Fixed term contracts

Introduction

Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 came into force on 1 October 2002. A fixed term contract consists of a fixed commencement and termination date even if it is likely to be renewed. Examples of situations where these type of contracts are most relevant are for example, employees covering for maternity leave and peaks in demand.

An employee on a fixed-term contract has the right not to be treated less favourably than permanent employees doing similar work for the same employer at the same organisation. They are entitled to terms and conditions of employment equivalent to those available to permanent staff (on a pro rata basis), and are no longer able to waive their right to a redundancy payment if employed under a fixed-term contract lasting two years or more. Employees on fixed-term contracts now also have a right to receive statutory sick pay, guarantee and medical payments irrespective of the length of service. However, certain types of worker are excluded from the regulations. These are:

  • Apprentices;
  • Agency workers;
  • People who are supplied by an employment business (e.g. a temp 'agency') to do work for another person under a contract or other arrangements made between the employment business and the other person;
  • Fixed-term employees who are employed on a training or work experience scheme, for the purpose of assisting them to seek or obtain work, which is either:  
    • provided to them under arrangements made by the Government;
    • or funded in whole or part by an Institution of the European Community.
  • Fixed-term employees whose employment consists in attending a period of work experience (not exceeding 1 year) that they are required to attend as part of a higher education course.

Fixed-term contracts include those where the duration of employment is for a specified period or 'task' based (i.e. that last until a particular task has been completed of until a particular event has (or doesn't) happen).

There are two ways in which to make a fair comparison between fixed term employees and permanent employees. These are either on a term-by-term basis or on a package basis.

Term by term approach 

This means that every term in a fixed term employees employment package should be the same as that of a permanent employee, or the same on a pro-rata basis.

Package approach

With the package approach, employers will be able to balance a less favourable condition against a more favourable one. Hence employers will be allowed to pay higher up-front rewards in return for reduced benefits in other areas.

In addition to the above, the equal treatment of fixed-term workers covers the following areas:

  • Right to statutory notice;
  • The right to Statutory Sick Pay, Payments on Medical Suspension and guarantee payments (once they have been employed for 1 month);
  • The same rights to statutory redundancy pay as permanent employees;
  • The right not to be unfairly dismissed at the end of the contract;
  • The right to be notified of permanent employment opportunities with the employer.

Employees will be also be able to insist on the same level of access to occupational pension schemes and to share options as permanent employees, unless there is an objectively justifiable reason for their exclusion.

Limitations on successive fixed term contracts

Any fixed term contractor in continuous service on 10 July 2002 who has been continuously employed on successive fixed-term contracts for four years or more will become permanent on 10 July 2006. The only proviso is unless the use of further fixed -term contracts is objectively justified or has been provided for in a collective or workforce agreement. 

Employers and employees will have the option to increase or decrease the four year limit or agree an alternative to prevent the abuse of successive fixed-term contracts via collective or workforce agreements. Such agreements need to be governed by 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.

Statutory rights of all temporary workers

  • Not to be discriminated against by their employer on grounds of sex, marital status, gender re-assignment, race, colour, nationality, national or ethnic origins, or disability;
  • To be paid the appropriate national minimum wage;
  • Entitlement to four weeks' paid annual holiday. As per the Working Time Regulations 1998, they do not have to work more than an average of 48 hours a week and qualify for the minimum daily and weekly rest breaks and rest periods;
  • If engaged on a part-time basis, they have the right not to be treated less favourably than comparable full-time workers in terms of wages, overtime pay, contractual holiday and other benefits;
  • Not to suffer any detriment (including dismissal) for making a protected disclosure;
  • Not to have any unlawful deductions (other than tax and national insurance contributions) from their wages without their prior written consent.

Rights exclusive to temporary workers who are employees 

Temporary employees have the same statutory employment rights as permanent employees and hence should be issued with a written statement outlining the main terms and conditions of their employment. The period for which employment is expected to continue or, if it is for a fixed term, the date it is to end needs to be clearly stipulated. A person employed for a fixed term of two years or more loses the right to statutory redundancy payment if the contract contains a clause waiving the right to such payment on the termination and non-renewal of that contract. 

Statutory minimum notice periods are not applicable where the contract is for the performance of a specific task whose duration is no more than three months, provided the contract is not extended beyond that minimum period. 

Temporary employees also have the right not to be dismissed, made redundant, or be subjected to any other detriment as a result of their affiliation to trade union or for taking part in efforts to secure trade union recognition or for encouraging other workers to do the same. 

Action point checklist

  • It is important to note the distinction between a temporary worker who is an 'employee' and one who is not. No contract of employment exists if there is no mutuality of obligation;
  • Refrain from assigning a non-employee label to a temporary employee to avoid issuing them with a written statement of employment particulars or to avoid statutory rights dependent on employment status;
  • Casual workers are entitled to the appropriate minimum wage and accrue entitlement to paid holiday or holiday pay on termination even if hired for just a day or two;
  • The contractual relationship will change to that of employer and employee where a worker is hired for a few days and then asked to stay on for several weeks;
  • Temporary, casual and seasonal workers may be vulnerable to injury if put to work in an unfamiliar environment without appropriate training which is worth noting when conducting risk assessments under the Management of Health and Safety at Work Regulations 1999.