If you have ever started a new job, then the likelihood is that you signed an employment contract. An employment contract is a legally binding written agreement between an employer and an employee that states the terms of the employment both as they relate to the laws of the country in which they are working and the organisation that is hiring the employee.
Many freelancers and specialist workers will have worked under a specific type of employment contract known as a fixed-term contract. As the name suggests, these are contracts that will come to an end at a pre-agreed point in the future.
In Europe, the number of fixed-term contracts ranges from around 6% of employment contracts in the UK to 23% in Spain. Germany, Italy, and France are all between 13% and 16%.
We are going to take a look at fixed-term contracts, what they are, who has them, and how they work.
A fixed-term contract is a contractual agreement between an employer and their employee that is binding for a pre-determined period of time. A fixed-term contract must be with the organisation that the employee is working for (i.e. not an agency), and it must also always end at an agreed time.
In the UK, employees on fixed-term contracts for 4 years or more automatically become permanent members of staff unless the employer can show there is a good business reason not to do so. And, after two years of working at an organisation, a fixed-term employee should have access to all the same pension benefits as permanent employees.
So let's jump in and find out what exactly counts as a fixed-term contract?
Fixed-term contracts vary widely. For example, a professional Premier League footballer is on a fixed-term contract, but the terms of their £100,000 a week deal will look quite a bit different to those of a lifeguard doing seasonal summer work at a holiday camp. Yet both of them are on fixed-term contracts, so what do they have in common?
Well, employees are usually on a fixed-term contract if two facts about their employment apply:
- the employee has an employment contract with the organisation they work for
- their contract ends on a particular date or after the completion of a specific task.
In both cases, the employees have a contract with the organisation they work for - the footballer with his football club and the lifeguard with their holiday camp. Also, both will have a pre-determined end date of their employment - the lifeguard at the end of the summer and the footballer after a certain number of seasons.
Outside of the glamour of professional football, you are likely to find fixed-term contracts for
- a seasonal or casual employee hired to work during peak periods
- a specialist employee hired specifically for a project
- employees offering maternity leave cover.
There can also be some situations that would appear as though they are fixed-term contracts, but in fact, they are not.
For example, employees are not on a fixed-term contract if they:
- have a contract with an agency rather than the company they’re working for
- are a student or trainee on a work experience placement
- are working under an apprenticeship contract
- are in the armed forces.
Fixed-term contracts end automatically once you have reached the pre-agreed end date. The employer is not obliged to offer any notice as the employee should already know when the contract is due to end.
Fixed-term contracts will normally end automatically when they reach the agreed end date. The employer doesn’t have to give any notice.
If the contract isn't renewed and the employee has worked with the employer for two years, the employer needs to demonstrate that there is a "fair" reason for not renewing the contract. Fair reasoning may include completion of a project, closing the role, etc.
If the employee feels that their contract was not renewed for unfair reasons, they have the right to challenge their employer for their reasoning. They may even be eligible for compensation.
If an employer wishes to terminate the contract prior to its completion, then the outcome depends upon the stipulations within the contract itself.
For example, if the contract states that it can be ended early under certain circumstances and the employer has given proper notice, then the contract can be ended.
However, if the contract has no statement on being ended early, then the employer may be in breach of contract.
If the employee wants to end the contract early, they must hand in their notice one week in advance if they have worked for the employer for a month or more. However, the contract may state that they need to give more notice.
Fixed-term employees have the right to a minimum notice period of:
- one week if they have worked continuously for at least one month
- one week for every year they have worked if they have worked continuously for two years or more
These are the legal minimum periods, and a contract may specify a longer notice period.
If an employer ends a contract without giving the proper notice, the employee may be able to claim breach of contract.
If a contract was originally drawn up for a one month period, but the employee ended up working for three months, the employee would still be entitled to the minimum notice period of one week.
