Contents

• Who is covered?
• How does the equal treatment principle work?
  Who can fixed-term employees compare themselves with?
  What is less favourable treatment?
• Objective justification
  What would be objective justification?
  How do employers objectively justify different conditions for fixed-term employees?
  How would comparing conditions term by term work?
  How might the package approach work?
• Do the same period of service qualifications apply?
• What is the pro rata principle?
• Should fixed-term employees have access to occupational pension schemes?
• Will fixed-term employees now have redundancy rights?
• When do fixed-term employees have the right to request a written statement?
• What changes are being made to statutory employment rights?
• Limiting the use of successive fixed-term contracts
  What might be objective justification for fixed-term contracts beyond the 4-year period?
  How can we change the 4-year limit by collective or workforce agreements?
  After reaching four years?
  What is four years’ continuous service?

• How should fixed-term employees be informed of permanent vacancies?
• What remedies are available for fixed-term employees receiving less favourable treatment?

This guidance note sets out the requirements of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations, which come into force on 1 October 2002. The Regulations implement the EC directive concerning the Framework Agreement on Fixed-term Work. The purpose of this guidance is to explain the requirements of the new Regulations to employers, managers, union representatives and employees who may be affected by them and to let people know about their new rights. This guidance does not have statutory force. It gives general guidance only and should not be regarded as a comprehensive or authoritative statement of the law. It describes the position which applies in England, Wales and Scotland.

Who is covered?

‘Fixed-term employee'  is defined as a person with a contract of employment which 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.

Examples of these include:

• Employees doing so-called ‘seasonal’ or ‘casual’ work who have contracts for a short period or task that end when the period expires or the task is completed. (Examples include: employees at children’s summer camps; agricultural workers; and shop assistants working specifically for Christmas or another busy period.)
  
• Employees on fixed-term contracts concluded specifically to cover for maternity, parental or paternity leave or sick leave
  
• Employees hired to cover for peaks in demand and whose contracts expire when demand returns to normal levels.
  
• Employees whose contracts will expire when a specific task is complete (i.e. setting up a new data base, painting a house or running a training course.)

The Regulations apply to fixed-term employees who have an employment contract with the employer they work for. They also apply to some Crown Servants, House of Lords and House of Commons staff and police officers. Members of the armed forces are excluded.

They do not apply to agency workers, i.e. those who have an employment contract or relationship with a temporary work agency but are placed with and do their work for a third party. However, employees directly employed by a temporary work agency (employment business) to work under the control of the agency (for example, taking bookings for temps) are covered by the Regulations.

The Regulations do not apply to apprentices or students on work experience placements of one year or less that they must do as part of a higher education course. Higher education course is defined in the Education Reform Act 1988 and includes undergraduate, postgraduate and teacher training courses. (Note that university students doing holiday jobs on fixed-term contracts and gap year students with fixed-term contracts that are not part of their course are not excluded from the Regulations.)

They do not apply to fixed-term employees employed on training, work experience or temporary work schemes specifically designed to provide them with training or work experience to help them find work where the schemes are wholly or partly funded by an institution of the European Communities or provided under arrangements made by the Government. The Regulations do apply to fixed-term employees who are employed on other schemes funded by the British Government or an institution of the European Communities. They also apply to those employed on the New Deal subsidised employment option.

How does the equal treatment principle work?

Fixed-term employees will have the right not to be treated less favourably than comparable permanent employees because they are fixed-term, unless the different treatment can be objectively justified. Permanent employees will not have the right not to be less favourably treated than similar fixed-term employees. 

Who can fixed-term employees compare themselves with?

The Regulations define a ‘permanent’ employee as an employee who is not on a fixed-term contract. These employees may be referred to as having indefinite or indeterminate contracts, but will be called permanent employees in this guidance, in line with the Regulations.

A fixed-term employee can compare their treatment to the treatment of a comparable permanent employee. A comparable permanent employee is someone who works for the same employer in the same establishment, doing the same or broadly similar work, and the comparator’s skills and qualifications must be taken into account where they are relevant to the job.

Where a fixed-term employee does the same work as several permanent employees whose contractual terms are different, the fixed-term employee may select a comparator. However, the chances of a claim for equal treatment being successful will depend on the employee selecting a similar comparator and on whether there are objective reasons for different treatment.

