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Can fixed term contracts become permanent?

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A fixed term contract is a form of employment that expires after a certain “term” ends. The term could be a number of things, for example when a particular project has been completed, or when another employee returns from either sickness or maternity leave. There are occasions where fixed term contracts can become permanent, and in this article our Employment team discuss under what circumstances this can happen.

Changing a fixed term contract to permanent employment

If you have an employee who has been on two or more successive fixed-term contracts for four or more years, they will automatically become a permanent employee, unless you can show that there is a good business reason for them not to do so.

If an employee is employed on a fixed-term contract of five years and the contract is renewed, again assuming that you cannot justify another fixed-term contract, the employee will achieve permanent status on the date that the contract is renewed. However, if the employee is dismissed at the end of the five-year contract, they will not achieve permanent status because, although the fixed-term contract lasted for longer than four years, it did not form part of a series of successive contracts.

As an employer, you and/or trade unions (or a staff association) may make a collective agreement that removes the automatic right to become a permanent employee in these circumstances.

When will the permanent contract come into effect?

The employee’s role will become permanent on the date on which the contract was entered into (where the employee was employed on a previous fixed-term contract before the start of the current contract) or the date on which they accrued four years' continuous service - whichever is later.

For example, if you have an employee who has been employed on a three year fixed-term contract which you then renew for a further two years, assuming that you cannot justify a further fixed-term contract, the employee will achieve permanent status on the date on which they accrue four years' service.

What should I consider when offering fixed term contracts?

When a fixed-term contract converts into a permanent contract, there are several issues that can potentially arise. For example, if you have not included a notice provision in the contract and the employee stays on permanently beyond the fixed-term stated in their contract, there is potential for a dispute as to what length of notice is needed to terminate the contract.

The change in terms will also trigger the duty under the Employment Rights Act 1996 to issue a written statement of the change, which is often overlooked.

You should therefore be careful when offering fixed-term contracts and ensure any prospective employees offered them are aware of their duties in relation to termination and re-engagement on new terms. If you have any questions about the pros and cons of using fixed-term contracts or you are seeking advice on drafting such a contract, call us today on 023 8071 7717 or email employment@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.