How does employment law apply to Fixed Term Contracts?

In this article Lisa Crivello looks at the protections given to employees working on fixed term contracts and discusses how their rights under the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 can be used to resolve workplace issues.

What is a fixed term contract?

A fixed term contract is a type of employment contract that is intended to last for a limited term only. It is a contract which envisages its own termination at the very start. In other words it allows the employer to define the circumstances in which the contract will automatically be terminated. This is typically a specific date in time, but might also be the occurrence/non-occurrence of a specific event (such as the completion of a project, the return of a substantive post-holder from maternity leave or the non-renewal of a funding grant).

It should also be noted that as an employment contract, this should be differentiated from other forms of working arrangements that typically involve ‘workers’ rather than employees (casual workers, agency workers, zero hours contracts etc.). If you are not an employee you are not a fixed term worker under UK law.

What legal protection do fixed term employees have now?

In an attempt to crack down on employers who were using/abusing fixed term contracts (often successively) to avoid the legal rights and duties afforded permanent staff, the European Union passed the Fixed Term Work Framework Directive 1999/70/EC. This was implemented in the UK in the form of the ‘Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002’.

This legislation made it illegal to treat those on fixed term contracts less favourably than comparable permanent employees, on the grounds of their contractual status, unless the employer could ‘objectively justify’ the treatment.

Employees are also protected from detriment (including dismissal) on the grounds that they have asserted their statutory rights under the Fixed Term regulations.

If a fixed term employee believes they are being treated less favourably because of their contractual status, the regulations give them the right to make a request to the employer for a written explanation of the reasons for the treatment (Reg 5(1)). The employer must respond within 21 days, and the response (or failure to respond) can be used in evidence at Tribunal.

The Regulations also provide that after 4 years’ continuous service, a fixed term employee who has had their contract renewed at least once, effectively loses their ‘fixed term’ status unless the employer can objectively justify the contract continuing on a fixed term basis. The employee has the right at this point to request the employer provides a written statement that confirms their permanent status, or provides the justification for their continuing to be fixed term.

However, given that UK law provides full employment rights after 2 years’ service, this provision has little legal effect. The non-renewal of a fixed term contract is still deemed a dismissal at law, and an employer will need to have a fair reason for non-renewal. Once the job holder has 2 years’ service they have the same right not to be unfairly dismissed as any permanent employee. The only real legal distinction after 4 years is that the job-holder will be entitled to the same ‘notice’ provisions as other employees (any ‘end date’ in the fixed term contract will become void). Regulation 9 also gives the right to request a statement confirming permanent status at this point.

What is less favourable treatment?

Less favourable treatment extends to all terms of contract (including pay and pensions) and any other ‘detriment’. Thus the regulations effectively created a new type of unlawful discrimination, with the fixed term employee taking on a legal status similar to that of having a protected characteristic under the Equality Act.

If a fixed term employee has less favourable terms of contract than a comparable permanent employee then they may have a claim under the regulations. Examples might include:

• Statutory holiday entitlement only (where other staff have additional holiday entitlement)
• Lower hourly rates of pay for doing the same job as a permanent employee
• No or limited access to a company pension scheme
• No limited access to company sick pay
• Longer working hours when working in the same job as a permanent employee

Likewise, blanket exclusion from the employer’s ‘people policies’ which apply to ‘permanent staff only’ would also be less favourable treatment, such as:

• Redundancy and redeployment policies
• Compassionate/dependency leave or a ‘day off for moving house’ etc.
• Lunch and travel allowances
• Flexible working policies
• Staff development (access to training etc)

Of course, as ‘employees’ those on fixed term contracts will always be entitled to the legal minimum applicable in law, but many employers offer their own staff more generous allowances. Fixed term employees are legally entitled to the same benefits.

The regulations are not limited to specific ‘terms and conditions’ of work — they cover ‘any other detriment’ so if a fixed term employee is being bullied or treated unfairly in any other way, they are still covered (although they would have to prove the treatment was on the grounds of their fixed term status).

What is objective justification?

There is no definition of ‘objective justification’ in the regulations, but in practice the Courts have taken it to mean a ‘good business case’, or ( in keeping with the Equality Act analogy above) used the test for justifying indirect discrimination (a “proportionate means to a legitimate end”). In addition, the regulations allow the employer to balance any less favourable terms in the contract with other more favourable ones, so that if the overall package is not less favourable, this is also taken to comply with the requirement for objective justification.

The European Court of Justice has made it clear that an employer can’t just say the reason for the fixed term contract is because its for a fixed term, that is a circular argument, so cannot be objective justification (Valenza and Others v Autorità Garante della Concorrenza e del Mercato 2012 ECJ), however more recent cases have suggested that the context of a fixed term contract may be a relevant factor for justification — for example where it is absolutely clear from the start that there is no chance of renewal and therefore ‘no legitimate expectation of stable employment’. However these cases are very context dependent and rely on the specific facts and circumstances so the principle cannot easily be generalised.

What are the legal remedies available?

An employee can bring the following claims in the Employment Tribunal under the regulations:

• Less Favourable treatment (Reg 3)
• Automatic unfair dismissal/detriment (Reg 6)
• A declaration of permanent status (Reg 9)

Claims should be brought within 3 months less one day of the date of the breach — or where it is a series of breaches, the last in the series. It should be noted that an application for a declaration under Reg 9 cannot be made post-employment.

If a tribunal finds a claim well founded, it can make orders for the following:

• Compensation for any financial loss caused by the breach, and/or
• Specific recommendations for the employer to take actions to put things right (or a declaration that the employee has become permanent under Reg 9).

Unlike claims under the Equality Act, there is no provision for any ‘injury to feelings’ award. Of course a fixed term employee may also have a claim under the Equality Act if the less favourable treatment is also a form of indirect discrimination. For example, less favourable treatment on grounds of being a fixed term employee might also be indirect sex discrimination. This is because women are more likely to work in temporary or part-time employment due to their caring commitments for children and elderly relatives.

Conclusion

The law recognises that fixed term contracts are legal and there may be many good reasons for an employer to use them. However, Employers should also realise that a fixed term employee gains full employment rights after 2 years’ service, and will become entitled to a fair reason for their contract not being renewed. Whilst it should be noted that the non renewal of a contract on its own is not deemed ‘less favourable treatment’ (Webley v Dept for Work and Pensions 2005 ICR 577 CA), the employer should be prepared to have their reasons scrutinised by an employment tribunal.

Arguably the right to equal treatment from day 1 of employment may give fixed term employees a form of ‘additional’ employment rights — for example if they are selected for redundancy on expiry of their contract simply on the basis of being fixed term this is likely to be unlawful even if they don’t have 2 years’ service. Employers should also note that in the event of litigation, once less favourable treatment has been identified, the burden of proof shifts to the employer to prove it is not on the grounds of contractual status. In this respect employers who think that using fixed term contracts will protect them from unfair dismissal claims should think again.

Lisa Crivello is an employment expert in the Expert Advice Team at Citizens Advice.

The information in this article is correct as of the date of publication.

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