Contracts

Contracts are based on the term ’employment status’ which is the arrangement under which an individual is engaged to work for an employer.

There are three main categories of employment status:

employees, hired directly by the organisation
workers (for example, casual, agency or freelance workers, performing services personally for the organisation, or working on a seasonal basis)
the self-employed (for example, contractors).

Employees are covered by the full range of statutory employment rights.

Note: Worker status have a more limited range of employment rights and often and in practice the dividing line between employee and worker can often be blurred.

It is always recommend to contact the HR team to discuss contracts and employment status especially when workers are from an agency.

Employment status affects employment rights and tax and National Insurance liabilities, and liability for accidents and loss caused by the conduct of an individual.

Part-time

Casual (Zero hours Contracts)

A zero hours contract does not have a specific meaning in law, but it could be summarised as an agreement between two parties under which the worker may be asked to perform work for the company. There is no set minimum number of hours. The contract will stipulate the level of pay individuals will get if they do work and should deal with the circumstances in which work may be offered and, possibly, turned down.

The exact nature of zero hours contracts may differ between organisations. For example, those who work under zero hours contracts:
• may be engaged as employees or workers
• may or may not be obliged to accept work if offered.

• Zero hours contracts do not have a specific definition in law – contracts referred to as “zero hours contracts” may differ from one organisation to another.
• Zero hours staff may be engaged as employees or workers. A zero hours worker’s employment status will depend on what the contract says and how the arrangement operates in practice (i.e. whether the legal tests of employment are met).
• Employment status is important because it determines an individual’s legal rights and an employer’s obligations towards that individual.
• Employers should decide how the relationship will operate in practice, apply the corresponding employment status and accurately reflect this in the contract.
• Contracts should specify the employment status, rights and obligations of zero hours staff and confirm basic terms, including pay, holiday entitlements, notice and other terms which relate to the way work will be managed.
• Employers should regularly review working arrangements to assess whether the way in which individuals are working has implications for their employment status. If their status has changed, the employer should consider issuing a new contract to reflect this.
• Exclusivity clauses in zero hours contracts, used to tie workers into working for only one employer even when no work is offered, became unenforceable in May 2015. Zero hours employees have the right not to be unfairly dismissed and zero hours workers have the right not to suffer detrimental treatment for working elsewhere.

Zero hours

The exact nature of zero hours contracts may differ between organisations. For example, those who work under zero hours contracts:

may be engaged as employees or workers
may or may not be obliged to accept work if offered.
Zero hours contracts do not have a specific definition in law – contracts referred to as “zero hours contracts” may differ from one organisation to another.
Zero hours staff may be engaged as employees or workers. A zero hours worker’s employment status will depend on what the contract says and how the arrangement operates in practice (i.e. whether the legal tests of employment are met).
Employment status is important because it determines an individual’s legal rights and an employer’s obligations towards that individual.
Employers should decide how the relationship will operate in practice, apply the corresponding employment status and accurately reflect this in the contract.
Contracts should specify the employment status, rights and obligations of zero hours staff and confirm basic terms, including pay, holiday entitlements, notice and other terms which relate to the way work will be managed.
Employers should regularly review working arrangements to assess whether the way in which individuals are working has implications for their employment status. If their status has changed, the employer should consider issuing a new contract to reflect this.
Exclusivity clauses in zero hours contracts, used to tie workers into working for only one employer even when no work is offered, became unenforceable in May 2015. Zero hours employees have the right not to be unfairly dismissed and zero hours workers have the right not to suffer detrimental treatment for working elsewhere.

Fixed-term

The Fixed-term employees (prevention of less favourable treatment) regulations 2002 define fixed-term employees as those who are employed under fixed-term contracts.

A ‘fixed-term contract’ is a contract of employment that will terminate on:

the expiry of a specific term
the completion of a particular task
the occurrence, or non-occurrence, of any other specific event other than the employee attaining a retirement age.

