Many businesses engage staff on fixed or limited-term contracts to provide cover for staff on family-related leave, absent due to long-term ill-health, or to complete a specific project or task. Some contracts set out the date they are due to end, other set out the specific circumstances that will bring them to an end.

This post explains why you may need to manage these types of contracts differently once the qualifying period required to bring unfair dismissal claims is reduced.   

What's changing?

An employee currently needs two years' service before they can bring an ordinary unfair dismissal claim. This means you can usually short-cut the dismissal process if you wish to.

From 1 January 2027, the qualifying period will reduce to six months. It will apply to employees who already have six months' service at that date, and to others once they reach six months' service. 

From the same date: 

• Employees will be able to ask for written reasons for their dismissal after six months' service; and

• The compensatory cap (currently the lower of 52 weeks' pay or £123,543) will be removed. 

There are also a number of reasons where an employee can bring a claim of automatic unfair dismissal claim, regardless of their length of service. 

The dismissal of a fixed-term employees is automatically unfair if the main reason for their dismissal is because they have brought proceedings against their employer under the Fixed-term Employee Regulations (or their employer believes they have), or has asked for a written statement explaining why they have been treated less favourably under those Regulations, and in a few other situations. Similarly, if a fixed-term employee is made redundant because they have done any of these things, they will also be regarded as having been automatically unfairly dismissed. Those rules aren't changing.

How will this affect fixed-term contracts?

The law treats the expiry of a fixed-term contract as a dismissal if it is not renewed or extended on the same terms as before. That's the case whether you expressly tell an employee that they are being dismissed because their contract has come to an end or where the contract comes to an end without you doing or saying anything.  

At the moment, many fixed-term employees cannot claim unfair dismissal because their contracts end before they reach two years' service and they are not re-engaged on new contracts. For example, if an employee is on a one-year fixed term contract (perhaps to cover someone's maternity leave), they will not qualify for ordinary unfair dismissal when it ends. 

However, once unfair dismissal can be claimed after six months service, more employees engaged under fixed and limited-term contracts will be able to bring claims if they are unhappy about the way their dismissal has been handled. 

What is a fair reason and fair process for not renewing a fixed or limited-term contract?

Once an employee has worked for you long enough to bring a claim of undair dismissal, you must be able to demonstrate that you have:

• a fair reason for dismissing them; and

• followed a fair procedure