If no comparable permanent employee works in the same establishment, a fixed-term employee can use a comparator in another of the employer’s establishments.

A fixed-term employee cannot compare conditions with someone at an associated employer’s establishment.

With effect from 1 October 2002, employers may have to change the terms of existing contracts to ensure fixed-term employees are treated as well as comparable permanent employees.
 
What is less favourable treatment?

Less favourable treatment can occur when a fixed-term employee does not get a benefit, whether it is contractual or not, that a comparable permanent employee gets or is offered a benefit on less favourable terms. It can also occur if an employer fails to do something for a fixed-term employee that is done for a permanent employee.

For example, permanent employees could be given free membership of a workplace gym, which fixed-term employees do not get. Alternatively, membership of the gym could be available to all employees, but permanent employees may be able to pay their membership monthly, whereas fixed-term ones are required to pay for six months at a time.

Similarly, less favourable treatment would occur where fixed-term employees are offered less paid holiday than comparable permanent employees or do not get paid bank holidays.

A fixed-term employee could also be less favourably treated than a permanent comparator because, even though their contracts are the same, the permanent employee is given benefits which are not given to the fixed-term employee. An example of these non-contractual benefits may be a bonus. Similarly, employers could offer permanent employees training that they do not make available to fixed-term employees. The Regulations state that fixed-term employees should not be treated less favourably than permanent ones as regards access to training unless objectively justified.

Similarly, the fixed-term employee could be subject to disadvantages which are not imposed on the permanent employee. Examples: where fixed-term employees are dismissed, or selected for redundancy, purely because they are fixed-term, or where permanent members of staff are given better promotion opportunities than fixed-term staff.

However, there may be reasons why it is objectively justifiable to treat fixed-term employees differently from comparable permanent staff.

Objective justification

Whatwould be objective justification?

Employers should ask themselves the question: ‘is there a good reason for treating this employee less favourably?’ They should give due regard to the needs and rights of individual employees and try to balance those against business objectives.

Less favourable treatment will be justified on objective grounds if it can be shown that the less favourable treatment –

• 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.

Objective justification may be a matter of degree. Employers should therefore consider whether it is possible to offer fixed-term employees certain benefits, such as annual subscriptions, loans, clothing allowances and insurance policies, on a pro rata basis.

Sometimes, the cost to the employer of offering a particular benefit to an employee may be disproportionate when compared to the benefit the employee would receive, and this may objectively justify different treatment. An example of this may be where a fixed-term employee is on a contract of three months and a comparator has a company car. The employer may decide not to offer the car if the cost of doing so is high and the need of the business for the employee to travel can be met in some other way.

Employers need to consider whether less favourable treatment is objectively justified on a case-by-case basis. 

How do employers objectively justify different conditions for fixed-term employees?

When applying the equal treatment requirement, employers can objectively justify different terms and conditions for fixed-term employees in two different ways:

• By showing that there is an objective justification for not giving the fixed-term employee a particular benefit or for giving him or her the benefit on less good terms. This approach is used in other discrimination law, including sex discrimination and race relations law and the Regulations preventing part-time workers from being treated less favourably than comparable full-time ones.
  
• By showing that the value of the fixed-term employee’s total package of terms and conditions is at least equal to the value of the comparable permanent employee’s total package of terms and conditions.

A comparison needs to be made, either on a term-by-term basis or on a package basis.

How would comparing conditions term by term work?

Employers and employees may take what may be called a ‘term-by-term’ approach to equal treatment. This means that every individual term of a fixed-term employee’s employment package should be completely the same, or if appropriate the same on a pro rata basis, as the equivalent term of the comparable permanent employee, unless a difference in the term is objectively justified. For example, if a permanent employee is paid £350 per week, has 25 days’ annual leave per year and receives an annual clothing allowance of £500, the same conditions should apply to a fixed-term employee (on a pro rata basis if appropriate), unless objectively justified. 

How might the package approach work?

The Regulations provide in particular that less favourable treatment in relation to particular contractual terms is justified where the fixed-term employee’s overall package of terms and conditions is no less favourable than the comparable permanent employee’s overall package.

