Lawyers view

Fixed term employees (prevention of less favourable treatment) regulations
2002

Justin Beevor highlights the key issues employers must consider now
regulations have come into force to protect fixed-term workers

The Fixed-Term Employees (Prevention of Less Favourable Treatment)
Regulations 2002, which were due to be in force on 10 July 2002, finally came
into force on 1 October 2002 and implement the EU Directive on Fixed Term Work.
The regulations aim to prevent pay and pensions discrimination against fixed-term
employees. They apply the principle of non-discrimination to those in
fixed-term employment and prevent abuse arising from the use of successive
fixed term employment contracts or relationships. This article highlights the
key issues.

Who is covered by the regulations?

The regulations define a ‘fixed-term employee’ as a person with a contract
of employment due to end when a specified date is reached, a specified event
does or does not happen or a specified task has been completed.

The protection set out in the regulations is limited to ’employees’ and does
not extend to the wider class of ‘workers’. This restrictive approach is partly
explained by the Government’s announcement that the whole issue of employment
status will be addressed in the forthcoming employment status review which it
is committed to carrying out over the next few days.

How does the equal treatment principle work?

A fixed-term employee has the right not be treated less favourably (whether
in regards to the terms of his contract, or by being subjected to any other
detriment, and in particular including in relation to length-of-service
qualifications for any benefit, training opportunities, and opportunities for
permanent employment in the establishment) than a comparable permanent employee
on the ground that he is a fixed-term employee, unless the different treatment
can be objectively justified.

The regulations define a ‘permanent employee’ as an employee who is not on a
fixed-term contract, and ‘comparable’ is defined as working for the same
employer in the same establishment, doing the same or broadly similar work,
taking into account relevant skills and qualifications. 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, but cannot
compare himself to any associated employer’s staff.

The terms ‘less favourable treatment’ and ‘detriment’ are not separately defined
in the regulations, and are therefore to be interpreted according to the same
principles that have been developed in relation to general discrimination law.

When applying the equal treatment requirement to terms and conditions of
employment, employers can approach ‘objective justification’ for less
favourable treatment in one of two different ways:

The ‘term-by-term’ approach requires that every individual term or condition
of a fixed-term employee’s employment package should be completely the same, or
if appropriate, the same on a pro-rata basis, as the equivalent term of the
comparable permanent employee, unless a difference in the term is objectively
justified. This is the same approach as for general discrimination law, and the
term ‘objective justification’ should be interpreted according to the same
principles. In short, a measure will be objectively justified if it can be
demonstrated to:

– Achieve a genuine business objective

– To be necessary to achieve that objective

– To be an appropriate way to achieve that objective

Alternatively, the ‘package’ approach provides that less favourable
treatment in relation to particular contractual terms is taken to be
objectively justified where the fixed-term employee’s overall package of terms
and conditions, taken as a whole, is no less favourable than the comparator’s
overall package.

Unless it is inappropriate, employers may compare terms and conditions of
employment according to the pro-rata principle. This means that where the
permanent comparator is entitled to pay or any other benefit, a fixed-term
employee must be entitled to such proportion of that pay or other benefit as is
reasonable in the circumstances bearing in mind the length of his contract of
employment and the basis on which the pay or other benefit is offered.

Written statements

Fixed-term employees have the right to ask their employer in writing for a
written statement giving the reason for any less favourable treatment, which
the employer must produce within 21 days of the request. The statement may be
used in evidence at an employment tribunal hearing concerning a complaint under
the regulations. It should set out the reasons for the different treatment or,
if less favourable treatment is not occurring, that this is the case; if a
package approach is used to justify the treatment, the statement should say
that this is why different treatment is occurring in respect of one or more
benefits.

Non-renewal of fixed-term contracts

Under the new regulations the end of a task contract that expires when a
specific task has been completed or a specific event does or does not happen
will be a dismissal in law. The non-renewal of a fixed-term contract concluded
for a specified period of time is already a dismissal in law. Employees on these
task contracts of one year or more will have a right to a written statement of
reasons for this dismissal and the right not to be unfairly dismissed. If the
contract lasts two years or more and the contract is not renewed by reason of
redundancy, the employee will have a right to a statutory redundancy payment.

