Fixed-term contracts: when does expiry mean redundancy?

Fixed-term contracts are a familiar part of workforce planning. They can be useful when an employer needs cover for a project, a temporary funding stream, maternity leave, or a defined piece of work with a clear end point. But their apparent simplicity can be misleading.

When a fixed-term contract reaches its end date and is not renewed, many employers instinctively see that as the contract simply “expiring”. However, the legal position is often more complex.

The expiry and non-renewal of a fixed-term contract amounts to a dismissal

Any time a fixed-term contract expires and is not renewed, this is a dismissal under the Employment Rights Act 1996. In certain circumstances, this dismissal may well in turn amount to a redundancy.

Reason for non-renewal

If the reason for non-renewal of a fixed-term contract is that the employer no longer needs the employee to do the particular work, there is a possibility that the employee’s termination amounts to a redundancy, and with it, the requirement on the employer to conduct a fair redundancy process and potentially pay statutory redundancy pay (and, depending on the employer’s policy, enhanced redundancy pay). A fixed end date is not a shortcut around those obligations.

The legal starting point

The non-renewal of a fixed-term contract is treated as a dismissal in law. The employer therefore needs to identify a potentially fair reason for dismissal and act reasonably.

In identifying a potentially fair reason, employers sometimes seek to rely on “some other substantial reason” (commonly referred to as ‘SOSR’) where a contract was always intended to end on a particular date or at the conclusion of a project. That may be possible in some cases, but it is not the end of the analysis.

The key practical question is: why was the contract not renewed?

If the answer is that the work has finished, the project has ended, or the employer’s need for employees to carry out work of that particular kind has ceased or diminished, the situation may fall squarely within the statutory definition of redundancy. The fact that everyone knew from the outset that the contract was time-limited does not, by itself, prevent the eventual dismissal from being redundancy.

Various case law concerning long-serving fixed-term employees illustrates this risk. For example, in the case of Pfaffinger v City of Liverpool Community College, employees had been engaged as lecturers on a series of fixed-term contracts, each covering a single academic term, for more than three years. When the latest contracts ended, the employer chose not to renew them. The Employment Appeal Tribunal later found that the claimants had in fact been dismissed by reason of redundancy, with the employer having failed to conduct any form of redundancy process.

Quoting another case, the judgment in Pfaffinger explained: “It was necessary to ask, in the case of a fixed-term contract which expired and had not been renewed: “Why was not the employee’s contract renewed?” If the answer was, in the case of a teacher, that there was no more work for him to do and the requirements of the school or college for teachers or lecturers had diminished and were expected to be diminished, there was a dismissal for redundancy (…) The fact that the failure to renew was foreseen right from the beginning in no way alters the conclusion.”

The key point

The practical point is relatively straightforward: do not assume that a fixed-term contract can simply be allowed to lapse without further procedural steps. Once the employee has sufficient service (currently two years, reducing to six months from 1 January 2027), an employer should approach the end of a fixed-term contract in much the same way as any other potential dismissal. That means identifying the reason, considering whether redundancy is engaged, consulting, exploring alternatives, and documenting the decision-making process.

Consultation still matters

Where redundancy is the reason for dismissal, consultation is central to fairness. In an individual redundancy situation, consultation should normally cover why the role is at risk, whether the need for the work has genuinely ceased or diminished, the proposed timing, possible ways to avoid dismissal, and suitable alternative employment.

Crucially, consultation should begin early enough to be meaningful. A meeting held after the decision has already been made, or after the employee has already been told the contract will not be renewed, is unlikely to be enough.

HR should therefore ensure that managers understand the process and that fixed-term employees are not treated as outside the ordinary redundancy framework simply because their contracts contain an end date.

Alternative employment: more than a vacancy list

Employers often point employees towards an internal jobs portal and expect them to apply for roles on a competitive basis. That may be part of a reasonable process, but it is rarely the whole answer. A fair redundancy process usually requires the employer to take active steps: identifying potentially suitable roles, discussing them with the employee, considering whether the employee meets the essential requirements, and dealing transparently with any concerns about suitability.

If an employee applies for internal roles and is rejected, employers should be able to explain why. This does not mean that every fixed-term employee must be slotted automatically into a new role. Businesses can still apply fair selection criteria and assess skills, experience and business need. But there should be a clear record showing that alternatives were genuinely considered rather than left entirely to the employee to find.

Practical steps for employers

First, diarise fixed-term end dates well in advance. This may seem like an obvious point, but it is especially important for organisations that employ a large number of employees on fixed-term contracts, where such contracts may expire on a semi-regular basis. Organisations can easily lose track of when various fixed-term contracts are set to expire, and this creates the unnecessary risk that organisations fail to comply with their obligations to their employees.

Secondly, decide and record the reason for any non-renewal. If the work has ended or reduced, it is important to acknowledge that there may be a potential redundancy. Attempts to label the situation as something else may be unpersuasive if the underlying facts point to a diminished need for work.

Thirdly, check the employee’s contractual and policy entitlements. An employee dismissed by reason of redundancy may be entitled to statutory redundancy pay if they have sufficient service, but they may also have rights to enhanced redundancy pay.

Additionally, organisations may also operate bonus schemes, share-plans or similar, where the reason for the employee’s dismissal is materially relevant to how any payout under, or handling of, the scheme functions.

For example, we have seen one instance where an employee should have been entitled to a particular payout under an organisation’s share scheme on the basis that that employee had been made redundant upon the expiry of their fixed-term contract. However, the organisation’s failure to categorise the dismissal as a redundancy meant that the employee was significantly underpaid under the terms of the share scheme, in turn leading to a costly and time-consuming Tribunal claim. This could have been avoided if, in the first instance, the organisation had been alive to the fact that the expiry of a fixed-term contract could amount to redundancy.

What if dismissal was inevitable?

Even where an employer gets the redundancy process wrong, compensation may be reduced if it can show that the employee would have been dismissed in any event, even after a fair process. This is often referred to as a Polkey reduction.

This can be important in fixed-term cases, especially where the project has genuinely ended and there were limited alternative roles.

However, it is not a defence to liability, and a Tribunal may still find the dismissal unfair if the employer failed to consult or failed to consider alternatives properly.

For employers, the better approach is not to rely on an after-the-event Polkey argument that the outcome would have been the same. A fair, timely process reduces litigation risk, improves employee relations and gives the employer better evidence if a claim is brought. Explore examples of the application of the Polkey reduction here and here.

Key takeaways

The expiry of a fixed-term contract is not just an administrative milestone. Where the employee has unfair dismissal rights, non-renewal must be treated as a dismissal requiring a fair reason and a fair process.

If the reason is that the work has finished or the need for that work has reduced, redundancy may be the correct analysis, and employers who recognise that early, consult properly, and actively explore alternatives will be in a much stronger position.

If you have any questions on anything outlined above, get in touch with Joshua Claxton or Paul Jennings.

The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further advice or information about management training which we offer.