Fixed-Term Contracts: What changes from January 2027?

Fixed-term contracts are useful where a business needs someone for a defined period, perhaps to cover maternity leave, complete a project or provide additional temporary support.

But from 1 January 2027, employers using them will need to think more carefully about what happens when they come to an end. From this date, employees will be able to claim ordinary unfair dismissal after six months’ service, rather than having to wait two years.

This is particularly relevant if you regularly employ people on six or 12-month fixed-term contracts. You may have agreed from the outset that someone will be employed for 12 months. However, when you decide not to renew their contract at the end of that period, this is still treated as a dismissal for employment law purposes.

From January 2027, more fixed-term employees will therefore have sufficient service to potentially challenge whether that dismissal was fair. That doesn’t mean you cannot bring a fixed-term contract to an end. It means you should understand and document why it is ending and follow an appropriate process.

Does that mean it’s a redundancy? Thankfully, no – not automatically.

The fact that a fixed-term contract has reached its end date does not, on its own, make the employee redundant. You need to look at the reason the employment is ending. For example, someone may have been employed specifically to cover maternity leave, and the permanent employee is now returning. Another employee may have been recruited to work on a particular project and that project has now finished.

In other circumstances, the work itself may genuinely have reduced or disappeared. In that case, there could be a redundancy situation.

It is also important not to confuse the change to unfair dismissal protection with entitlement to statutory redundancy pay. The two-year qualifying period for statutory redundancy pay is not reducing to six months. An employee will still need at least two years’ continuous service to qualify for a statutory redundancy payment.

This means that, from January 2027, an employee with 12 months’ service could have sufficient service to challenge whether their dismissal was unfair but would not have sufficient service to receive statutory redundancy pay.

The important question is therefore not simply, “Has their fixed-term contract ended?” It is, “Why are we not continuing their employment?” Before a fixed-term contract expires, review why the employee was originally recruited and what the position looks like now.

If the original temporary requirement has ended, document that. If the work is continuing but you do not intend to retain the employee, understand why. If the role or work has genuinely disappeared or reduced, consider whether you are dealing with a redundancy situation.

You should then speak to the employee, explain what is happening and follow the appropriate process before confirming the end of their employment.

Contact us at enquiries@121hrsolutions.co.uk and we can discuss any further queries you may have on this subject.