The Employment Rights Act 2025 represents the most significant overhaul of UK employment law in a generation. Whilst much of the focus has been on day-one unfair dismissal rights, guaranteed hours, and changes to family-friendly rights, employers should not overlook the substantial implications for the use of fixed-term contracts.
For many organisations, fixed-term contracts have traditionally provided a practical solution for managing temporary projects, maternity cover, fluctuating workloads, and other time-limited business needs. However, the forthcoming reforms are likely to reduce some of the flexibility that employers have historically enjoyed and will increase the importance of careful workforce planning.
Fixed-term employees already enjoy broadly the same statutory employment rights as permanent employees. Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, they must not be treated less favourably than comparable permanent employees unless the employer can objectively justify the difference.
Importantly, the expiry and non-renewal of a fixed-term contract is treated as a dismissal in law.
However, under the current regime, many employers have been able to end shorter fixed-term contracts with relatively limited unfair dismissal risk because employees generally require two years’ continuous service before they can bring an ordinary unfair dismissal claim.
As a result, fixed-term contracts of less than two years’ duration have often offered employers a degree of flexibility when managing temporary resourcing requirements.
The most significant change for employers using fixed-term contracts is the planned reduction in the qualifying period for unfair dismissal protection.
Current government proposals indicate that, from January 2027, employees will acquire ordinary unfair dismissal protection after six months’ service rather than two years. At the same time, unfair dismissal compensation is expected to become uncapped.
This change has profound implications for fixed-term workers.
Under the new regime, many employees engaged on six-, nine-, or twelve-month fixed-term contracts will become protected from unfair dismissal during the life of their contract. Consequently, the simple expiry of a contract will no longer represent a low-risk termination route.
Non-Renewal Will Require a Fair Reason
A common misconception is that a fixed-term contract simply “ends itself” on its specified expiry date.
In reality, where unfair dismissal protection applies, employers must be able to identify a potentially fair reason for dismissal and follow a fair procedure before deciding not to renew the contract. Merely reaching the contractual end date will not, of itself, be sufficient.
The most likely fair reasons in the fixed-term context will be:
- Redundancy;
- Some Other Substantial Reason (SOSR);
- Capability;
- Conduct.
In practice, SOSR is likely to be particularly relevant where the individual was engaged for a genuinely temporary purpose, such as:
- Covering maternity, adoption or long-term sickness absence;
- Delivering a specific project;
- Providing specialist expertise for a time-limited initiative;
- Meeting a temporary increase in demand.
However, employers will need clear evidence that the temporary purpose genuinely existed and has genuinely come to an end.
Increased Importance of Documentation
The reforms will place greater emphasis on the wording of fixed-term contracts and the documentation supporting them.
Employers should ensure that contracts clearly identify:
- The reason for the fixed-term arrangement;
- The anticipated duration;
- The event that will trigger termination;
- Any review points during the term;
- The circumstances that may justify non-renewal.
Where the contract relates to maternity cover or a specific project, this should be expressly stated within the contractual documentation. Clear records may become critical in establishing the fairness of any subsequent dismissal decision.
Guaranteed Hours and Temporary Work
Although fixed-term employees are distinct from zero-hours workers, employers should also be mindful of the wider reforms affecting atypical working arrangements.
The Employment Rights Act introduces obligations to offer guaranteed hours to eligible workers whose actual working patterns exceed their contractual arrangements following a reference period. Anti-avoidance measures are designed to prevent employers from manipulating hours to avoid these obligations.
Some employers may therefore consider using fixed-term contracts as an alternative to casual arrangements. However, this should not be viewed as a mechanism for avoiding the broader aims of the legislation, particularly in light of the enhanced unfair dismissal protections that will apply to many fixed-term employees.
What Employers Should Be Doing Now
1. Audit Existing Fixed-Term Arrangements
Review all current fixed-term contracts and identify:
- Why each arrangement exists;
- The anticipated end date;
- Whether the rationale remains valid;
- Whether there are employees who have accumulated lengthy continuous service through successive renewals.
Employers who routinely renew fixed-term contracts should be particularly cautious, as continuity of service may already expose them to unfair dismissal claims.
2. Review Template Contracts
Ensure template fixed-term contracts accurately capture the genuine business justification for the arrangement and contain appropriate termination provisions.
3. Strengthen Workforce Planning
Where work is genuinely ongoing, a permanent contract may ultimately represent a lower-risk option than repeatedly extending fixed-term arrangements.
Employers should consider whether certain roles currently designated as temporary are, in reality, permanent requirements.
4. Train Managers
Line managers will need to understand that allowing a contract simply to expire may no longer be enough.
Managers should be trained to:
- Identify when a dismissal process is required;
- Commence consultation early;
- Document business reasons for non-renewal;
- Consider alternative vacancies where appropriate.
Fixed-term contracts will remain a valuable workforce management tool after the Employment Rights Act 2025 reforms. However, employers can no longer assume that the expiry of a temporary contract will be a straightforward administrative exercise.
As unfair dismissal protection expands and tribunal claims become more accessible, organisations will need to treat the non-renewal of fixed-term contracts with the same care and procedural rigour as other dismissals. Employers that use fixed-term contracts strategically, document their rationale clearly, and plan ahead for contract endings will be best placed to retain flexibility whilst minimising legal risk.
For many businesses, now is the time to review whether their current approach to fixed-term recruitment remains fit for purpose in the post-Employment Rights Act landscape.
