, the use of fixed term contracts is very prevalent – often reflecting the playing season or academic year.

In this article we highlight some key employment law considerations and example points in practice:

  • The non-renewal of a fixed-term contract still amounts to a “dismissal” under section 95(1)(b) of the Employment Rights Act 1996 (the “ERA”), so an employee could still pursue a claim for unfair dismissal (if they have qualifying service), challenging their dismissal;
  • Where this applies the dismissal must be reasonable if the employer is to avoid unfair dismissal liability under section 98 of the ERA 1996. As you will be aware, the employer following a “fair” procedure goes to the heart of the question of reasonableness.
  • If fixed term contracts are used for more than 4 continuous years, the employer must be able to “objectively justify” the further use of fixed term contracts. Case law has supported objective justification of fixed term contracts in certain industries and certain employment scenarios – it is fact specific.
  • If the underlying reason for a non-renewal (and dismissal) was actually redundancy, then an employee who qualifies for a statutory redundancy payment with 2 years service etc would be entitled to be paid this (for a redundancy an employer should also consider all the usual principles for a fair redundancy, including considering the pool for selection, consultation, and exploring measures to avoid redundancy, informing the employee of alternative employment vacancies etc).
  • Fixed-term employees are entitled not to be treated less favourably than comparable permanent employees by reason of their fixed-term status, unless the employer is able to objectively justify the different treatment.

But what about the widespread use of fixed term contracts in specific industries? Within professional sport such as Premier League Football and Premiership rugby for example there is a standard form playing contract that is issued for a fixed period – a season or multiple seasons. Very bespoke provisions deal with potential early terminations, for example due to player longer term injury/incapacity during the envisaged fixed term.

For example, in the Premier League footballer playing contract, in the event that the player suffers permanent incapacity, or has been incapacitated from playing due to the same injury or illness (including mental illness or disorder) for a period (consecutive or in the aggregate) amounting to 18 months in any consecutive period of 20 months, the employer club can serve notice terminating the employment contract – with 12 months’ notice in the case of incapacity due to a Player Injury, and 6 months in every other case.

Premier League contracts also have very specific provisions for the non-renewal of a player’s fixed term – under clause 19.2 a player also receives a “top up” July extra month’s payment, after their contract usually expires on 30 June. The provisions works as follows – if by the expiry of the contract the club has not offered the player re-engagement on terms at least as favourable as those applicable over the last 12 months (or the length of the contract, if shorter) the player shall continue to receive a payment equal to their weekly basic wage (at the average amount of their weekly wage over the preceding 12 months of the contract, or the whole of the contract if shorter) for a period of one month from the expiry of the employment contract fixed term or until the player signs for another club (and the old club must also top up the shortfall in pay for that month if the new club pay is lower).

Contact our Employment team

Please do not hesitate to get in touch with our Employment & HR team if you require assistance drafting a fixed term employment contract, or if you need guidance on a fixed term employee issue/question.

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