Employers will be able to balance a less favourable condition against a more favourable one, provided they ensure a fixed-term employee’s overall employment package is not less favourable than that of a comparable permanent employee. Employers will not be prevented from paying higher up-front rewards in return for reduced benefits elsewhere if the overall package is not less favourable. This is what is meant by a ‘package approach’.

The value of benefits should be assessed on the basis of their objective monetary worth, rather than the value the employer or employee perceives them to have.

Employers can still objectively justify not giving a particular benefit if they choose to use a package approach. Employers do not have to make up for the value of a missing benefit if they can objectively justify not giving it. If a package approach is used, it will be objectively justified for a fixed-term employee to have a less favourable overall package than a comparable permanent employee, if the difference consists in one or more terms that it is objectively justified not to give the fixed-term employee.

Example of using the package approach: A fixed-term employee is paid £20,800 per year (£400 per week) which is the same as a comparable permanent employee but gets three days’ fewer paid holiday per year than comparable permanent employees. To ensure that the fixed-term employee’s overall employment package is not less favourable, their annual salary is increased to £20, 970. (£170 is added on, since this is the value of three days’ holiday pay. A day’s holiday pay is worked out as annual salary divided by 365.)

Do the same period of service qualifications apply?

The Regulations provide specifically that period of service qualifications relating to particular conditions of employment must be the same for fixed-term employees as for permanent employees except where different periods are justified on objective grounds.

Example: If permanent employees get an extra five days’ paid holiday after one year’s service, fixed-term employees should also get the same increase in holiday after this period, unless there are objective reasons for them to serve a longer qualifying period. (Note: if this qualifying period applies and a fixed-term employee has been employed for less than one year and the permanent comparator for longer than one year, the fact that the fixed-term employee has less paid leave does not mean he or she is being  treated less favourably, provided they will qualify for more leave at the same point.) 

What is the pro rata principle?

There are some benefits which may be offered on an annual basis or over a specified period of time, such as season tickets, season ticket loans, health insurance or staff discount cards. Where a fixed-term employee is not expected to work for the entire period for which a benefit is offered, it may be appropriate to offer it in proportion to the duration of the contract.

If the contract is for six months, the employee should receive half of an annual benefit; if the contract is for four months, they should receive one third.

There may be circumstances where it is not possible to offer the benefit in proportion in this way, in which case employers may be able to objectively justify not giving it to fixed-term employees if the cost of doing so would be disproportionate to the benefit the employee received. Employers need to consider whether less favourable treatment is objectively justified on a case-by-case basis.

Should fixed-term employees have access to occupational pension schemes?

The Regulations require employers to offer access to occupational pension schemes to fixed-term employees on the same basis as permanent ones, unless different treatment is objectively justified. They will not require employers to offer special alternative benefits, such as contributions to a private pension scheme, to fixed-term employees who choose not to join a pension scheme, unless this option is offered to comparable permanent employees.

It will not always be necessary under the Regulations to offer all fixed-term employees access to occupational pension schemes, but whether it is necessary has to be decided on a case-by-case basis.

There may be occasions where an employer can justifiably treat a fixed-term employee less favourably than a similar permanent employee. For example, where an employee is on a fixed-term contract that is shorter than the vesting period for a pension scheme, the employer may be able to justify excluding them from that scheme if including them has a disproportionate cost and/ or is of no benefit to them. The employer will not have to provide alternative compensation.

Where a fixed-term employee is not offered access to an occupational pension scheme and a permanent comparator, the employer might give the fixed-term employee a salary increase equivalent to employer pension contributions paid in respect of the permanent employee. This would probably be regarded as an equal benefits package, if all other benefits were the same. Similarly, the increase in salary would probably objectively justify different treatment in respect of the pension.

Where fixed-term employees are on very short contracts, the cost of accommodating them in defined contribution or defined benefit schemes may be disproportionate to the benefits they would receive from membership. 

Employers may offer fixed-term employees access to occupational pension schemes, but the employees may choose not to join the scheme if they do not anticipate any benefits from it. Employers may wish to highlight that there would be little benefit from membership. Should this be the case, the employer will not have to pay contributions into private pensions or stakeholder pensions on the employees’ behalf.

