Terminating fixed-term contracts: 5 pitfalls to avoid in the age of the Employment Rights Act
Fixed-term contracts are governed by the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (“Regulations”), but there is little magic about them. Employees working under fixed-term contracts are employees (almost) like any other, and they therefore benefit from the full suite of employment protections afforded to employees.
While the Employment Rights Act 2025 (“ERA”) does not specifically refer to fixed-term employees, the ERA’s centrepiece reform – the changes to the unfair dismissal framework – will impact employers’ practice around the use, and crucially the termination, of fixed-term contracts. This is therefore a good opportunity to revisit fixed-term contracts, and particularly to remind ourselves of the pitfalls involved in terminating them.
What is a fixed-term employment contract?
Under the Regulations, a fixed-term employment contract is defined as a contract terminating on expiry of a fixed-term, completion of a particular task, or on the occurrence (or non-occurrence) of any other specific event[1].
Fixed-term contracts are used widely, for example, for work carried out in connection with a specific project, to cover seasonal requirements or for employees appointed to cover permanent staff’s sickness absence or family leave.
Pitfall 1 – early termination: incorrect notice
A common (and potentially very expensive) trap to fall into on early termination of a fixed-term contract arises from a failure to interpret notice provisions correctly – or, to go back to the root of the problem, a failure to draft notice provisions correctly.
In a permanent, indefinite contract, you will generally find specific notice provisions. If for any reason these are absent, the law implies a provision that the contract may be terminated on reasonable notice.
In our experience, employers often overlook the need to include clear notice provisions in a fixed-term contract, as the contract is concluded for a specific task or duration and the parties are generally not thinking about early termination. Where there are no specific notice provisions, early termination will be a breach of the contract entitling the employee to bring a wrongful dismissal claim. In this scenario, the employee will be entitled to damages designed to put them in the position they would have been in had the contract not been breached – in other words, loss of earnings for the remainder of the fixed-term.
To avoid this issue, you should take professional advice in drafting fixed-term contracts and ensure that early termination is expressly dealt with and appropriate notice provisions included. Once it comes to termination, if you are unclear on applicable notice provisions you should always take advice. You will then have clarity on the potential exposure before you make any decisions, and you may be able to explore alternative exit routes, such as a mutually agreed termination.
Pitfall 2 – termination on expiry: not treating the expiry of the contract as a dismissal
We frequently see employers treat expiry as a natural endpoint rather than a dismissal. That is understandable and, in many ways, intuitive, but incorrect. The expiry (and non-renewal) of a fixed-term contract is in fact a dismissal in law.
That means that, where the relevant fixed-term employee has the necessary qualifying service, they may bring an unfair dismissal claim where a fixed-term contract is not renewed and the employer has not followed a proper process. Up to now, this has often been academic: the qualifying period to bring an unfair dismissal claim is two years and, in our experience, the majority of fixed-term contracts are concluded for shorter periods. However, from 1 January 2027, the ERA will reduce the qualifying period to six months, which will bring unfair dismissal risk in connection with fixed-term contracts into much greater focus. Going forward, it will therefore be important to treat the expiry of a fixed-term contract in the same way as any other dismissal, by identifying a fair reason for the termination and following a fair process.
Pitfall 3 – termination on expiry: treating the expiry of the contract as the reason for termination
Linked to the above, even where employers are alive to the fact that the expiry (and non-renewal) of a fixed-term contract is a dismissal in law, they often fall into the trap of assuming that the expiry of the contract is, in itself, a valid reason for dismissal. That is, however, not enough: to dismiss fairly on expiry, you will need to drill down into the substantive reason why the employee will no longer be required. This may be redundancy (for example, where they were employed for a specific project which has concluded), or some other substantial reason (for example, where they were employed to cover a permanent employee’s family leave and that employee is returning) – but in any event, the simple fact of the expiry of the contract is not enough.
Pitfall 4 – (non-)termination on expiry: accidental extension
We often see situations where, as business needs evolve, fixed-term arrangements drift beyond their original term, or the expiry date is simply overlooked.
Where an extension is dealt with through an express, written, agreement to extend for a specified period, that is generally not an issue. However, where the parties do not clearly document the terms of the extension (or simply forget), the terms of the extension will be left unclear. Subsequent termination can then become very messy, as the employer will need to fall back on terms (and notice periods) implied by law.
To avoid this, you should keep records and implement systems to track the progress and expiry of fixed-term contracts. Where an extension is necessary, you should ensure that any extension is agreed (even informally) in writing. It would also be sensible to safeguard against this situation in the drafting of your fixed-term contracts, by providing for what notice period will apply in the event that the term is extended. This can of course always be amended by agreement, but it will protect your position where an expiry date is missed by accident.
Pitfall 5 – treating fixed-term employees as first in line for termination
It can be tempting to think of fixed-term employees as less integrated into the business than permanent employees, and to therefore put them first in line if headcount needs to be reduced. However, that can be risky. Under the Regulations, a fixed-term employee has the right not to be treated less favourably than a comparable permanent employee – that extends to dismissal decisions and it is generally unlawful to select a fixed-term employee for redundancy purely based on their status (though there are nuances here). The principle applies more broadly, for example in relation to termination payments and/or promotion or redeployment opportunities. To avoid creating a liability, you need to bear that in mind and, generally, avoid distinguishing between permanent and fixed-term employees based on that status.
While many of these risks are not new, they are becoming significantly more important for employers. The operation of fixed-term contracts is going to become higher risk in light of the changes to the unfair dismissal framework shortening the qualifying period and removing the cap on compensation.
How we can help
Ahead of these changes coming into effect on 1 January 2027, we recommend that you audit your use of fixed-term contract and carry out a general ‘health check’ on the terms themselves, and on how you manage fixed-term contracts and their expiry. Our Employment and Partnerships team are well-placed to support you prepare for these changes – please do get in touch to find out more.
[1] Regulation 1(2) of the Regulations
