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The upcoming Employment Rights Act 2025 (ERA 2025) is set to introduce significant shifts in UK employment law, and much of this has had broad coverage. Still, one area that has not had focus is the planned additional protection for fixed-term contracts. For businesses that rely on fixed-term contracts, understanding these changes is crucial for maintaining compliance and managing workforce flexibility. This new legislation will alter the landscape for terminating these agreements, introducing new rights for employees and new obligations for employers.
Here, I explore the key impacts of the ERA 2025 on fixed-term contracts. Covering the reduced qualifying period for unfair dismissal claims, the new rules around guaranteed hours, and what these changes mean for your business practices.
There is also a potential impact on the preference of FTC over IR35 roles. Currently, many interim roles lasting over six months are listed as FTCs, in short, because it’s easier, perceived as less risky, and more predictable for workforce planning and Finance. But these changes in the ERA 2025 may put pressure on that organisational calculus. By pondering and understanding these updates now, you can prepare to navigate the new legal environment effectively.
Shorter Unfair Dismissal Qualifying Period
One of the most significant changes under the ERA 2025 is the reduction of the qualifying period for unfair dismissal. This period, which is the minimum length of service an employee must have to be eligible to make a claim, will be reduced incrementally.
The Two-Year Rule Becomes History
Currently, an employee must have two years of continuous service to bring an unfair dismissal claim. The ERA 2025 will dramatically shorten this requirement. By January 2027, the qualifying period will be just six months.
This change means that employees on fixed-term contracts will gain protection against unfair dismissal much sooner. An employee on a 12-month agreement, for example, will be protected for the latter half of their term. Employers will no longer be able to let a contract expire after a year without considering fair dismissal procedures, as was often the case previously.
What This Means for Employers
The practical implication is that the non-renewal of a fixed-term contract for an employee with over six months of service will be treated as a dismissal. As such, you will need a fair reason to end the employment relationship. The established fair reasons for dismissal—such as conduct, capability, redundancy, or “some other substantial reason” (SOSR)—remain unchanged.
For fixed-term contracts, SOSR is often a relevant reason, particularly if the contract covered a specific project or a maternity leave period that is now ending. However, you must follow a fair and transparent process before deciding not to renew the contract. This includes consulting with the employee, explaining the reason for non-renewal, and considering any alternatives.
The New Duty to Offer Guaranteed Hours
The ERA 2025 also introduces new provisions concerning workers with unpredictable work patterns, which will directly affect many on fixed-term contracts, especially those covering seasonal or fluctuating work.
Understanding the Guaranteed Hours Provision
The ERA 2025 Act will give workers the right to request a more predictable and guaranteed working pattern. More importantly, it places a duty on employers to offer guaranteed hours to workers who have been with the company for a specific period and have worked a regular pattern. This is designed to address the insecurity associated with zero-hour and short-hours contracts.
Fixed-term workers will be included under these provisions. If an employee on a fixed-term contract works a consistent number of hours over a reference period, you may be legally required to offer them a new contract reflecting those hours.
Permanent Contracts and Anti-Avoidance Rules
The legislation contains specific rules that can turn a fixed-term arrangement into a permanent one. If an offer of guaranteed hours requires varying the employee’s existing terms, the Act mandates that the new contract must be permanent unless it is reasonable to keep it fixed-term. The employer will be responsible for justifying why the role should not become permanent.
Furthermore, the ERA 2025 includes anti-avoidance provisions. These are designed to prevent employers from circumventing the guaranteed hours rules by using a series of short fixed-term contracts. If contracts are structured to prevent an employee from meeting the criteria for a guaranteed-hours offer, this could lead to legal challenges.
Dismissal and Re-engagement (Fire and Rehire)
The ERA 2025 will also formalise rules governing the practice of dismissal and re-engagement, often referred to as “fire and rehire.” These provisions will apply to fixed-term employees in the same way they do to permanent staff.
When an employer seeks to change an employee’s terms and conditions, and the employee disagrees, dismissing the employee and offering re-engagement on new terms is a high-risk strategy. The new legislation will likely introduce a stronger requirement for meaningful consultation and a higher bar for justifying such dismissals. This means you cannot terminate a fixed-term contract early to impose new, less favourable terms without incurring significant legal risk.
Practical Steps for Employers
The ERA 2025 requires a proactive approach to managing fixed-term contracts. The old ways of letting contracts “run out” will no longer be a safe or compliant option for employees with more than six months of service.
Here are some practical steps to consider:
- Review Your Use of Fixed-Term Contracts: Audit why and how you use fixed-term contracts. Ensure each one has an apparent, justifiable business reason, such as covering a specific project, seasonal demand, or a leave of absence. Document these reasons from the outset.
- Update Your Contract Expiry Process: Develop a formal process for managing the end of fixed-term contracts. For any employee with over six months of service, you must treat the non-renewal as a potential dismissal. This means planning consultation meetings and ensuring you have a valid reason for ending the contract. Or don’t impose a blanket IR35 ban for over six months; avoid this additional process step.p
- Monitor Working Patterns: Pay close attention to the hours your fixed-term employees work. If a pattern of regular hours emerges, be prepared to offer a contract with guaranteed hours. This may require transitioning some roles from fixed-term to permanent status.
- Train Your Managers: Ensure that line managers understand these new rules. They are on the front line of managing employee relationships and will need to know the risks associated with renewing or ending fixed-term contracts under the new legislation.
Looking Ahead
The Employment Rights Act 2025 is set to level the playing field between fixed-term and permanent employees in several key areas. While fixed-term contracts will remain a valuable tool for workforce planning, employers must adapt their practices. The increased protections for employees mean that greater care, transparency, and procedural fairness will be required.
By taking steps now to review your processes and prepare for these changes, you can continue to use fixed-term contracts effectively while minimising legal risk and fostering a fair work environment.
For more information on ERA 2025: Key Changes to Fixed-Term Contracts talk to Click HR Limited