Where employers pay contributions into a stakeholder or private pension scheme on behalf of a fixed-term employee at a reasonable level, it is likely that this would objectively justify exclusion of the fixed-term employee from the occupational pension scheme. It would not be necessary for the employer to ensure that the final value of the pension to the fixed-term employee would be at least the same as the value of a permanent employee’s pension.

An employer and an employee may also agree that the lack of access to an occupational pension should be compensated elsewhere in the employment package.

Where a waiting period to join an occupational pension scheme applies to permanent employees, the same period should apply to fixed-term employees, unless a longer period is objectively justified.

If a pension scheme has been closed to new permanent employees, new fixed-term employees need not be offered access, even if their permanent comparator has access. It is important that the point at which employees have joined a company in order to have been offered access to the scheme is the same for fixed-term as for permanent employees, unless a difference is objectively justified.

Will fixed-term employees now have redundancy rights?

The Regulations repeal the provisions enabling fixed-term employees to waive their right to a redundancy payment. The effect is that any waivers inserted into contracts agreed, renewed or extended after 1 October 2002 will not be valid and fixed-term employees will have a right to statutory redundancy payments if they have been continuously employed for two years or more. See Redundancy entitlement - statutory rights.

If a fixed-term employee signed a waiver clause before 1 0ctober 2002, the waiver would still apply and they would not be entitled to statutory redundancy payments if their contract expired and was not renewed.

However, if the contract was renewed or extended after 1 October, any waiver clause would not be effective. If the fixed-term contract then expired and the fixed-term employee had at least two years’ continuous service by this point, they would be entitled to statutory redundancy payments, if the reason for non-renewal was redundancy.

Fixed-term employees on task contracts of two years or more will now have a right to statutory redundancy payments if they are made redundant at the end of their contracts.

Fixed-term employees cannot be excluded from the statutory redundancy payments scheme, even where it may appear objectively justified. However, they may be excluded from contractual schemes if this is objectively justified.

Fixed-term employees should not be selected for redundancy purely because they are on fixed-term contracts, unless this is objectively justified. However, where fixed-term employees have been brought in specifically to complete particular tasks or to cover for a peak in demand, it is likely that an employer could objectively justify selecting them for redundancy at the end of their contracts.

Where length of service is the main criterion for redundancy selection, the same criteria should apply to fixed-term as to permanent employees, unless differences are objectively justified. It does not matter if the effect of a ‘last in, first out’ policy is that more fixed-term than permanent employees are made redundant.

Fixed-term employees should receive the same level of redundancy payments as permanent employees unless different treatment is objectively justified. Where companies have special redundancy schemes to compensate permanent employees for the unexpected loss of their jobs and these companies generally employ fixed-term employees on fixed-term contracts with no reasonable expectation of a renewal, it may be possible to justify excluding fixed-term employees from the contractual redundancy payments scheme.

When a fixed-term contract terminates and is not renewed, the employee is dismissed. The reason for this dismissal will not always be redundancy – this will depend on the circumstances of the case, such as whether the employer is laying off employees of the type that the fixed-term employee is, or whether there is some other reason for not renewing the contract (for example the fixed-term employee was covering for an absent member of permanent staff.) See Dismissal - fair and unfair: a guide for employers.

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 produce the statement within 21 days of the request. The statement may be used at an employment tribunal hearing concerning a complaint under the Regulations.

The request for a written statement should be seen as an opportunity to clarify why a fixed-term employee receives particular treatment. The intention is not to allow fixed-term employees to find out what their colleagues are receiving. The statement should set out the reasons for the different treatment or, if less favourable treatment is not occurring, that this is the case. If a package approach is used, the statement should say that this is why different treatment is occurring in respect of one or more benefits.

What changes are being made to statutory employment rights?

