Regulation 3 of the fixed-term regulations states that fixed-term employees must not be treated less favourably than permanent employees as a result of any act or deliberate failure to act by the employer. In Hall v Xerox UK Ltd, the Employment Appeal Tribunal (EAT) held that an employer cannot be liable for the less favourable treatment of a fixed-term employee under an incomes protection policy if the policy contract is between the employer and a third party.

Basic facts

Xerox had an insurance protection policy which paid out to employees who had been off work for 26 weeks as a result of a qualifying injury. According to the terms of the policy, employees on fixed-term contracts ceased to be members of the scheme when their contracts expired before the end of the 26 week period. As such, the policy drew a distinction between people on permanent and fixed-term contracts.

The employer set out the same terms in its contracts with permanent and fixed-term employees. The contracts also made clear that Xerox was only liable to make payments to the employee if it had received the payment from the insurer. In other words, it was not obliged to provide a replacement benefit if the insurer failed to make the payment to the company.

Mr Hall worked for Xerox under a fixed-term contract which was due to expire on 20 July 2012. On 12 April, he suffered a hernia whilst repairing a photocopier machine. Mr Hall did not therefore qualify as his contract was due to run out before the end of the 26 weeks. Although it was subsequently extended to 20 July 2013, the insurer (Unum) decided he did not qualify and, as the company did not receive any payment, it refused to pay out.

Mr Hall claimed he had been treated less favourably than permanent employees under regulation 3 of the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002.

Tribunal decision

The tribunal dismissed Mr Hall’s claim. Although it agreed that he was treated less favourably than a permanent employee, this was not because of any act or deliberate failure to act by the employer. Instead it was because Unum decided that he did not qualify for the benefit under the scheme. The judge also held that, even if he had found that the company had treated him less favourably, that treatment would have been justified as it was bound by the “apparently universal approach taken by insurance providers in this regard”.

One of the lay members on the panel disagreed, saying that Xerox had caused the less favourable treatment because it should have taken steps to ensure that the policy did not treat fixed-term employees less favourably in some circumstances comparable to permanent employees. As to justification, the panel member said that Xerox was under a duty to pay Mr Hall and renegotiate with the insurance company to ensure that it did not discriminate against fixed term employees in the future.

EAT decision

The EAT held that the tribunal judge was entitled to come to the conclusion that the refusal to provide the benefit was “not an act of the employer” but because Unum refused to pay up. This was not perverse, nor was it an error of law and could not be overturned.

It also rejected the argument that Unum was acting as the agent of the employer. Applying common law principles of agency the EAT held that the contract was a contract between Xerox and a third party. It was an insurance contract which had “nothing to do with agency”; it was not expressed as an obligation of Xerox to its own employees; and it did not involve Xerox in any relationship (whether legal or not) with anyone else.

The judge was therefore entitled to come to the conclusion that the less favourable outcome of which Mr Hall complained was not caused “by any act or deliberate failure to act of his employer”. Even if it had, the judge was entitled to conclude that it was justified in the circumstances, given the evidence that there was no other policy which would provide suitable cover for a fixed-term employee (even though it criticised the judge for not exploring more fully whether other policies were available).