Redundancy rights

The regulations repeal the provisions enabling fixed-term employees to waive
their right to a redundancy payment. The effect is that any such waivers
inserted into contracts agreed, renewed or extended after 1 October 2002 will
be void and fixed-term employees will have a right to statutory redundancy
payments if they have been continuously employed for two years or more.
However, they may be excluded from contractual redundancy schemes if this is
objectively justified, perhaps because the purpose of such schemes is to
compensate for unexpected job loss, whereas fixed-term employees may have no
reasonable expectation of renewal.

Fixed-term employees should not be selected for redundancy purely because
they are on fixed-term contracts, unless this is objectively justified.
However, where fixed-term employees have been brought in specifically to
complete particular tasks or to cover for a peak in demand, it is likely an
employer could objectively justify selecting them for redundancy at the end of
their contracts.

The reason for the non-renewal of a fixed-term contract upon its expiry will
not always be redundancy. It will depend on the circumstances of the case, such
as whether the employer is dismissing other employees doing the same work as
the fixed-term employee, or whether there is some other reason for not renewing
the contract, for example that the fixed-term employee was covering for an
absent member of permanent staff who has duly returned.

The definition of ‘fixed-term’ in the regulations by reference to the
completion of a ‘particular task’ or the occurrence or non-occurrence of a
‘specific event’ would seem to suggest that it is best practice for the
employer to record the purpose of the employment on the face of the fixed-term
employee’s contract,to avoid subsequent unfair redundancy claims.

Limiting the use of successive fixed-term contracts

If fixed-term employees have their contracts renewed, or are re-engaged on a
new fixed-term contract, when they already have a period of four or more years
of continuous employment (excluding any service prior to 10 July 2002) the
renewal or new contract takes place as a permanent contract unless employment
on a fixed-term contract was objectively justified or the period of four years
has been lengthened under a workforce agreement. There is no limit on the
duration on a first fixed-term contract, but if the first contract lasts for
four years or more and is renewed, the second contract will be regarded as
permanent unless a further fixed-term contract can be justified objectively.

Employers and employees may enter into workforce or collective agreements
which provide an alternative scheme for preventing abuses of fixed-term contracts.
The regulations allow such an agreement to vary the limit on the duration of
successive contracts upwards or downwards or to limit the use of successive
fixed-term contracts by applying one or more of the following:

– A limit on the total duration of successive fixed-term contracts

– A limit on the number of successive fixed-term contracts; or

– A list of permissible objective reasons justifying renewals of fixed-term
contracts.

Once the contract has become permanent as set out above, the fixed-term
employee may ask his employer in writing for a written statement confirming
that the contract is to be regarded as a permanent contract. The employer must
produce the statement within 21 days of the request and if the employer
maintains that the employee is still fixed-term, the reasons for this must be
explained. The statement can be used as evidence at an employment tribunal
hearing concerning a complaint under the regulations.

Once the employee’s contract becomes permanent, it lasts for an indefinite duration,
subject to the usual statutory minimum notice periods or any longer contractual
periods.

An individual’s fixed-term contract can become a contract of indefinite term
by virtue of the notice provisions in the Employment Rights Act 1996 Section
86(4) which states that where an individual is employed for a ‘term certain’ of
one month or less and has been employed for three months or more, his contract
is to have effect as if it was for an indefinite period. This provision does
not seem to apply to contracts which terminate automatically on the completion
of a particular task or upon the occurrence or non-occurrence of a specific
event (‘task contracts’).

Remedies

If fixed-term employees believe they are being less favourably treated than
a comparable employee because they are fixed-term, or that the employer has
otherwise infringed their rights under the regulations, then they may present
their complaint to an employment tribunal. Fixed-term employees are also
protected from victimisation arising from their having made such complaints. No
qualifying period of continuous employment is necessary for a complaint under
the regulations.