The Fixed-term Regulations have made changes to some statutory employment rights which previously treated some or all fixed-term employees less favourably than permanent employees:

• Where a contract of employment terminates automatically on the completion of a particular task or the occurrence or non-occurrence of a particular event, the termination will be classified in law as a dismissal. This means employees on such “task contracts” now have a number of statutory rights, on the same basis as employees working under permanent contracts or other types of fixed-term contracts. These rights include:
  
  • The right not to be unfairly dismissed (After 1 year). See Dismissal - fair and unfair: a guide for employers.
  • The right to a written statement of reasons for dismissal. (After 1 year). See Rights to notice and reasons for dismissal.
  • The right to statutory redundancy payments. (After 2 years). See
    Redundancy entitlement - statutory rights.
    
• Employees on task contracts expected to last three months or less now have the right to a minimum notice period on the same basis as permanent employees and those on longer fixed-term contracts. The notice requirements apply only where contracts are terminated before the agreed point at which they would expire. From 1 October 2002 all employees on fixed-term task contracts of three months or less will have the right to a week’s notice if their contracts are terminated (other than by completion) after they have one month or more of continuous service. It also means they must give their employers one week’s notice of the termination of their contracts if they have one month or more of continuous service. See Rights to notice and resons for dismissal.
• Fixed-term employees on contracts of three months or less will now have the right to receive guarantee payments and payments on medical suspension after a qualifying period of one month’s continuous service. See Guarantee payments - Guidance and Suspension from work on medical or maternity grounds under health and safety regulations - Guidance.
  

Limiting the use of successive fixed-term contracts

The Regulations mean that if fixed-term employees have their contracts renewed, or if they are re-engaged on a new fixed-term contract, when they already have a period of four or more years of continuous employment, the renewal or new contract takes effect as a permanent contract unless employment on a fixed-term contract was objectively justified or the period of four years has been lengthened under a collective or workplace agreement.

Service prior to 10 July 2002 does not count towards this period of four years. For the purpose of accumulating continuity of service towards the four-year period, all fixed-term employees’ service begins at zero on 10 July 2002.

What might be objective justification for fixed-term contracts beyond the 4-year period?

• Fixed-term contracts may be renewed beyond the 4- year period provided the renewal is objectively justified.This renewal will be justified on objective grounds if it can be shown that the use of a further fixed-term contract –
  • 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.

Employers and representatives of employees may agree objective reasons for the renewal of fixed-term contracts as part of a collective or workforce agreement. For example, the employers and union or other representatives of professional sportspeople, actors or other employees where it is the traditional practice for employees to work on fixed-term contracts may agree, in a collective or workforce agreement, that the nature of the profession or work should be regarded as an objective reason for renewing fixed-term contracts.

There is no limit on the duration of a first fixed-term contract.However, if a first fixed-term contract lasts for four years or more and is renewed, the second contract will be regarded as permanent, unless the use of a further fixed-term contract is objectively justified. For example, if an employee has a five-year contract from 1 October 2002 to 1 October 2007 and it is renewed immediately for three years, the contract will become permanent on 1 October 2007, unless the use of a fixed-term contract is objectively justified.
 
How can we change the 4-year limit by collective or workforce agreements?

The above provision (4-year limit, requiring objective justification for further renewals) has been designed to prevent abuse arising from the use of successive fixed-term contracts; however, this is the statutory provision and employers and employees may enter into workforce or collective agreements which provide an alternative scheme for preventing abuses of fixed-term contracts. The Regulations allow such an agreement to vary the limit on the duration of successive contracts upwards or downwards or to limit the use of successive fixed-term contracts by applying one or more of the following –

• (a) a limit on the total duration of successive fixed-term contracts,
• (b) a limit on the number of successive fixed-term contracts,
• (c) a list of permissible objective reasons justifying renewals of fixed-term contracts.

Employers and employees may agree reasons for renewing fixed-term contracts, which may include the specific needs of particular professions, for example professional sport and the theatre. It is important that these reasons do not permit the abuse of successive fixed-term contracts.

A collective agreement is made between an employer or association/ group of employers and trade union representatives; a workforce agreement is made between representatives of a workforce and an employer. Workforce agreements can apply only to groups of employees whose terms and conditions of employment are not covered by a collective agreement. Where a union is recognised to negotiate terms and conditions, any variations must be made through a collective agreement.

For more information about concluding collective and workforce agreements on fixed-term work, you may wish to contact the Acas who have considerable experience with helping organisations set up workforce agreements.

After reaching four years?

