The use of twitter by law firm Pitmans LLP, @PitmansEmploy, highlights an unusual point of interest to HR people. On 31 October 2011, the retail headline was how Morrisons has followed Tesco by discussing the use of the “Swedish Derogation” with respect to the pay of its temporary agency staff. One comment that may be overlooked is that in their manufacturing and logistics division, Morrisons intend to employ more workers directly.

The use of shorter fixed term employment contracts by employers does appear to be increasing in these difficult economic times. Fixed term employment contracts can specifically cover a task to be performed, a project to be completed or a specific period such as maternity leave.

So, what are the benefits and risks to the strategy? What should employers be looking out for?

In terms of benefits, the employer can obtain the resources it needs during periods of high activity. In manufacturing of retail products, for example beauty products, this may be in August to October – preparing the products for the Christmas sales push.  In retail, the resources are required from October to January covering the Christmas and sales periods. 

The employer can employ the individuals directly without the use of agency staff therefore avoiding any risks contained in the Agency Worker Regulations 2010. Reduced information sharing with agencies will follow as will the need for monitoring of whether the agency workers have accrued their 12 week qualifying period for rights.

As an employee, the individual has some basic rights to which an employer must be aware. Employees recruited on contracts to complete specific tasks which are expected to last three months or less have a right to receive a minimum notice period of one week if their contracts are terminated before the expected expiry date and they have completed at least one month’s continuous service. They are also obliged to provide their employer with at least one week’s notice of early termination. Employees on contracts of up to three months also have the right to receive statutory sick pay, guarantee payments and payments on medical suspension after one month’s continuous.

A fixed-term employee has the right not to be treated less favourably than a comparable permanent employee:

  • As regards the terms of their contract; or
  • By being subjected to any other detriment by any act, or deliberate failure to act, of their employer.

Three areas are singled out in the Fixed Term Employees Regulations to emphasise that this right applies in relation to:

  • Any period of service qualification relating to any particular condition of service.
  • The opportunity to receive training.
  • The opportunity to secure any permanent position in the establishment.

There are opportunities for an employer to argue an objective justification for any difference in treatment between a fixed term employee and a permanent employee. When considering whether particular treatment can be objectively justified, employers need to establish whether there is a legitimate reason for treating a fixed-term employee differently or less favourably. Less favourable treatment should be examined on a case-by-case basis to consider whether it can be justified, with due regard given to the needs and rights of individual employees and the need to balance those rights against business objectives.

An employer needs to be aware that an expiry of a fixed term contract does constitute a dismissal and is subject to the rules of unfair dismissal.  An employer won’t need to follow the ACAS Code of Practice on Disciplinary and Grievance Procedures (unless the termination or non-renewal is for a capability or conduct reason) but in the same vein should not ignore the principles of a fair procedure when declining to renew a fixed term contract.  This will involve: discussing the expiry date of the contract, writing to the fixed term employee, holding a meeting with them and, if necessary, following an appeals process regarding the non-renewal of the fixed term.

What can the employer do to protect itself when using a fixed term employment contract?

  1. Audit the fixed term contract’s terms and benefits highlighting any differences with permanent employment contracts.
  2. Ensure the terms offered are the same, pro-rated or can be objectively justified.
  3. Maintain appropriate records of the fixed term contract’s terms and benefits.
  4. Record the use of fixed term contracts and the expiry dates well in advance so that fair procedures of non-renewal can be followed.
  5. Ensure employee vacancy lists are centrally located so that both permanent and fixed term employees have access.

Finally, fixed term employees will be entitled to receive a statutory redundancy payment if they have at least two years’ continuous service and the reason for the non-renewal of their contract is redundancy.