5
Fixed-term contracts: understanding the law
Summary of legal rights and protections
The right not to be treated less favourably will only apply if the treatment is because the
employee is fixed-term and if that treatment cannot be justified on objective grounds. The
burden of proof is on the employer to prove the reason for any less favourable treatment.
Pro rata principle
The pro rata principle sets out that a fixed-term employee is entitled to receive such
proportion of the pay or benefits to which a permanent employee is entitled as is
reasonable in the circumstances. This will take into account the length of the contract
and the terms on which the pay or benefit is offered, that is, they are entitled to pro rata
treatment. If they do not receive this, there is a presumption that they have been treated
less favourably, unless the employer can show that doing so would be inappropriate or
unreasonable in the circumstances.
An example would be an employer who offers permanent staff an annual bonus. In
order to comply with the pro rata principle, the employer should pay an employee on
a six-month contract 50% of the bonus, unless there is a particular reason why it is not
appropriate to do so. If employees are provided with or offered benefits over a specified
period of time, for example an annual gym membership, employers should consider
whether it is possible or appropriate for them to offer the benefit to fixed-term employees
on a pro rata basis in proportion to the duration of their contract.
It may be possible for an employer to establish that it is not reasonable in all the
circumstances or it is inappropriate to use the pro rata principle. One example would be a
comparable permanent employee who has a company car. The employer would probably
be able to argue that it would not be reasonable to offer a fixed-term employee on a three-
month contract a car, as the cost would be too high in light of the length of employment.
Written statement of reasons
Fixed-term employees have the right to request from their employer a written statement
of the reasons for any less favourable treatment. The request must be made in writing and
the employer must respond within 21 days.
In response to the request, employers should ensure that they provide the reasons for any
actual difference in treatment, or a denial of less favourable treatment with an explanation. If a
fixed-term employee’s overall employment package has been designed so as to compensate
them for any additional benefits that permanent staff receive, this should be explained to them.
In order to be able to do so, it is helpful for employers to undertake an audit of fixed-term
employees’ terms of employment so that they can identify any potential discrepancies.
The right to request reasons for less favourable treatment does not apply where the
treatment in question is dismissal, and the employee is entitled to a written statement of
reasons for dismissal (which they will be if they have two years’ continuous service, or are
dismissed when pregnant or after childbirth in circumstances in which maternity leave
ends by reason of the dismissal).
If an employer deliberately fails to reply to a request for a written statement of reasons
without a reasonable excuse, or if they do not respond with a sufficient reply, a tribunal
will be entitled to draw adverse inferences against them, including a finding that the
employer has acted unlawfully in breach of the Regulations.
Written statement of variation
If a fixed-term employee believes that their status has changed to that of a permanent
employee (see section 5), they are entitled to request a written statement of variation from
their employer in order to reflect this change.