No quick fixes

Employers
have three extra months to prepare for the Fixed Term Employees Regulations.
But there are still many issues you may not be able to resolve fully. By
Christina morton

Who
can claim?

Andrew,
a financial consultant, is ’employed’ for two days per week for a fixed term of
six months to sort out Miller Howard & Co’s accounting functions. He is
paid under PAYE (this is company policy), attends team meetings and has a main
contact in the company who acts more or less as a line manager. However, he
works for other companies undertaking similar work on other days of the week
and describes himself as self-employed. Will he be entitled to bring a claim
under the Fixed Term Employees Regulations?

Christina
Morton comments:
The regulations, which should have been in force this
month but will not now be implemented until October, enact the apparently
simple proposition that employers should not treat their fixed term employees
less favourably than their permanent employees. But closer scrutiny reveals a
number of difficulties on which the Government has provided very little
guidance, leaving some tricky judgments for employers.

The
main provisions of the Regulations are by now reasonably familiar (see panel
opposite). They are deceptively similar to the Part Time Workers Regulations,
which have been in force for almost a year. There are, however, some important
differences (see table on page 24).

First
is the fact that the Fixed Term Regulations will apply only to employees. This
is the first obstacle: which members of the workforce will the Regulations
apply to? Identifying who is an employee as opposed to a worker can be
notoriously difficult, even for the courts. And it is precisely those who are
employed on fixed-term contracts who are the most difficult to categorise.

There
is no doubt Andrew is a worker, but is he an employee? And if he is, what if
his terms and conditions do not match up to those of others in the department
who have similar seniority and qualifications? Miller Howard’s HR department
will not know whether it needs to take remedial measures over the terms and
conditions unless it can answer the employee/worker question.  

The
further complication in this case is that as a part timer, Andrew does have
protection under the Part Time Workers Regulations regardless of his status. So
if any differences in his terms and conditions are attributable to the fact
that he is part time then they must be eliminated, but if they are attributable
to his fixed term status then he can only complain if he is an employee. Both employees
and employers are likely to find it difficult to untangle the reasons for the
different types of different treatment!

Permanent
comparators

After
taking advice, Miller Howard decides Andrew is an employee. Is he now able to
bring a claim under the Regulations?

CM
comments:
Andrew will not have any rights under the Regulations unless
there is a permanent employee with whom he can compare himself. Who is a
comparable worker? Controversy will arise in any case where there is a
potentially comparable role but the comparator does a slightly different job,
or has a different title. The regulations are trying to put employees on
different types of contract on an equal footing. Hence there is no requirement,
as with the Part Time Workers Regulations, for the fixed term employee to be
employed on the same type of contract as the comparator. Consequently,
employers may be required to an even greater extent to compare apples with
pears.

Consider
Andrew again. Should he be compared to the permanently employed office
accountant to whom he has comparable qualifications or to the accountant’s
deputy, who is doing equivalent-level work to Andrew, but is less qualified and
experienced?

The
guidance accompanying the Regulations is extremely thin on this, other than to
say that the comparison can be made with ‘any permanent employee who does the
same or similar work for the same employer in the same establishment…’ On how
similar the work needs to be, or how to choose between competing comparators
who are on different grades, the notes are silent. Comparison with a
hypothetical comparator will not be permitted, however. Tribunals are likely to
take an approach that is most favourable to the employee, to match the purpose
of the European legislation.

Lines
of defence

Andrew
finds a suitable comparator and brings a claim. How should Miller Howard handle
it?

CM
comments:
Andrew has a right not to be treated less favourably. The first
step is to identify the differences. These may be in individual terms such as
levels of pay, amounts of holiday or access to pensions or benefits. It is then
open to Miller Howard to try to justify these differences on a clause by clause
basis. Alternatively it can rely on the justification that the employee’s
‘overall package’ is not less favourable.

The
Regulations highlight service qualifications for benefits, the opportunity to
receive training and the opportunity to secure permanent employment as
particular areas for attention. Many employment benefits such as pensions,
healthcare schemes and life assurance are offered only after a qualifying
period has been served. Other benefits such as sick pay and holidays get better
with longer service. The Regulations do not rule out differences in treatment,
but employers must be able to justify on objective grounds any differences that
are attributable to the fact that the employee is a fixed-term employee.
Moreover, the employer can also deploy the pro rata principle, which is defined
in the Regulations and entitles a fixed-term employee 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". The pro rata principle applies "unless it
is inappropriate". Benefits such as additional sick or holiday pay can be
fairly readily pro-rated according to length of contract. It is likely to be
impracticable for benefits such as insurance or season ticket loans. However,
there is again no specific guidance.

