Employment law clinic No 5 Fixed term contracts

The challenge:  A company employs
some of its workforce on successive fixed-term contracts. Their terms and
conditions are less favourable than those of their permanent colleagues, and
they are starting to complain. Nicholas Moore, head of employment with Osborne
Clarke OWA, tackles the legal and HR issues

Legal issues

At present, there is little that the fixed-term workers can do about their
terms and conditions unless they can prove that their treatment amounts to
unlawful discrimination or unequal pay. There is a risk of indirect sex
discrimination if the gender balance of the fixed-term workforce is
disproportionate to the permanent workforce, so this would be worth checking.

The position will change once the EU directive on fixed-term work has been
implemented in the UK. It was due to be implemented, by The Fixed-Term
Employees (Prevention of Less Favourable Treatment) Regulations 2001, on 10
July 2001 but this has been delayed, partly in order to meet employers’
concerns that they have had insufficient time to prepare for it.

Once the regulations are in force, it will be more difficult for employers
to treat fixed-term workers in this way. The key aim of the directive is to
ensure that fixed-term employees are not, without justification, treated less
favourably than comparable permanent staff. Employers will have to justify any
difference in treatment between permanent and fixed-term employees.

For example, an employer who makes a low interest loan facility available
only to permanent employees is clearly treating fixed-term workers less
favourably. But it may be able to justify this in those cases where the loan is
due to be repaid over a period of time which is longer than the fixed term.

Similarly, an employer who refuses to send a fixed-term worker for training
on a new computer system should be able to justify this if the fixed term will
have expired without renewal before the new system is expected to come into

The directive does not cover pay or pensions and so, without further
legislation or evidence of discrimination, it will be lawful to continue to pay
a fixed-term worker less than a permanent member of staff. However, the
Government is considering legislation to address pay differences between
fixed-term and permanent workers and so this too may become unlawful.

Workers’ concerns about their employer’s preference for successive
fixed-term contracts can be illustrated by Booth v USA, 1999, IRLR 16. The case
concerned a US airbase in the UK, where individuals were employed under
successive fixed-term contracts with a gap of about two weeks between each one.
The Employment Appeal Tribunal reluctantly concluded that this was enough to
break continuity of service and render them ineligible for unfair dismissal and
redundancy pay rights.

These concerns will also be addressed by the new regulations, which may set
a maximum number of successive renewals of a fixed-term contract, a maximum
total duration of a series of fixed-term contracts, a requirement for objective
justification of any renewal of a fixed-term contract or a combination of more
than one of these options. This will mean that the practice of offering
successive fixed-term contracts will become far less common.

The directive applies only to employees. It does not apply to workers – ie,
non-employees who work for the company. This means it will still be possible to
treat contractors and agency staff less favourably than permanent staff.

HR Issues

Employing staff on successive fixed-term contracts has been found to have a
negative impact on staff morale. Those who are doing similar work but under
less favourable conditions than permanent staff will feel resentful, and if
they believe that their employment in the organisation is to be short-lived,
they may become disaffected. Of course, there are some people who prefer
fixed-term work since it offers flexibility and guaranteed employment for a
certain period. There are situations where it makes more sense to offer
fixed-term contracts (for example, to cover a specific project) but the
decision to do so should be carefully considered.

Once the new regulations are in force, employers will have to look carefully
at their employment contracts. Those who give fixed-term employees less
holiday, less sick pay or fewer bonuses than permanent employees undertaking
similar work should consider whether they can justify this. If not, they should
take steps to even things up or offer a permanent position to the fixed-term

Employers will also have a duty to notify fixed-term employees of any
appropriate alternative vacancies that arise and allow equal access to

It is likely that where a fixed-term employee believes he or she has
suffered less favourable treatment, they will be able to request a written
statement of reasons from their employer.

It would therefore be advisable to review all fixed-term arrangements now,
in order to pre-empt problems once the regulations are in force.sts are the
first line of

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