Can an underperforming employee on a fixed-term contract be dismissed before the end of the fixed term?

The nature of a fixed-term contract is usually that both employer and employee agree as part of the contract that it will continue for a fixed period, or until an agreed task or project is completed, or until a specified event occurs, for example the return to work of an employee on maternity leave. Thus, any early termination by either party will be in breach of contract. The only exception to this would be in the case of gross misconduct on the part of the employee, which would entitle the employer to terminate the contract without notice. Otherwise, a termination in breach of contract would give the employee the right to claim damages equivalent to the pay and benefits that he or she would have received up to the time that the contract could have been lawfully terminated.

If, however, the fixed-term contract has been drafted to include a notice clause, ie authority for the employer to terminate the contract on notice before the expiry of the fixed term, then termination on notice by reason of the employee's underperformance will not be in breach of contract. It is not unlawful to include notice clauses in fixed-term contracts.

Quite apart from any potential claim for breach of contract, there may be an unfair dismissal claim from the employee if, at the time the early termination of the contract takes effect, he or she has gained a minimum of two years' continuous service, whether on one fixed-term contract or on two or more successive contracts. Although unsatisfactory performance is a potentially fair reason for dismissal, the employer would also have to show that the underperformance was sufficient in all the circumstances to justify dismissal and that a fair procedure had been followed. If the employer was unable to satisfy an employment tribunal on these matters, the dismissal would be unfair.