Contract staff used to be at a serious disadvantage compared to permanent staff. Victoria Phillips, head of Thompsons’ Employments Rights Unit, explains how the latest legislation has improved matters

Until 2002, there was nothing to stop employers from treating fixed-term staff differently to permanent employees. The result was that they could (and often did) keep them dangling on an endless succession of fixed-term contracts, at the end of which they could fire them.

That all changed with the introduction of the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. These gave fixed-term employees a number of rights, most notably the right to become permanent after four years of successive fixed-term contracts.

Who is a fixed-term employee?

A fixed-term employee is someone with a contract of employment that is 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 Department of Trade and Industry (DTI) suggests in its guidance that this could include employees doing seasonal or casual work; employees covering maternity, parental or paternity leave or sick leave; employees hired to cover for peaks in demand; and employees whose contracts expire when a specific task is completed.

The regulations cover all employees, except members of the armed forces, agency workers and apprentices.

What is the “equal treatment” principle?

This states that a fixed-term employee cannot be treated “less favourably” than a comparable permanent employee just because they are on a fixed-term contract, unless the employer can objectively justify the difference.

Who can they compare themselves with?

Fixed-term employees have to compare their treatment with a “comparable permanent” employee who works for the same employer in the same “establishment”, doing the same or broadly similar work.

If there is no one who fits that bill where they actually work, then they can compare themselves with someone in another of their employer’s “establishments”, if there is more than one.

They cannot, however, compare themselves with someone who works for an associated employer. It has to be the same one. Nor can they compare themselves with a permanent employee who has left. The comparator has to be an actual named person, not a hypothetical comparator (unlike the sex and race discrimination legislation).

What is less favourable treatment?

Less favourable treatment is when a fixed-term employee does not get a benefit that a comparable permanent employee gets – for instance a bonus, training or promotion opportunities. The employer can, however, objectively justify their treatment of the employee.

In Coutts & Co plc and Royal Bank of Scotland -v- Cure and Fraser (2004), the Employment Appeal Tribunal (EAT) said that the bank had breached the regulations when it excluded fixed-term employees from the right to a bonus.

It was irrelevant that it had also excluded other non-permanent groups of workers.

What is objective justification?

The DTI says that employers can justify the different treatment if they can show that it:

• is to achieve a legitimate objective, for example a genuine business objective
• is necessary to achieve that objective
• is an appropriate way to achieve that objective.

For instance, an employer may decide not to offer a fixed-term employee a company car, although a permanent employee doing a similar job has one.

The employer may be able to justify this on the basis that the cost would be disproportionate to the benefit offered, particularly if they can show that there was another way for the fixed-term employee to get about and that they would reimburse expenses.

What is the pro rata principle?

There are some benefits that employers offer on an annual basis or over a specified period of time, such as season tickets, season ticket loans, health insurance or staff discount cards. If the fixed-term contract is for less than the period for which a benefit is offered, employers should offer to pay it in proportion to the duration of the contract.

However, if this is not possible, employers may objectively justify not giving it to fixed-term employees if the cost of doing so would be disproportionate to the benefit the employee received.

How is different treatment compared?

There are two main ways – going through the terms of the contract one by one, or by looking at the overall package.

The first involves looking at each individual term of a fixed-term employee’s employment package to ensure they are the same as the equivalent term of the comparable permanent employee.

The second involves looking at the overall package of terms and conditions offered to the fixed-term employee to ensure it is no less favourable than the comparable permanent employee’s overall package. This allows employers to balance a less favourable condition against a more favourable one.

The DTI says the value of benefits should be assessed on the basis of their objective monetary worth, and gives the example of a fixed-term employee who is paid the same as a comparable permanent employee, but gets three days’ fewer paid holiday per year. To ensure that the overall employment package is no less favourable, the fixed-term employee's annual salary is increased to reflect the value of three days' holiday.

Employers can still objectively justify not giving a particular benefit if they choose to use a package approach. And the regulations do not necessarily require them to provide compensatory benefits where they can objectively justify excluding the fixed-term employee.

What is the limit on the use of successive fixed-term contracts?

The regulations state that, once an employee has been employed on two or more successive fixed-term contracts for four years (from July 2002), their employment becomes permanent (LELR 105). Employers can, however, objectively justify continuing with a fixed-term contract beyond the four-year period.

Can they ask for evidence?

After the four-year period, fixed-term employees have the right to ask their employer in writing for a written statement confirming that they now have permanent status. They can also ask for a written statement if they think they have been treated less favourably than a permanent employee.

The employer must produce the statement within 21 days of the request and if they maintain that the employee is still fixed-term, they must provide reasons. The employee may use the statement at an employment tribunal hearing if they decide to bring a complaint.

How can the four-year limit be changed?

The regulations allow employers and union representatives to vary the limit on the duration of successive contracts upwards or downwards, or to limit their use 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
• a list of permissible objective reasons justifying renewals of fixed-term contracts.

Objective reasons for renewing fixed-term contracts may include the specific needs of particular professions, for example professional sport and the theatre.

Does expiry of a fixed-term contract constitute less favourable treatment?

No. In a case taken by Thompsons (see LELR 97), the Court of Appeal ruled in Webley -v- the Department for Work & Pensions (2005) that a failure to renew a fixed-term contract did not constitute less favourable treatment, saying that “it is of the essence of a fixed-term contract that it comes to an end at the expiry of the fixed-term.”

Does expiry of a fixed-term contract constitute dismissal?

Yes. When a fixed-term contract comes to an end automatically, say when the task for which they were engaged has been completed, that termination is classified in law as a dismissal.

This means employees on such “task contracts” have the right, after a year, not to be unfairly dismissed; the right to a written statement of reasons for dismissal; and the right (after two years) to statutory redundancy payments.

Is the reason for dismissal not always fair?

Just because the reason for dismissal is likely to be fair by reason of redundancy does not mean that the dismissal is necessarily fair. Employers still have to show that they acted fairly and that they complied with the statutory dismissal procedure, in particular they should state the reasons for termination and allow an appeal against dismissal.

However, if they are making 20 or more employees redundant in a 20-day period, then employers have to comply with the obligations to inform and consult unions under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992.

Even if section 188 does not apply, employers must still observe the “equal treatment” principle so that fixed-term employees are not necessarily first “for the chop”. This is a significant change as in the past many employers used to agree to let fixed term workers go before making any redundancies in the permanent workforce. This would now amount to less favourable treatment.

Can employers give notice to end the contract?

The EAT in Allen -v- National Australia Group Europe Ltd (2004) certainly thought so. It said that just because the employer and / or the employee can give notice to bring the contract to an end at any earlier date does not alter its status as a fixed-term contract.