Are fixed term contracts still worth having?

Many of our clients have traditionally used fixed term contracts (FTC) in their teams. Often they have been used as tools to assess fit, in effect replacing a robust probationary process. What employers don't always understand is that the end of a FTC is classed as a dismissal. With the change to unfair dismissal eligibility in January 2027, this is a workforce plan that needs to be reconsidered. In this blog, we look at the reasons for using FTCs and how ending a fixed term contract should be treated.

Why do employers use fixed term contracts?

Fixed term contract traditionally are used for two main purposes:

1. To provide cover for planned absences such as maternity leave or long-term sickness absence.
2. To provide additional resource for discrete projects.

The changes introduced by the Employment Rights Act 2025 do not change these legitimate aims.

But what about the example given earlier in this article? Organisations that use FTCs as a standard recruitment tool should think again. The previous benefit of being able to end a contract without needing to provide a valid reason no longer applies. The reduction of the qualifying period of unfair dismissal from 2 years to 6 months means you have to follow a fair process when ending a contract. This still applies whether the contract had a defined end date or not. We'll go on to the reasons for dismissal shortly.

Our position therefore is that using FTCs as a standard recruitment tool no longer serves a purpose. In fact, you are limiting your recruitment options by eliminating those who are looking for a permanent role. Instead, recruiting permanently but having a robust probationary process can achieve the same goal whilst being fairer to the employee.

How should you end a fixed term contract?

If an FTC runs its course with no conduct or capability issues, there are two main reasons for dismissal: redundancy and Some Other Substantial Reason (SOSR). Knowing which reason applies as the process that you will need to follow will differ.

A redundancy situation will only arise where the statutory definition of redundancy is met. This means there must be either a cessation of the business (or the place where the employee works) or a reduction in the employer’s requirement for employees to carry out work of a particular kind. In redundancy situations affecting fewer than 20 people, individual consultation should take place to make sure that this is a fair process. Where the FTC has run for more than 2 years (either as one contract or where successive contracts have been issued), there will be the right to a redundancy payment. If you fail to complete these steps, the employee may have the option to make a claim to the Employment Tribunal for unfair dismissal.

Where an FTC has been used to cover absence, this won't apply, as the work continues. In these cases we are looking at SOSR is likely to be the appropriate reason for dismissal. The Employment Rights Act specifically recognises SOSR where an employee has been engaged to cover an employee absent due to pregnancy, childbirth, adoption leave or shared parental leave.

In these cases meeting with the employee before the contract expires, confirming the reasons for the FTC ending in writing, providing access to the vacancy list and offering a right of appeal if the contract is terminated would be the usual termination process.

Should you continue to use fixed term contracts?

There is no reason to stop using fixed term contracts but the circumstances that they are used in and the way that they are treated when they end should be re-evaluated. The main takeaway is that you shouldn't just assume that they can end without following a fair procedure.