What is an open-ended contract and how does it work?

The simplest way to define an open-ended contract is by comparing or contrasting it with a fixed-term contract. A fixed-term contract specifies that a worker’s engagement with an employer will last for a specific term, usually until the completion of a particular task or the end of a defined period, such as nine months for maternity leave cover.

Open-ended contracts

In direct contrast, an open-ended contract does not have a specified end date. Under such an agreement, the worker’s employment is expected to continue on an ongoing and indefinite basis. This contract must be terminated either voluntarily by the employee or by the employer using one of the five fair reasons for dismissal under UK employment law:

• Misconduct
• Capability (which can relate to medical incapacity as well as competency)
• Redundancy (where the work the employee was hired to do has ceased)
• Illegality (where continued employment would result in a legal breach, such as loss of a required license or a change in immigration status)
• Some other substantial reason (such as an irreparable breakdown in the working relationship or a mutually agreed separation via a settlement agreement)

Open-ended contracts are commonly referred to as ‘permanent,’ indefinite,’ or ‘continuous employment’ contracts. However, legally, they are the same, as they indicate that the contract is not fixed term and has no defined endpoint.

Open-ended contracts remain the default despite the Gig Economy

Given the explosive growth of the gig economy, one might expect that fixed-term, gig-specific contracts would begin to challenge the dominance of open-ended contracts. However, this is not the case. Recent research from the Office for National Statistics (ONS) shows that the vast majority (88%) of workers with a written contract had a permanent, open-ended contract, while just 9% had contracts for a set period, with the remainder unsure of their contract length.

Open-ended contracts should be in written form

While a written employment contract is not a legal requirement in the UK, most employers provide one. It would be highly unusual for an employer to engage open-ended workers without a contract.

A written open-ended contract helps to establish the parameters of the working relationship and typically stipulates:

• That the contract is open-ended or permanent
• Job title, salary, benefits, and duties
• Start date and probationary period
• Grievance and disciplinary procedures

By law, employers must provide employees with a written statement of employment particulars on or before their first day of employment. It is customary for employers to issue a written open-ended contract to fulfill this obligation.

As with most contracts, an open-ended contract must be signed by both parties, the employer and the employee, to be legally binding.

Open-ended contracts and probationary periods

It is customary for employers to include a probationary period within an open-ended contract, typically lasting between three and six months, depending on the role. At the end of this period, the employees’ performance is reviewed, leading to one of three outcomes:

1. The employee successfully passes the probation period and fully integrates into the workforce, potentially gaining access to company benefits.
2. The employee fails the probation period, leading to an extension of the review period.
3. The employee is dismissed due to a lack of capability.

Even though the probationary period in an open-ended contract ends at a set date, this should not be confused with a fixed-term contract. The date simply indicates when the employee’s performance will be reviewed. If an employer wishes to terminate an employee on probation, they must follow a fair and reasonable dismissal process, including a formal disciplinary or capability procedure and a grievance/appeals process.

Industry-wide usage

ONS data clearly shows that open-ended contracts remain the standard across industries in the UK. They provide job security for employees while allowing employers to build a stable workforce.

Terminating an open-ended employment contract

All contracts contain termination clauses and criteria, and open-ended contracts are no exception. As mentioned earlier, open-ended employment contracts can be terminated for one of the five fair reasons outlined above. Employers must follow statutory dismissal procedures under UK employment law and honour any contractual obligations, such as notice periods.

Open-ended contracts continue to be the default form of employment in the UK, providing stability and security for employees while allowing flexibility for employers. Despite the rise of gig work, permanent contracts remain dominant across industries. Understanding the legal framework surrounding open-ended contracts is crucial for both employers and employees to ensure compliance with UK employment laws and fair treatment in the workplace.