Employers using fixed-term contracts should start preparing now for significant unfair dismissal law changes coming into force in January 2027. From January 2027, the qualifying period for dismissal reduces from two years to six months under changes from the Employment Rights Act 2025.

For employers who regularly use fixed term contracts (FTC) this may cause some concern.

Currently a one-year fixed term contract can end with little risk to an employer and without a formal process being followed (although legally this is still a dismissal, and good practice would be to follow an appropriate process). From January 2027, that position is likely to change.

In practice, this means the qualifying period and a typical FTC will often land at almost the same point. An employee on a nine-month or one-year fixed-term contract who has been continuously employed for six months will have full unfair dismissal protection well before their contract is due to end, so the informal, low-risk approach many employers currently take will no longer be an option.

When are fixed-term contracts used?

  • Covering periods where permanent staff are away for a set time, such as maternity leave or extended sickness absence
  • When the business needs skills for a defined piece of work e.g. project implementation, research or analysis
  • During peak holiday season
  • Where there is limited funding

The Importance of Using a Fixed-Term Contract Correctly and Avoiding Unfair Dismissal Claims

Fixed-term contracts should not be used for filling a permanent role.

From January 2027, ending a fixed term contract (after 6 months) will be no different from dismissing a permanent employee and in the absence of any concerns about the employee’s performance or conduct, the only potentially fair reasons for dismissal would be either redundancy or some other substantial reason. Distinguishing between these reasons is important, as the applicable reason will determine the process the employer is required to follow.

Where the reason is redundancy, for example, because the funded project the employee was hired for has ended, employers will need to follow a fair redundancy process, including genuine consultation.

Where the reason is SOSR, such as the expiry of a genuinely temporary arrangement, employers still need to show the reason was genuine and that a fair process was followed before dismissing. Getting the reason wrong, or failing to evidence it properly, is what tends to expose employers to an unfair dismissal claim.

What can employers do now to prepare for the change?

  • Review current FTC’s and consider whether they are fit for purpose i.e. are these used for any of the situations mentioned above and do they cover exact terms and conditions implied
  • Review when FTC’s are due to end and how you will justify a dismissal if the employee has qualifying service
  • Ensure your managers are aware that if any FTC is due to extend past 6 months after 1 January 2027, they will need a fair reason and must follow a fair process to dismiss
  • Employers may also wish to review their wider HR processes and ensure managers are supported with appropriate HR consultancy support

Build a short evidence trail as contracts approach the six-month mark: a brief note confirming why the role is ending, whether it’s redundancy or SOSR, and what process was followed. This is the kind of documentation that makes the difference if a dismissal is ever challenged.

Make sure your processes are clear and understood where FTC’s are used. If you need advice or would like some more information, please contact your account manager or book a free 20 min call – Gravitate HR with no obligation.

Fixed Term Contract FAQs

Is ending a fixed-term contract classed as unfair dismissal?

The expiry or non-renewal of a fixed-term contract is legally a dismissal, but it is not automatically an unfair dismissal. From 1 January 2027, employees with at least six months' qualifying service will generally have the right to claim ordinary unfair dismissal. Employers should therefore have a potentially fair reason for the dismissal and follow a reasonable process where appropriate.

What is the unfair dismissal qualifying period for fixed-term contracts?

The qualifying period is the same for fixed-term and permanent employees. From 1 January 2027, the qualifying period for ordinary unfair dismissal will reduce from two years to six months of continuous employment under the Employment Rights Act 2025.

Can an employer let a fixed-term contract simply expire?

Yes, a fixed-term contract can expire on its agreed end date. However, the expiry or non-renewal of the contract counts as a dismissal. From 1 January 2027, where the employee has the required six months' qualifying service, the employer will need to be able to show that the dismissal was fair. Simply relying on the contract's end date does not, by itself, remove the risk of an unfair dismissal claim.

Is redundancy the right reason to end a fixed-term contract?

It can be, for example, where a genuine redundancy situation arises because the funding or project for which the role was created has ended. However, redundancy should not be used simply as a default explanation for allowing a fixed-term contract to end. Depending on the circumstances, the expiry of a fixed-term contract may instead be capable of being justified as 'some other substantial reason' (SOSR). The employer should have a genuine, documented reason and follow a fair and reasonable process.

How can employers reduce unfair dismissal risk with fixed-term contracts?

Employers should review upcoming fixed-term contract expiries, establish and document the genuine reason for ending or not renewing the contract, consider whether consultation or another fair process is appropriate, and obtain HR or legal advice where the position is unclear. Particular care should be taken where the employee has, or will have, at least six months' qualifying service from 1 January 2027.