Despite the extensive use of fixed-term contracts, many employers do not realise that the non-renewal of a fixed-term contract actually amounts to a dismissal in law.

Essentially, this means if an employee has over two years’ service, they may be able to submit a claim for unfair dismissal. They may be able to succeed in their claim if they show that the employer failed to renew their contract for a fair reason or for not following a fair procedure.

Reasons and procedure for dismissal

A dismissal will be considered potentially legally fair when an employer can show that the reason for the dismissal was related to an employee’s conduct or capability, redundancy, a statutory restriction that prevents the employment continuing and some other substantial reason.

• Redundancy

The non-renewal of a fixed-term contract will be potentially fair on the basis of redundancy. This will be the case where there is not enough work for the employee.

You will need to follow a fair redundancy procedure – the same as one as the one used for permanent employees. In cases of small scale redundancies (where fewer than 20 staff are to be made redundant over 90 days at one establishment), there are a number of steps to follow to ensure a fair process, including warning employees of redundancies, creating and applying fair and non-discriminatory scoring criteria, consulting with employees and thinking through suitable alternative employment options. In cases of large scale redundancies (where 20 or more staff are to be made redundant over 90 days at one establishment), you will also need to adhere to collective consultation rules.

Those who have worked for you for two years and the reason for dismissal is redundancy will be entitled to a redundancy payment. The amount they receive will be dependent on their age, pay and length of service.

To learn more about redundancy – you can read our guide here.

• Some other substantial reason

Sometimes, the reason may be fair for ‘some other substantial reason’, for example, the fixed-term employee has been clearly recruited to cover maternity leave and their employment will be terminated when the other employee returns.

Risks of discrimination

If you decide not to renew a pregnant employee’s contract because she is pregnant or is taking maternity leave, it would be considered discrimination and as such, this would be an automatically unfair reason for dismissal. This means they can submit a claim, irrespective of how long they have worked for you. If you dismiss an employee who is pregnant or on maternity leave, you must provide her with a written statement which clearly explains the reasons for the dismissal.

Before you take steps to dismiss an employee, we would strongly recommend you speak to your Employment Law Adviser to guide you through the appropriate procedure.