UK: Fixed-Term Contracts: A Round-Up Of Recent Cases

In Allen v National Australia Group Europe Ltd (the "Company"), the EAT dealt with the definition of a "fixed-term worker" under the Regulations.

Mr Allen’s contract of employment with the Company provided that: "The employment is for a fixed term from 9 December 2002 to 31 July 2003". However, the contract also contained a notice provision which stated that: "During the first six months of continuous service, either party may terminate the employment by giving one week’s notice to the other". The Company took the view at the end of January 2003 that Mr Allen’s performance was below that which they expected and terminated his employment, paying him in lieu of his oneweek notice period. Mr Allen complained that he had been dismissed without being given the opportunity to go through the Company’s performance procedure, and that he had been discriminated against in that respect under the Regulations.

At a preliminary hearing, the Employment Tribunal dismissed the claim on the basis that Mr Allen was not a "fixed-term worker" within the meaning of the Regulations. The Regulations define a "fixed-term contract" as a contract of employment that, under its provisions determining how it will terminate in the normal course, will terminate (a) on expiry of a specific term; (b) on completion of a particular task; or (c) on the occurrence or non-occurrence of any other specific event. The Tribunal considered that Mr Allen did not fall within the definition because of the provision allowing for termination prior to 31 July 2003.

The EAT overturned the Tribunal’s decision. It was held that the ability of either party to bring a fixed-term contract to an end at an earlier date does not make the contract anything other than one for a fixed term. What is envisaged by the Regulations is a provision relating to the termination of the employment relationship "in the normal course". Provision for earlier notice does not destroy the original intention of such a contract that the parties would see through the fixed term, unless and until some event which was not in the normal course occurred, e.g. persistent poor performance.

The second significant decision is Department for Work and Pensions ("DWP") v Webley in which the Court of Appeal held that the non-renewal of a fixed-term contract cannot constitute less favourable treatment.

Mrs Webley was employed by the DWP for a period of 51 weeks on three successive fixedterm contracts. Mrs Webley claimed that the fact that her contract was terminated/not renewed was an act of less favourable treatment under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (the "Regulations"). It was argued on behalf of Mrs Webley that the DWP’s failure to extend or renew Mrs Webley’s fixed-term contract was a "failure to act" by the DWP which caused Mrs Webley a detriment.

In the judgment, Wall LJ referred to the Preamble to the EU Directive from which the Regulations are derived. The Preamble recognises that "fixed-term employment contracts are a feature of employment in certain sectors, occupations and activities which can suit both employers and workers". Once it is accepted that fixed-term contracts are not only lawful but are also recognised as being useful and appropriate in certain circumstances it must follow that "the termination of such a contract by the simple effluxion of time cannot, of itself, constitute less favourable treatment by comparison with a permanent employee. It is the essence of a fixed-term contract that it comes to an end at the expiry of the fixed-term". Therefore, unless an employee can show that the entering into of a fixed-term contract is of itself less favourable treatment, the expiry of a fixed-term contract resulting in the dismissal of the employee cannot found a successful claim.

This decision is of comfort to employers who regularly employ staff on fixed-term contracts. Many employers had come to the conclusion, following the introduction of these regulations, that there was no longer any point in having fixed-term employees rather than permanent employees given that termination of the fixed-term contract may in itself be less favourable treatment.

Employers should, however, remember that under the Regulations, following four years of employment on successive fixed-term contracts, an employee’s contract will automatically be converted into a permanent contract unless the continued use of a fixed-term contract can be objectively justified.