Julie Quinn and Yoness Blackmore outline what the new legislation will mean
and what action employers will have to take to prevent less favourable treatment
of fixed term employees from July 2002
The Fixed Term Employees (Prevention of Less Favourable Treatment)
Regulations (‘Regulations’), will commence by 10 July 2002. And if employers
want to respond to the proposed Regulations they must do so by 18 March 2002.
Under the Regulations, employers will be prohibited from treating fixed-term
employees less favourably than comparable permanent employees in respect of
their contractual terms, including pay and pensions. This means employers will
need to conduct an audit of, for example, salary, benefits-in-kind and pension
access arrangements. This audit will need to take place by 10 July 2002, and
must also look at the qualification periods for benefits and training
Employers will also be obliged to provide fixed-term employees with
opportunities to secure permanent employment and will need to notify their
fixed-term employees of all vacancies that arise from time to time. If an
advertisement for the vacancy was one which employees had a reasonable
opportunity of reading in the course of their employment, that will be
sufficient notification. Employers could also post a newsletter of vacancies on
their intranet, and as long as all employees have access (including
home-workers), that would suffice. The employer will be under no obligation to
offer the vacancy to a fixed-term applicant; notification and opportunity is
all that is required.
Contractual terms and benefits
The question of less favourable treatment requires consideration of the
employee’s contract of employment, taken as a whole, and does not require
equality in respect of each term.
This means employers can use a ‘package approach,’ and if the fixed-term
employee’s overall package of employment benefits is not less favourable than a
comparable permanent employee then the difference between individual terms will
be justifiable. Employers can therefore agree higher up-front rewards to
compensate for the lack of benefits elsewhere in the individual’s fixed-term
A comparable permanent employee will be a permanent employee who does the
same or similar work for the same employer in the same establishment. Employers
also need to have regard, where relevant, to qualifications, skills and experience.
If there is no comparable employee based at the same establishment, an employee
based at a different establishment, who does the same or similar work and who
is employed by the same employer, can be used. For example, a group company.
In practice, employers may find it difficult to identify employees they can
use to compare with their fixed-term employees. In such cases, the employer will not be required to make any
changes, but should review the situation on a regular basis, i.e. if a
comparable permanent employee is subsequently hired then the employer’s
obligations will be activated.
The pro-rata principle
The Regulations define a ‘pro-rata principle’ which is applied, where
appropriate, to assess whether the relevant fixed-term employee has been
treated less favourably than the comparable permanent employee. The ‘pro-rata principle’ means that where a
comparable permanent employee receives or is entitled to pay or any other
benefit, a fixed-term employee is to receive or be entitled to such proportion
of that pay or other benefit as is reasonable in the circumstances – bearing in
mind the length of their contract of employment and the basis on which the pay
or other benefit is offered.
For example, if comparable permanent employees have the benefit of season
ticket loans over a 12 month period, it may not be appropriate to give
fixed-term employees an equivalent benefit if the duration of their contract is
less than 12 months as they would not be employed for part of the repayment
period. In such a case it may therefore
be justifiable to apply the pro-rata principle and instead offer the benefit of
a season ticket loan over a reduced payment period, i.e. between three or six
Less favourable treatment
Employers can treat fixed-term employees less favourably if that treatment
can be objectively justified.
For example, in terms of providing access to occupational pension schemes,
it may be the case that access would be disproportionately costly for the
employer and would provide little or no benefit to the employee, as many
occupational pension schemes require an employee to have two years’ membership
with the scheme before they become entitled to any vesting of benefits. In such
a case, if the contract terminates and there is less than two years’ membership
the fixed-term employee would usually only be entitled to the return of
contributions paid and, if they are lucky, some interest as well. For this
reason, and subject to a review of the particular pension scheme, employers may
be able to justify objectively not offering the benefit to the fixed-term
employees on contracts of less than two years.