If an employee has a fixed-term contract renewed or extended beyond the statutory limit (or beyond the limit agreed in any applicable collective or workforce agreement), the contract will be regarded as one of indefinite duration.

In practice this will mean that the clause in the last contract that limits the duration of the contract will be invalid from the point at which the fixed-term employee has reached four years’ continuous service. The fixed-term employee can write to their employer requesting written confirmation that the contract is to be regarded as a permanent.  Once the employee’s contract is regarded as permanent, statutory minimum notice periods will apply, unless longer periods are contractually agreed. See Rights to notice and reasons for dismissal.

An employee whose contract is renewed as a fixed-term contract, or reengaged under a fixed-term contract, after the 4-year period has the right to ask the employer in writing for a written statement confirming that he or she is now a permanent employee. The employer must produce the statement within 21 days of the request and if the employer maintains that the employee is still fixed-term, the reasons for this must be explained. The statement may be used at an employment tribunal hearing concerning a complaint under the Regulations.

What is four years’ continuous service?

The limitation on successive fixed-term contracts will apply only where the employee has been continuously employed for the whole period. An employee may be continuously employed even where there is a gap between successive contracts.  The interval between contracts that results in continuous service being broken is determined by case law and statute and varies according to the circumstances.

For more information on continuity of service, see Continuous employment & a week's pay - Guidance.

How should fixed-term employees be informed of permanent vacancies?

Employers must inform their fixed-term employees of permanent vacancies in their organisation.

The Regulations have the effect that employers must give their fixed-term employees the same opportunity to secure permanent vacancies in their establishment as permanent employees. Any difference between the availability of internal vacancies to fixed-term and permanent staff should be objectively justified.

In addition, fixed-term employees have the right to be informed of available vacancies in the establishment; it will therefore be advisable for employers to inform them of vacancies in the same way as permanent employees and at the same time.

Following the usual practices of displaying a vacancy notice in a place where all employees would be expected to see it or e-mailing the vacancy list to all members of staff will usually be sufficient to ensure that both these requirements are met.

What remedies are available for fixed-term employees receiving less favourable treatment?

If fixed-term employees believe they are being less favourably treated than a comparable permanent employee because they are fixed term or that their employer has infringed their rights under these Regulations in any other way, then they may present their case to an employment tribunal.

An application form is included in the explanatory leaflet How to apply to an employment tribunal, available from Jobcentres and Citizens Advice Bureaux. When the employment tribunal office receives the completed application form, it will inform Acas, who will contact both parties and try to get them to agree a settlement of the complaint, to avoid them having to go to a tribunal hearing.

Fixed-term employees should ensure that they use internal grievance procedures before proceeding with their claim to an employment tribunal.

The employer or employee may also seek the services of an Acas conciliator before an application has been made to a tribunal. However, it is important to remember that the time limit for applying to an employment tribunal – within three months of the date that the right was infringed – is not extended because of any such discussions. If a tribunal upholds a complaint of unfair dismissal or detrimental treatment, it can order the employer to pay the employee compensation. In dismissal cases, if the employee wants their job back and the tribunal considers this practicable and just, it can order the employer to re-employ them. More detailed information is available - see Unfairly dismissed?; Dismissal - fair and unfair: a guide for employers and Individual Rights of Employees, A guide for employers and employees.

Fixed-term employees who believe they are less favourably treated than a comparable permanent employee should take advantage of the opportunity to seek clarification about their treatment, by asking their employer for a written statement.

Employees who consider that their apparently fixed-term contract has become permanent may apply to a tribunal for a declaration that they are now a permanent employee, but may do so only after requesting a written statement from the employer asking for confirmation that the contract is permanent.

Good practice guidance and a list of frequently asked questions relating to the Regulations are available on the Acas website. This is updated periodically and may not correspond to printed versions.If you have any questions about the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations, please contact the Acas Helpline: 08457 47 47 47. You can register to be reminded and updated about changes to employment law and find information on a wide range of help for small businesses - see the Business Link website. Information on these and other aspects of employment legislation can also usually be provided by accountants, trade unions, citizens advice bureaux, low pay units, employer organisations and a number of private sector and voluntary bodies.

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