Fixed-term employees: compliance checklist

– Identify whether you have any employees who have been engaged for a specified
period, or until a specified date is reached, a specified event does or does
not happen or a specified task has been completed. Examples include employees:

i) doing so-called ‘seasonal’ or ‘casual’ work who have contracts for a
short period or task that ends when the period expires or the task is
completed, such as employees at children’s summer camps, agricultural workers,
shop assistants engaged specifically for Christmas or other busy periods

ii) on fixed-term contracts engaged specifically to cover for parental or
sick leave

iii) engaged to cover for peaks in demand and whose contracts expire when
demand returns to normal levels

iv) whose contracts will expire when a specific task is completed, such as
setting up a new database, painting a house, or running an educational or
training course

– Do the employment contracts issued to those employees specify the relevant
date, event or task?

– Are any such employees, whose contracts were stated to last for one month
or less, still employed after three months or longer?

– Do you have any comparable permanent employees to those fixed-term
employees, taking into account relevant skills and qualifications, working at
the same establishment? If not, are there any at any other establishment of
yours?

– When reorganising workloads, do you treat fixed-term employees as
favourably as any comparable permanent employees?

– Is current or previous fixed-term status ignored when deciding on the
issue of promotion to a post (whether the post is fixed-term or permanent)?

– Do fixed-term employees receive the same hourly rate of pay (including
overtime) as comparable permanent employees?

– Are fixed-term employees allowed to participate in the same bonus, profit
sharing or share option (or any other incentive) schemes which are available to
comparable permanent employees?

– Are fixed-term employees treated no less favourably than comparable
permanent employees for the purpose of calculating sick pay or maternity pay,
the length of service required to qualify for payment or the length of time the
payment is received?

– Are fixed-term employees afforded the same access to occupational pension
schemes as comparable permanent employees? If not, can the employer make
compensatory contributions at a reasonable level into a stakeholder or private
pension scheme?

– Are fixed-term employees afforded the same access as comparable permanent
employees to training (and is training scheduled to allow fixed-term employees
to attend)?

– In relation to health insurance benefits, which cannot be applied pro
rata, have any arrangements been made to offer this benefit to fixed-term
employees (for example offering them full cover but requiring them to
contribute 50 per cent of the cost)?

– Is the holiday entitlement of fixed-term employees pro rata the same as
comparable permanent employees?

– Is the contractual maternity leave and parental leave available to
fixed-term employees as well as to comparable permanent employees?

– Is there an objectively justifiable reason for not offering to fixed-term
employees any benefit (including all of those mentioned above) available to
comparable permanent employees, on a case-by-case basis?

– Where a benefit received by comparable permanent employees is not given to
a fixed-term employee, is there any objectively justifiable reason why the
fixed-term employee should not be compensated by another equivalent benefit
(for example a lump sum payment) such that the fixed-term employee’s overall
package of terms and conditions is no less favourable than the comparable
permanent employee?

– When a fixed-term contract is not renewed at its end, what is the reason
for the non-renewal?

– Do the criteria which are used to select jobs for redundancy treat
fixed-term employees no less favourably than comparable permanent employees?

– Are fixed-term employees entitled to the same enhanced redundancy payments
as comparable permanent employees?

– Are fixed-term employees informed of permanent vacancies in the employer’s
organisation?

– Are internal vacancies in the employer’s organisation available to
fixed-term employees on the same basis and to the same extent as to comparable
permanent employees? If not, is any difference objectively justified?

– Have any fixed-term employees whose contracts are about to expire been
continuously employed for four years or more since 10 July 2002? Is there any
objectively justifiable reason why they should not become permanent employees
at the four-year point?

– Is there a need to vary the four-year limit on successive fixed-term
contracts, or specifies permissible reasons justifying renewal of fixed-term
contracts? If so, the employer should negotiate a collective or workforce
agreement permitting this.

Justin Beevor is a solicitor in the employment department at Addleshaw
Booth and Co

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