In practice, employers may wish to offer access to the occupational scheme
on the same basis as permanent employees to prevent any arguments or legal
correspondence in debating the point. Given that fixed-term employees are
unlikely to obtain any benefit from joining the pension scheme, very few are
likely to take it up, which will also mean that there is no requirement for the
employer to provide any additional compensation and/or adjust the overall
benefits package. In this situation it will simply be the employee’s decision
not to join the scheme. Nonetheless, it may be good employee relations to offer
participation to fixed-term employees, as it would assist in promoting an
atmosphere of equality.
Successive fixed-term contracts
There is no limit on the actual length of the first fixed-term contract. The
draft Regulations state that there is a four-year limit overall, and this will be
calculated by taking into account the duration of the first and any subsequent
contracts. This calculation will not be retrospective, and any service obtained
under successive fixed-term contracts before the Regulations come into force
(i.e. 10 July 2002) will not be taken into account. Any renewal that restricts
the duration of the fixed-term contract, which is in breach of this provision,
will be of no effect, and the contract shall be regarded for all purposes as
being a contract of indefinite duration.
It is unlikely that employers could avoid the application of this provision
by merely ensuring that there are one or more weeks between the relevant
fixed-term contracts. In such an instance, the tribunal will have regard to all
the relevant circumstances, including, whether there is an intention to
re-employ the person, and while the length of the break will be relevant it
will not be determinative. To avoid ending up with a contract of indefinite
duration, it is therefore important to remain within the four-year overall
Agency workers have been specifically excluded from the application of the
Regulations, as have workers on apprenticeships, government training schemes
(i.e. publicly funded training, reintegration and temporary work schemes), and
university students on work placements of one year or less (where that
placement forms a part of a higher education course).
This means that where employers do want the flexibility of having workers
that they do not have to provide with access to permanent employee benefits,
then they can continue to utilise agency workers. Employers should however keep
a close eye on developments on the proposed Agency Workers Directive which
could potentially have a very significant impact on the way employers structure
their workforce. For example, at the moment, the proposed Agency Workers
Directive states that employers would need to provide agency workers with the
same benefits that they provide to comparable permanent employees.
Fixed-term employees will have the right to request from their employers a
written statement giving the reason for any less favourable treatment. This
must be provided to the employee submitting the request within 21 days of that
request. Employees will also have the right to receive a written statement from
their employer, which either confirms their contract is to be regarded as
permanent, or which gives reasons why it continues to have effect as a
fixed-term contract (i.e. where they have successive contracts over a four-year
Employers should therefore be extremely careful in formulating their written
reasons to ensure that they satisfy the objective justification requirement
under the Regulations. The reason for that is because written reasons will be
admissible in any proceedings under the Regulations. Furthermore, if the
written statement of reasons appears to be evasive or equivocal, or if the
employer fails to provide a written statement (without reasonable excuse), the
tribunal will be entitled to draw any inference that is just and equitable. A
tribunal may for example draw the inference that the employer has infringed the
Fixed-term employees will be entitled to present complaints that they have
suffered less favourable treatment within three months of the alleged treatment
occurring. A tribunal can make a declaration as to the rights of the employee,
award compensation, and/or recommend the employer take specific action. There
is no cap on the compensation, however, in assessing the level of compensation
the tribunal will have regard to the particular infringement and the actual
loss caused. That loss will include any expenses reasonably incurred by the
employees in consequence of the infringement, and also the loss of the benefit
which they would have reasonably expected to have had, but for the
Compensation could potentially be quite significant if the benefit is a
valuable one, for example, a ‘City bonus’. If a tribunal orders the employer to
take action, all efforts should be made to comply with that order as the
tribunal has the power to increase any existing compensation award (or award it
if none was previously awarded). However, the Regulations specifically state
that compensation will not include compensation for injury to feelings.
Additionally, employees will be obliged to mitigate their loss and any
compensation will be reduced to the extent that they have caused and/or
contributed to their own loss.