An employee on a fixed-term contract automatically becomes a permanent employee after 4 or more years of service unless the employer can show there is a good business reason not to do so.
However, there are some places of work in which an employer and the workers and unions involved have a collective agreement that removes the automatic right to become a permanent employee after four years.
After two years of working at one organisation, fixed-term employees should have access to the same pension scheme as permanent employees.
Broadly speaking, fixed-term employees have the same rights as permanent employees. Employers must not treat their fixed-term employees any different or less favourably than their permanent employees.
Fixed-term contracts are usually regulated by individual countries' labour laws, which differ around the world. Labour laws are there to ensure that employers oblige basic worker rights regardless of the type of contract.
Employers must not treat workers on fixed-term contracts less favourably than permanent employees doing the same or largely the same job unless the employer can show that there is a good business reason to do so.
Employers must make sure that fixed-term employees get:
- the same pay and conditions as permanent staff
- the same or equivalent benefits package
- information about permanent vacancies in the organisation
- protection against redundancy or dismissal.
Any employee who has worked for the same organisation continually for two years or more has the same redundancy rights as a permanent employee.
In the event of a workplace dispute, fixed-term employees should look to sort out their issues and concerns with their manager.
If their manager does not respond satisfactorily, then the fixed-term employee can request a written statement from their employer that explains their treatment.
If they have exhausted all other routes, then their final option is to make a claim to an employment tribunal.
There are many benefits to working on a fixed-term contract. Here we will take a look at just a few of them:
Fixed-term contracts can offer you short-term experience that can go a long way when it comes to looking for more permanent jobs. If you have worked in a variety of workplaces with different types of people, you will end up being all the more well rounded for it.
However, be careful not to drift between too many very short contracts. If a future employer sees you have had 12 successive fixed-term contracts in the last 18 months, they may get the impression that you find it hard to commit.
Many fixed-term contract jobs pay workers a day rate or a fixed project fee, which will usually work out to be quite a bit more than the average pay for the same job on a permanent contract.
Fixed-term contracts allow you to work on projects that you might not have had the opportunity to engage with if you were working on a permanent contract. Fixed-term contracts can take you around the world and offer working experiences that are very rare to come by in permanent positions.
When you work under fixed-term contracts, you can choose to specialise in one specific area that you know you are good at. For example, if you are a coder or a writer, a fixed-term contract allows you to focus on your coding or writing without the need to feel pressured into moving into a management position.
You can also move between cities and countries, as you find a place that's a good fit for you. And you can try out different organisations to work for until you find an employer that suits you perfectly.
Of course, there are also some downsides and drawbacks to fixed-term contracts. Here we will take a look at some of them.
No long-term security
The plus side to a permanent contract is the knowledge that every month, without fail, there will be a paycheque in your bank account. On top of that, there are things like pension contributions that are put forward by your employer and all your taxes are sorted out for you.
We all know how demoralising job hunting can be. But many of us find a job and stick with it for a good few years before moving on. Fixed-term employees have to spend a lot of time looking for their next gig, often whilst working full time on their current one. And this also entails the inevitable slew of rejection letters that are part and parcel of every job hunt.
No opportunity for promotion
Because a fixed contract has a pre-determined end date, there is unlikely to be an opportunity for promotion as you will not be there for long enough and are likely to move on once your fixed-term contract ends. This means it can be harder to build up a career ladder than it is for people who work on permanent contracts.
Fixed-term contracts are a type of employment contract that is binding for a pre-determined period of time. Employees working under fixed-term contracts have largely the same rights as those working under permanent contracts. Many people choose to work fixed-term contracts as they often can earn more money that way. However, there are multiple benefits to permanent employment, too, not least the security offered by the job.
If you are considering taking a job offer that has a fixed-term contract, make sure you understand the implications of that kind of work before agreeing to it. Also, be sure to familiarise yourself with the rights you have as a fixed-term employee, as employers can be known to take advantage of the flexibility of their conditions.