Do fixed-term contracts have a future?

Historically, it has been common practice within the IT industry to hire staff on fixed-term contracts, often in response to a...

Historically, it has been common practice within the IT industry to hire staff on fixed-term contracts, often in response to a need for a flexible workforce and to drive down employment costs, writes Kathryn Clapp.

Terms offered to fixed-term staff may be different (and often less favourable) than would be offered to permanent staff. These practices should now be reviewed in the light of the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations, which came into force on 1 October. They make certain changes to the way fixed-term staff (but not agency or other workers) are treated by the law.

Fixed-term staff are employed on contracts for a specific period, or for the duration of a particular project, such as installing a new database, or to cover peaks in demand. Under the regulations they now have the right not to be treated less favourably than comparable permanent employees because they are on a fixed-term contract unless the different treatment can be objectively justified.

Crucially, a fixed-term employee must compare himself to a permanent employee having similar skills and qualifications who works for the same employer.

Less favourable treatment can occur when a fixed-term employee does not receive a benefit, such as a bonus or access to training, which a comparable permanent employee has, or it is offered on less favourable terms, such as less paid holiday.

Similarly, a fixed-term employee may be subject to disadvantages, unlike permanent employees, such as selection for dismissal or redundancy purely because they are fixed-term.

Employers must question whether there are good reasons for the differences. To objectively justify any less favourabletreatment employers must show that it is to achieve a genuine business objective; it is necessary and an appropriate way to achieve that objective.

For example, the failure to provide a company car to a fixed-term employee for a short period could be justified by the cost to the employer being disproportionate to the benefit gained by the individual.

Alternatively an employer may be able to argue that, in the round, a fixed-term employee's total package of terms and conditions is at least equal to that of a permanent employee. For example, a fixed-term employee may have a lower holiday entitlement than a comparable permanent employee, but his overall salary is higher.

As the regulations specifically require employers to offer access to occupational pension schemes on the same basis to fixed-term employees as for permanent employees unless different treatment is objectively justified, a review of current pension practices is important.

Successive fixed-term contracts will now be limited to four years (with continuity starting from 10 July 2002). After four years staff will automatically become permanent employees unless an employer can objectively justify the continued use of further fixed-term contracts.

Fixed-term employees have the right to ask their employer in writing for a written statement giving the reason for any less favourable treatment. The employer must provide the statement within 21 days of the request.

If fixed-term employees believe they have been treated less favourably than a comparable permanent employee because they are fixed-term, or because their employer has infringed any of their rights under the regulations, they may bring a claim in an employment tribunal within three months of any infringement, after exhausting internal grievance procedures.

Awards by employment tribunals on successful claims are uncapped and would include expenses incurred by the employee as the result of the infringement and loss of any expected benefit.

What should employers be doing now?
  • Checking objective business reasons for differences in treatment between fixed-term and permanent staff

  • Starting a process of changing terms of existing fixed-term contracts to balance those employees' treatment with that of permanent staff

  • Reviewing current practices which have led to successive renewals of fixed-term contracts.

Kathryn Clapp is a solicitor at international law firm Taylor Wessing. E-mail: [email protected]

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