Fixed-term employees may also bring claims of unfair dismissal or
detrimental treatment, where they have been dismissed and/or suffered detriment
because they asserted their rights under the Regulations. In terms of unfair
dismissal, the fixed-term employee will not need to have the one year’s qualifying
service requirement. This could mean, for example, if an employee’s six-month
contract is not renewed, because they have requested a written statement or
made a complaint to a tribunal, an employer may potentially face a claim for
unfair dismissal in addition to their other rights under the Regulations.
Also of relevance for employers is that the Regulations have removed the
option of including a redundancy payment waiver in fixed term contracts of less
than two years, meaning that an employee will potentially have the right to a
statutory redundancy payment.
Actions employers should take
At a general level, employers should do the following:
– Audit staff benefits, procedures and policies.
– Identify those which treat fixed term workers less favourably. Rectify or
identify objective reasons in advance of employees making requests for written
– Introduce procedures to deal with requests for a written statement of
– Identify those benefits which cannot be pro-rated and consider offering a
The Regulations do require some positive action from employers. However, the
fact that they do not apply to agency workers will mean that employers to a
large extent retain flexibility in the way they structure their workplaces. If
the Agency Workers Directive is adopted, this flexibility may be lost, and
employers should therefore monitor developments in respect of that directive
and actively participate in any consultation that takes place.
As a health warning, compliance with the Regulations will not mean that
employers are protected from potential claims for indirect sex discrimination,
where the majority of fixed term employees in their workplaces are women and
those women are treated in a discriminatory way.
For example, in a recent case, Whiffen v Millen Ford Girls’ School 
IRLR 468, it was decided that a fixed-term female employee was discriminated
against because her employer’s redundancy policy stated that fixed-term
employees (the majority of whom were women) would be the first people
dismissed, irrespective of the length of employment, before any objective
selection process was embarked upon in respect of the other staff.
Best practice: key points to consider
Employers may want to consider the
following best practice approaches relating to particular benefits.
The same salary should be paid, including shift allowances and
overtime pay where applicable.
Bonuses and/or commission
In general, employees should be given these benefits. By contrast, if the bonus scheme provides
that a portion should be retained (i.e. for the purposes of maintaining future
loyalty), then it may be arguable that the fixed-term employee is not entitled
to that proportion of the bonus because they are not a long-term employee and
would not be employed when the retained portion became payable.
Contractual sick pay and maternity
There must not be any less favourable treatment in terms of
rates of sick pay or maternity pay, the length of service required to qualify
for payment or the length of time the payment is received.
Access to pensions
In general, fixed-term employees should be given access on the
same basis as equivalent permanent employees. In terms of occupational schemes,
it may be objectively justifiable to refuse access if the employee will obtain
little if any benefit from membership because of the duration of their contract.
In such instances it may be worthwhile to provide access in any
event, as it would prevent any arguments, would promote an atmosphere of
equality and few people would be likely to take up the benefit.
Profit-sharing and share option
In general, employees should be given access. It may be
justifiable in some instances to deny participation in share option or share
schemes, where the relevant scheme requires the employee to be working for the
employer for a period of time that is longer than the duration of their
If enhanced redundancy payments are offered to permanent
employees then they should also be offered to employees on fixed term contracts.
Health insurance and staff
Access to these benefits should be provided. In practice,
health insurance is often provided by way of a group company scheme with the
result that the inclusion of fixed term employees would be unlikely to cause
the employer significant additional cost in any event. Alternative benefits may
need to be offered to compensate for this if their overall package is adversely
Loans, such as season ticket loans
It may be possible to justify the non-provision of a loan-type
benefit. The objective justification would be that the loan stands to be paid
back over a number of years. If, however, the term of the employee’s contract
covers the duration of the loan then the employee should be offered the
Holiday, maternity, and parental
leave, and career breaks
In general, these benefits should be provided. In practice,
many employees will not achieve the qualifying service periods that are
required by statute in relation to parental leave (i.e. one year), and probably
also in respect of any career break scheme (often three to four years’ service
Access to training
Employees should be given access.