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Fixed-term employees

28 April 2005
Fixed-term employees

Employees on fixed-term contracts can no longer be treated less-favourably than permanent employees. The Fixed-term Employees (Prevention of Less-favourable Treatment) Regulations 2002 give equal rights to fixed-term employees.

What is a fixed-term employee?

A fixed-term employee is a person who is employed until a specified date is reached, a specified event happens, or a specified task is completed. Examples include employees doing seasonal or casual work who have contracts for a short period, such as employees at children's summer camps, shop assistants working for Christmas, etc.

Who is excluded from the regulations?

Agency workers, apprentices and certain categories of students are excluded from the regulations. Agency workers are defined as those who have an employment contract with a temporary work agency but are placed with and do their work for a third party.

What is "less-favourable treatment"?

Fixed-term employees must not be treated less-favourably than comparable permanent employees just because they are employed on a fixed-term contract. Less-favourable treatment can occur when a fixed-term employee does not get a benefit, whether contractual or not, that a comparable permanent employee receives, or is offered a benefit on less-favourable terms. Permanent employees, for example, could be given free membership of a workplace gym, which fixed-term employees do not get. Similarly, less-favourable treatment would occur where fixed-term employees are offered less paid holiday than comparative permanent employees.

Who is the relevant comparator?

Where less-favourable treatment is suspected, a fixed-term employee can compare his or her treatment to the treatment of a comparable permanent employee. A comparable permanent employee is someone who works with the same employer in the same establishment doing the same or broadly similar work. If no comparable permanent employee works in the same establishment, a fixed-term employee can use a comparator in another of the employer's establishments.

Can less-favourable treatment be justified?

In some circumstances less-favourable treatment can be justified. Employers should ask themselves the question: is there any good objective reason for treating a fixed-term employee less favourably? Employers should also give due regard to the needs and rights of individual employees and try to balance those against business objectives. Less-favourable treatment can be justified on objective grounds if it can be shown that the less-favourable treatment is:

  • To achieve a legitimate business objective;
  • Necessary to achieve that objective; and
  • Appropriate to achieving that objective.

Sometimes the cost to the employer of offering a particular benefit to an employee may be disproportionate when compared with the benefit the employee would receive, and this may objectively justify a difference in treatment. An example of this could be where a fixed-term employee is on a contract of three months and a permanent comparator has a company car. The employer may decide not to offer the car if the cost of doing so is too high - and if the employee can travel to work some other way. Employers need to consider whether less-favourable treatment is objectively justified on a case-by-case basis.

Justification can also be proven if the employer can show that, although different, the overall value of the fixed-term employee's package is at least equal to the comparable permanent employee's total package of terms and conditions.

Can fixed-term employees waive their right to a redundancy payment?

Fixed-term employees can no longer waive their right to a statutory redundancy payment. Any waivers inserted into contracts agreed, renewed or extended after 1 October 2002 will not be valid, and fixed-term employees will have the right to a statutory redundancy payment if they have been continuously employed for two years or more and if the reason for non-renewal of the contract was redundancy. If a fixed-term employee signed a waiver clause before 1 October 2002, the waiver would still apply, and they would not be entitled to statutory redundancy payments if their contracts expired and were not renewed.

How often can a fixed-term contract be renewed?

If fixed-term employees have their contracts renewed, or if they are re-engaged on a new fixed-term contract when they already have a period of four or more years of continuous employment, the renewal or a new contract will have effect as a permanent contract. The fixed-term employee can write to their employer requesting written confirmation that this contract is to be regarded as permanent. Service before 10 July 2002 does not count towards this period of four years.

Statutory dismissal and disciplinary procedure

Employers should be aware that since 1 October 2004 the expiry of a fixed-term contract will take effect as a dismissal in law. As such, the statutory dismissal procedure must be followed when terminating a fixed-term contract.

Is there a duty to inform fixed-term employees of permanent vacancies?

Employers must inform their fixed-term employees of permanent vacancies in their organisation. Employers must give fixed-term employees the same opportunities to secure permanent vacancies and afford the same access to training opportunities as is available for permanent employees. Employers should display vacancy notices in a place where all employees would be expected to see them or e-mail the vacancy list to all members of staff.

Jonathan Exten-Wright is a partner in the employment department in DLA Piper's City of London office, and Dean Jones is an assistant.

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