Fixed term contracts

Fixed term contracts are common. While primarily associated with employment law, fixed term contracts are also commonly used for consultants, freelancers, and commercial agreements in sectors such as IT, property, and professional services.

Overview of fixed term employment contracts

• Equal treatment - employees on fixed term contracts are entitled to equal treatment with permanent employees, including comparable terms, benefits, and opportunities unless objectively justified.

• Length of employment - after 4 years of successive fixed term contracts, employees automatically convert to permanent status unless the employer can provide genuine objective justification.

• Non-renewal of a fixed term contract - constitutes a dismissal in law; under unfair dismissal law, employers must have fair reasons and follow proper procedures for employees with 2 years' service.

• Early termination - Including proper early termination provisions is essential; without them, employers may be liable to pay for the entire remaining contract term if terminated prematurely.

• Discrimination legal protection - fixed term employees can bring discrimination claims from day one - no qualifying period applies for claims related to protected characteristics.

• Statutory rights - the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.Key rights for fixed term employees in the Regulations include entitlement to the same terms and conditions as permanent employees (e.g. pay, holidays, pensions and dismissal rights)

Risks of fixed term contracts for employers

• Lack of proper notice provisions leading to breach of contract claims

• Risk of claims for discrimination

• Need to monitor contract durations to prevent unintentional conversion to permanent status

• Unintentional creation of permanent employment through implied terms

• Regular renewal processes requiring careful documentation

• Need to adhere to consultation requirements for non-renewal

• Lower employee engagement and commitment

Risks of early termination

Points to note include :-

• the contract must include an early termination clause (notice provision)

• proper notice must be given according to the contract or statutory minimums

• employers may be liable to pay for the remainder of the contract term

• fixed term employees are entitled to minimum notice periods of 1 week if they've worked continuously for at least 1 month and 1 week for each year if they've worked continuously for 2 years or more

Fixed term contract renewal and continuation

When a fixed term contract comes up for renewal, employers should consider:

• Whether the role is still temporary in nature

• How many previous renewals have occurred (approaching 4 years?)

• If the employee has accrued employment rights (e.g., unfair dismissal protection)

• Whether proper consultation has occurred regarding renewal/non-renewal

• If an employee continues working past the end date without formal renewal, there is an 'implied agreement' that the end date has changed, and proper notice would be required to terminate.

Other types of fixed term contracts

Fixed term contractual arrangements are also widely used in other commercial contexts. Key considerations for non-employment fixed term contracts include:

• Essential Clauses - include precise termination mechanisms, extension/renewal terms, early termination rights, key personnel provisions, intellectual property rights provisions, and confidentiality obligations extending beyond the term.

• Limited Termination and early termination rights – Parties are generally bound for the full term unless the contract includes express rights to terminate early. Even if it does a dispute may arise triggering potential liability for damages, often including the remaining contract value.

• Ongoing Obligations Post-Term - even after expiry, terms may continue by implication (e.g. through continued performance or payment), potentially extending liabilities. Without a clear mechanism to wind down or transition, the fixed term may not achieve finality.

• Statutory rights - in some contexts, such as commercial property (under the Landlord and Tenant Act 1954) or certain franchise or agency or distribution arrangements, parties may acquire statutory rights to renew or other rights, even if the contract was intended to be fixed-term only. This can restrict your ability to end the relationship cleanly.

• Service level agreements (IT contracts) - consider price review provisions, and exit/transition arrangements.

• Common Risks - watch for automatic renewal "evergreen" clauses, inflexibility to changing business needs, termination rights imbalance, inadequate performance remedies, and regulatory change implications.

• IT and Technology Considerations -  address rights to updates/patches, technology obsolescence, data migration rights, and intellectual property ownership.

How we can help

Our experienced legal team provides practical, strategic advice tailored to your business needs.

Employment Fixed-Term Contracts

We support employers and employees in:

• Drafting clear, compliant fixed-term employment contracts.

• Advising on rights to notice, renewal, and conversion to permanent status.

• Managing end-of-contract issues, including unfair dismissal risks and redundancy entitlements.

• Ensuring compliance with the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.

• Commercial Fixed-Term Contracts

We assist businesses in:

• Drafting and reviewing fixed-term commercial agreements (e.g. supply, consultancy, distribution, leases).

• Building in effective termination, renewal, and variation clauses.

• Identifying and mitigating risks such as early termination liability or statutory renewal rights.

• Navigating sector-specific regulations and obligations that may override contract terms.