Prepare for demise of the fixed-term contract

New rulings giving greater rights to fixed-term contract workers should prompt employers to review their policies

The fixed-term contract has been a useful part of the employment repertoire. Often it is entirely appropriate and suits everyone – for example, a hiring to cover maternity leave.

To support this, the law allowed the parties to agree that, when the fixed term expired, the worker would not sue – after all, he knew the score when he started.

But things were to turn sour. Lured by the ability to exclude liability, some employers insisted that work more appropriate for a permanent contract should be done on a fixed-term basis.

This left those involved without job security or adequate protection. Inevitably the courts,

Government and now the EU have reacted to this abuse. We must now ask whether the demise of the fixed-term contract is imminent.

The first nail was hammered into the coffin by the House of Lords in 1983, when it held that the practice of breaking continuity of service for fixed-term workers by inserting breaks between the terms would fail, unless a break was substantial.

The Government hammered in another nail in October 1999, when it outlawed the practice of getting fixed-term workers to sign away unfair dismissal rights. Now, the employer must have a good reason for not renewing.

The third, and perhaps final, nail will be hammered home by June 2001, when the Fixed Term Contracts Directive is implemented in the UK. This will

prohibit an employer from unjustifiably treating a fixed-term worker less favourably than a permanent worker.

Employers will have to consult workers’ representatives over the use of fixed-term contracts. The Government may cap the number of times a fixed-term contract can be renewed.

Combine these aspects with the obvious disadvantages of a fixed-term contract – that, without good reason or an appropriate break clause, early term- ination will result in a claim for damages – and you wonder whether there is any point.

There is some point. The directive will allow less favourable treatment of some types of fixed-term workers, such as apprentices, and here at least this type of contract may have a future

Otherwise, advantages are more marginal. Those on fixed-term contracts of more than two years can still agree not to claim a redundancy payment, but statutory redundancy payments are modest. Equally marginal is the fact that it may be easier to defend an unfair dismissal claim on the non-renewal of a fixed term than on the termination of a permanent contract.

Employers should now be reviewing their use of fixed-term contracts and adopting a clear policy on them. Benefits packages should be brought into line with permanent contracts.

Key points

– The Fixed Term Contracts Directive should come into force in the UK by June 2001.

– When the Directive is in force employers will have to treat fixed-term workers no less favourably than their permanent counterparts.

– Employers will have to consult with workers’ representatives on the use of fixed-term contracts

– Benefits packages for fixed-term workers should be as favourable as those for permanent workers.

– Employers should review the future use of fixed-term contracts and whether those employed under them should become permanent workers. A clear policy on the use of fixed-term contracts is advisable.

By Nicholas Moore, partner and head of employment with law firm Osborne Clarke OWA, which has offices in the City of London, Bristol and the Thames Valley

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