Fixed-term Contracts for Charities

Fixed-term contracts are perhaps more commonly used in the charity sector than any other sector due to the funding environment within which charities are positioned. Generally, the intended benefit behind the use of fixed-term contracts is to enable employers to more easily terminate the employment of those employees if funding is terminated and / or not renewed. However, there are some potential traps that charities can unwittingly fall into which can lead to costly claims as set out below.

  • It is essential that fixed-term contracts of employment contain ‘break’ or notice provisions allowing the employer to terminate the contract by giving a short period of notice which is either the minimum required under current legislation or more. If such provisions are not contained within a contract of employment and the contract is terminated early without any breach by the employee, there will be a strong argument that the employee is entitled to remuneration for the entire length of the fixed-term contract irrespective of the fact that it has been terminated early.
  • It is advisable to state in a fixed-term contract of employment that the contract will end on a specified end date ‘without need for further notice’. For the reasons set out above, it is important that fixed-term contracts of employment contain notice provisions. However, if the required period of notice is then not given to the employee, they may have a claim for breach of contract enabling them to claim payment of the equivalent remuneration for the specified period of notice. If the contract states that it will end on the end date ‘without need for further notice’ this overrides the notice provisions and the claim for breach of contract will fail.
  • In some cases, the termination of a fixed-term contract will be for a fair reason known as ‘some other substantial reason’. However, this will only be the case where the fixed-term contract clearly relates to an individual circumstance such as to cover maternity leave or because the funding agreement stipulates that the funding is linked to that named employee only. If this is the case then there will be no need to pay redundancy pay on termination of the contract. If, as is frequently the case where there is a loss of funding, the circumstances surrounding the termination of employment amount to a redundancy situation, the reason for the termination of employment will be redundancy. Employees on fixed-term contracts are protected from unjustifiable less favourable treatment as a result of their fixed-term status. Therefore, in a redundancy situation, it is important to consider whether any other employees need to be ‘pooled’ with that employee rather than the fixed-term employee automatically being made redundant. Pooling may be necessary if there is another employee within the charity carrying out the same or a similar role. This is the case irrespective of whether those employees are employed permanently, on another project or linked to another funding stream. An employer may want to retain the employee with knowledge of a project and not cause other employees to become unsettled and demotivated by putting them at risk of redundancy but advice should be taken before excluding from the pool employees doing similar work to those in the pool. If the fixed-term employee has no right to claim unfair dismissal due to their length of service (currently two years) then it possible that a charity may choose to avoid the pooling situation and take a commercial decision on this but there will still be a risk of a claim for ‘less favourable treatment’ unless the reason for not pooling the employees together can be justified. If the fixed-term employee has two years’ continuous service then, if the reason for termination of employment is redundancy, they will also be entitled to a redundancy payment.

For the reasons set out above, it is important that you take advice from an employment law specialist before recruiting or terminating the employment of a fixed-term employee. It is advisable to issue a contract on day one of employment to ensure that the employment is subject to notice provisions and it is also important to ensure that, if termination of employment would amount to a redundancy situation, consideration is given as to whether any other employees are carrying out a same or similar role.

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James Tamm

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