Fixed-term employees (Prevention of Less Favourable Treatment) Regulations 2002

Article reference: UK-IA-EMP27
Last updated: September 2022 | 12 min read

This article explains the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations.

A fixed-term employee is a person whose contract of employment is due to end when a specified event does or does not happen, or when a specified task has been completed.

Examples include an employee:

  • doing 'seasonal' or 'casual' work that ends when the period expires or the task is completed such as an employee at children's summer camp; an agricultural worker; or a shop assistant working specifically for Christmas or other busy periods

  • covering maternity, parental, paternity or sick leave

  • hired to cover peaks in demand

  • on a specific task i.e. setting up a new database, painting a house or running a training course

The Regulations apply only to employed people. The Regulations do not cover a person who works for a third party, nor a work experience student or apprentice.

What is less favourable treatment?

The Regulations work on the principle of equal treatment. A fixed-term employee has the right not to be treated less favourably than the comparable permanent employee merely because they are fixed-term, unless the different treatment can be objectively justified.

A permanent employee is an employee who is not on a fixed-term contract.

Fixed-term employees are at liberty to compare their treatment to 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. The comparator's skills and qualifications must be taken into account where they are relevant to the job. 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 you are an employer, you should change the terms of existing contracts to ensure a fixed-term employee is treated as well as a comparable permanent employee.

Less favourable treatment occurs if an employer fails to do something for a fixed-term employee that is done for a permanent employee e.g. offering a fixed-term employee less or no paid holiday compared to some paid holiday for permanent employee, or offering benefits to a permanent employee and not making the same available to a fixed-term employee.

Be aware, if you an employer who feels that you are not being treated equally, before you accuse your employer, there may be reasons why it is objectively justifiable to treat a fixed-term employee differently from a comparable permanent employee.

Objective justification

Employers are expected to observe the rights of an individual employee and try to balance those against the achievement of business objectives.

Less favourable treatment can be justified on objective grounds if it is:

  • to achieve a legitimate objective, for example a genuine business objective

  • necessary to achieve that objective

  • an appropriate way to achieve that objective

Justification is a matter of degree. An employer should therefore consider offering certain benefits to fixed-term employees on a pro rata basis.

Sometimes the cost 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. The employer has the choice to decide if the need of the business can be met in some other way for the reason that the cost of doing so is high.

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, the employer avoids potential claims made by their employees.

Term by term

Employers may take a term-by-term approach to equal treatment. This means that every individual term of a fixed-term employee's employment package should be exactly the same or same on a pro-rata basis, with the term of the comparable permanent employee, unless a difference is objectively justified.

Package approach

Alternatively, an employer can ensure that a fixed-term employee's overall employment package is not less favourable than that of a comparable permanent employee. 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. An employer does not have to make up for the value of a missing benefit if they can objectively justify not giving it.

Example of 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. To ensure that the fixed-term employee's overall employment package is the same, their annual salary is increased to £20,970, which will suffice to compensate for the value of three days' holiday since a day's holiday pay is worked out as annual salary divided by 365.

Same periods of service qualifications may apply

The Regulations provide that period of service qualifications relating to particular conditions must be the same for fixed-term employees as for permanent employees, except where justified.

For 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.

When is the pro rata principle mandatory?

Some benefits may be offered on an annual basis or over a specified period of time, such as season tickets, loans, health insurance or staff discount cards to permanent employees. Since a fixed-term employee is not expected to work for the period, which entitles him or her to a benefit, it may be offered in proportion to the duration of the contract.

Where it is not possible to offer the benefit in proportion owing to the cost of doing so being disproportionate to the benefits, the employee received, the employer may objectively justify not giving it to a fixed-term employee.

Access to pension schemes

Employers must offer access to pension schemes to a fixed-term employee on the same basis as a permanent employee where possible.

An employer may have justifiable reason to treat a fixed-term employee less favourably than a similar permanent employee in a situation where an employee is on a shorter fixed-term contract than the vesting period for a pension schemed since including them has a cost disproportionate to the benefits they would receive from membership and / or is of no benefit to the employee. The employer will therefore not have to provide alternative compensation. When the employee is not offered a pension scheme, a good alternative would be extra pay to compensate. The employee may choose not to join the scheme. If the employee chose not to participate, the employer wouldn't have to contribute.

Where an employer pays contributions into a stakeholder or private pension scheme on behalf of a fixed-term employee, this would objectively justify exclusion of the fixed-term employee from the pension scheme being not obligatory on the part of the employer to ensure parity of the final value of the pension to the fixed-term employee's pension.

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 be offered access to the scheme is the same for fixed-term as for permanent employees.

Redundancy rights

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

If a fixed-term employee signed a waiver clause before 1 0ctober 2002, the waiver will apply and they will not be entitled to statutory redundancy payments if their contract expired and was not renewed. If the contract was renewed after 1 October 2002 any waiver clause will not be effective. If the fixed-term employee had at least two years' continuous service by this point, he or she would be entitled to statutory redundancy payments, if the reason for non-renewal were redundancy.

Fixed-term employees cannot be excluded from the statutory redundancy payments scheme, even where it may appear objectively justified.

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.

You can about redundancy.

The right to request a written statement

An employee the right to ask their employer in writing for a written statement giving the reason for any less favourable treatment and the employer is obliged to produce the statement within 21 days of the request. The statement can be used at an employment tribunal hearing a complaint under the Regulations.

The concept here is not so that fixed-term employees can find out what their colleagues are receiving! It is to be seen as an opportunity to clarify why a fixed-term employee receives particular treatment.

Changes made to statutory employment rights

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, which include the right:

  • not to be unfairly dismissed (after 1 year)

  • to a written statement of reasons for dismissal. (after 1 year)

  • to statutory redundancy payments. (after 2 years)

An employee on a task contract expected to last three months or less now has the right to a minimum notice period on the same basis as a permanent employee and those on longer fixed-term contracts. The notice requirements apply only where contracts are terminated and not completed.

A fixed-term employee on contracts of three months or less will now receive guarantee payments and payments on medical suspension after a month.

Limiting the use of successive fixed-term contracts

If a fixed-term employee is re-engaged on a new fixed-term contract after four or more years of continuous employment, the renewal takes effect as a permanent contract unless employment on a fixed-term contract was justified.

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. Service prior to 10 July 2002 does not count towards this period of four years.

A fixed-term contract may be renewed beyond the four 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

  • necessary to achieve that objective

  • an appropriate way to achieve that objective

There is no limit on a first fixed-term contract time. 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.

Employers and employees may agree to reasons for renewing fixed-term contracts. It is important that these reasons do not permit the abuse of successive fixed-term contracts.

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

Information about permanent vacancies

Employers must inform their fixed-term employees of permanent vacancies in their organisation in order to give them the same opportunity to secure jobs as permanent employees. E-mailing the vacancy list to all members of staff will usually be sufficient to ensure that these requirements are met.

The tribunal procedure

A fixed-term employee who believes they are less favourably treated than a comparable permanent employee should seek clarification about their treatment, by asking their employer for a written statement. Then they may present their case to an employment tribunal.

An application form is available from Jobcentres and Citizens Advice Bureaus. When the employment tribunal office receives the completed application form, it will inform the Advisory, Conciliation and Arbitration Service (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.

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 is within three months of the date that the right was infringed.

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.

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.

A range of employment contract templates for both fixed term and continuous employment can be downloaded from our site.

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