Miller
Howard therefore has a number of lines of argument available in dealing with
Andrew’s challenge. Take the following examples of common benefits which might
operate differentially.

Life
assurance where there is a qualifying period before the employee receives
benefits under the scheme. The employer can argue that the qualifying period is
imposed by the insurer and the fact that fixed term employees do not have life
assurance is not therefore different treatment on the ground that the employees
are fixed term. There could be some interesting arguments in tribunals about
what ‘on the ground’ means. Is it enough for fixed-term employees to be
excluded because of the qualifying period or is an additional element needed?
As the Regulations implement European legislation, the tribunals are likely to
interpret this provision in employees’ favour. Hence they will probably find
that if fixed term employees cannot meet a qualifying period that is enough to
show they are excluded on the grounds of their status. But even if an employer
loses this argument he can then argue that the insurer’s stipulation renders
the difference objectively justifiable.

Company
cars which are available to those with more than six months’ service. This is a
benefit which cannot be offered on a pro rata basis. The pro rata principle is
therefore inappropriate. Does this mean that the employer can simply leave this
benefit out of account in assessing the relative packages of the fixed term and
permanent employee? The Regulations could be read in that way. However, an
employer would be safer taking the ‘overall package’ approach (see below) and
offering something in return for the lack of company car (probably a higher
rate of pay).

Pensions:
In its response to consultation, the Government suggested qualifying periods
for entry to pension schemes need not be eliminated, but that they should be
the same for fixed term and permanent employees. An employer could argue that
the exclusion of those who do not meet the qualifying period is objectively
justifiable both as a result of the brevity of their contracts and because an
employee will gain little (and possibly lose money) from joining a pension
scheme for a very short period. But it will be difficult to justify excluding
fixed term workers on longer contracts. The Government estimates only about 10
per cent of fixed term employees with a comparator were excluded from the
employer’s pension scheme.

Training:
Access to training for fixed term workers is a particular concern and is
specifically identified. What employers will not be able to do is exclude fixed
term employees from training opportunities just because they are fixed term.
However, they might be able to justify excluding a fixed term employee from a
training course that did not finish until after the fixed term contract
expired. This might not work in all circumstances, particularly if it is likely
the employee will be offered a further fixed term contract when the existing
one expires. Employers will also have to ensure fixed term employees are made
aware of permanent vacancies. What of a fixed term employee who wants to take a
training course which finishes after the end of his contract, but would qualify
him for a permanent job in the company? The employer might struggle to justify
denying the request.

In
all these cases the employer can adopt an alternative approach and argue that
the differences are objectively justifiable because the fixed term employee has
an overall package that is not less favourable. However, this takes the
employer into apples and pears territory again. How are these various benefits
to be  evaluated? Is it the objective
monetary value that counts or the value of the benefit to the employee? There
is no guidance on this whatsoever in the notes to the regulations, nor in the
Government’s response to consultation.

The
only wholly objective approach is to use monetary equivalents. In some
instances this will be easy to calculate (the annual premiums to a health
insurance contract for example, or the value of contractual maternity pay). In
others, such as company cars, Inland Revenue formulae may be useful. Having
added together the monetary value of the benefits the fixed term employee is
not entitled to, the employer would have to a fix a salary level incorporating
an equivalent adjustment.  

However,
bearing in mind the way that the pro rata principle is formulated in the
Regulations, would the employer be justified in not making a full adjustment
where the contract was very short? The question of what is reasonable in pro
rating benefits and how this relates to the ‘overall package’ question is
another issue on which as yet there is a dearth of guidance. Interestingly,
however, the Government estimates only 9 per cent of employers of fixed term
employees operate any differences in the non-wage benefits they offer them – it
appears that the employers who really struggle with these new rules will be in
the minority.     

Christina
Morton is a solicitor at Beachcroft Wansbroughsú

The
Fixed Term Employees Regulations provide


that employers should treat their fixed term employees no less favourably than
permanent employees unless they can objectively justify doing so


that the comparison is made with one of the employer’s permanent employees in the
same establishment (or where this is not possible a different establishment)
who is undertaking the same or broadly similar work, taking into account
qualifications, skills and experience of the fixed term and permanent employee


that in making the comparison, the employer can either compare the terms on a
clause by clause basis, or look at the overall package


that all terms and conditions of employment are compared, including pay and
pensions


that fixed term employees are not to be subjected to other detriment on the
grounds that they are fixed term unless that detriment is objectively
justifiable


that employers take steps to inform their fixed term employees of other
vacancies in the workplace in particular permanent vacancies


measures that are intended to curb abuses arising from the use of successive
fixed term contracts


a right to a written statement of reasons if the fixed term employee believes
less favourable treatment has occurred

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