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Fixed term contracts are widely used across business sectors, not only for employees, but also for consultants, contractors, suppliers, and service providers.
Businesses often use fixed term contracts to manage short-term projects, specialist assignments, or seasonal work, or to secure certainty over cost and duration for a defined period. They offer commercial flexibility, but if not structured carefully, they can lead to unexpected liabilities, renewal disputes, or ongoing obligations long after the term has ended. Clear drafting and active management are key to retaining the advantages of these arrangements.
If your business employs staff on fixed term contracts, you must ensure they are properly documented and managed. Employment law gives fixed term employees strong protection, and poorly drafted contracts can expose employers to claims or automatic conversion to permanent status.
Key points to note include :-
Equal treatment – fixed term employees are entitled to the same terms, benefits, and opportunities as permanent staff unless there’s a clear, objective reason for any difference.
Length of employment – after four years on successive fixed term contracts, an employee is generally deemed permanent unless special circumstances apply – these grounds can be technically complex, and your solicitor’s advice should be sought.
Non-renewal – allowing a fixed term contract to expire counts as a dismissal in law. Employers must have a fair reason and follow proper procedure if the employee has at least two years’ service. In some circumstances, such as where the employer has contractual dismissal procedures, extra steps must be implemented to limit the risk of a claim.
Early termination – without a clear early termination clause, ending the contract prematurely can make the employer liable for the full remaining term.
Discrimination protection – fixed term employees can bring discrimination claims from day one; no qualifying period applies.
Statutory framework – the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 protect against less favourable treatment compared to permanent staff.
Risks for employers - include missing or unclear notice and termination provisions, automatic conversion to permanent status after repeated renewals, failure to consult or document renewal decisions properly.
Ending or Renewing a Fixed Term Contract - before a fixed term employment contract expires, review whether the role remains necessary, how many renewals have taken place, and whether the employee has acquired rights such as unfair dismissal or redundancy protection. Ensure contracts include clear early termination clauses with notice provisions that meet statutory minimums (at least one week after a month’s service, and one week per year after two years’ service).
Fixed term structures are equally important in commercial contracts, such as consultancy, supply, distribution, leasing, or technology agreements. While these are not governed by employment law, similar principles apply: precision, flexibility, and clear exit routes are essential.
When drafting or reviewing a fixed term commercial contract, consider:
Term and renewal – define the contract duration clearly, with options for extension or renewal.
Termination rights – include express early termination provisions to avoid being bound for the full term.
Post-term obligations – ensure confidentiality, intellectual property, and payment provisions are properly managed after expiry.
Statutory rights – some arrangements (e.g. commercial leases under the Landlord and Tenant Act 1954, or agency/distribution agreements) may create statutory renewal rights, limiting your ability to end the relationship cleanly.
Sector-specific issues – in IT and technology contracts, consider update rights, data migration, and technology obsolescence.
Common risks – watch for automatic renewal (“evergreen”) clauses, unbalanced termination rights, or inflexible terms that restrict your ability to adapt to business changes.
Our expertise in these arrangements can help you decide firstly if a fixed term arrangement is right for you. We can help with drafting compliant fixed term contracts and then step in when the contracts are due to expire to answer any questions you may have, and extend where necessary, advising you on any potential risk attached.
We assist businesses in:
Drafting and reviewiing fixed term employmenty contracts such as for directors;
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.
We recently acted for a major importer of workwear who took our advice in order to hire a team of salespeople on fixed term contracts. They reported back that the arrangement was a “real success”, as it allowed both them and their employee to remain focused on delivery over a limited horizon.
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