The use of fixed-term contracts is widespread in employment because they offer employers some flexibility in how they engage staff. For example, where employers only have a temporary need for staff, they may choose to enter into a contract of short-term duration. Where the availability of work or funding may be uncertain, employers can engage staff on the basis that any continued employment is contingent on those factors. The purpose of the contract and the need for the employment can be made clear from the outset.

Fixed-term employees have the same statutory rights as other employees including employment protection and also have the right not to be treated less favourably than comparable permanent employees. Where employers engage fixed-term employees, the law requires any differences in treatment on the basis of their fixed-term status to be objectively justified.

KEY POINTS

Fixed-term employees have the right to protection from less favourable treatment compared with permanent employees (this protection does not extend to workers who are not employees)
Employers should apply the pro rata principle unless this is inappropriate
Employers may consider a ‘term by term’ or ‘package’ comparison when comparing terms
Fixed-term employees may challenge less favourable treatment on the basis of fixed-term status where this cannot be objectively justified by the employer
An employee who is employed on successive fixed term contracts for four years will be treated as permanent unless the employer can objectively justify the continued use of fixed-term contracts
An employee on a fixed term contract has the same statutory rights as permanent staff, notably the right not to be unfairly dismissed following two years’ employment.
Non-renewal of a fixed-term contract will usually be because of redundancy or some other substantial reason (SOSR)
Employers should ensure that fixed-term contracts contain a provision to allow for the early termination of the contract with notice.

Conversion to permanent

Employees who have been continuously employed for four years or more on successive fixed-term contracts are automatically deemed to be permanent employees, unless a continued fixed-term contract can be objectively justified.

Procedure to end a fixed-term contract

The Acas Code of Practice on Disciplinary and Grievance Procedures does not apply to the non-renewal of fixed term contracts on their expiry.

However, the non-renewal of a fixed-term contract is a dismissal. To avoid an unfair dismissal, employers should ensure that the dismissal is reasonable and should, therefore, consider following a fair procedure when managing the non-renewal of a fixed-term contract. Following a process similar to the Acas code would be a good practice approach and is a well-established way of managing dismissals.

Notice

Where it is intended that a fixed-term contract will end upon the expiry of the fixed-term, without the need for further notice, employers should make this clear in the contract. This will avoid any need to provide further notice to terminate the contract. Employers should, however, check their contractual arrangements to identify if any notice is due on termination and to avoid any breach of contract.

Early termination

Employers should include a contractual provision allowing for the early termination of a fixed-term contract by giving notice. This will be valuable if an employer wishes to terminate the contract early, for example on the grounds of misconduct or poor performance. Where there is no notice provision that entitles the employer to terminate the contract early, the employer would be in breach of contract and could be liable for damages equal to the employee’s salary for the remainder of the contract, subject to employees’ duty to mitigate their loss. This could be costly.

In effect, this means that from the point at which the employee reaches four years’ continuous service, he or she will become permanent. All other terms remain unchanged, unless otherwise agreed. The terms should not, however, be changed in a way that disadvantages the employee (see Huet v Université de Bretagne Occidentale [2012]). Employers should also take account of any continuous employment service as a fixed-term employee for the purposes of establishing his or her contractual terms as a permanent employee (see Valenza v Autorita Garante [2013] [BAILII]).

This right does not apply where there has only been one fixed-term contract, regardless of duration. However, if this contract lasts for four years or more and is subsequently renewed, the contract will be treated as permanent at the point of renewal, unless a further fixed-term is objectively justified.

The continued use of fixed-term contracts when an employee attains four years’ continuous service must be objectively justified. Employers should assess each case individually to consider if the treatment in question is proportionate to their business aim.

For example, if an employee has been employed on a series of fixed-term contracts to complete a particular project, and a two-month extension past the four-year period is required to complete the project, it is likely that this short fixed-term extension would be objectively justifiable.

A useful illustration is provided in the case Kucuk v Land Nordrhein -Westfalen [2012] [BAILII]. Here an employee worked under 13 consecutive fixed-term contracts over an 11-year period to cover for a number of permanent employees taking leave. Although a need to replace employees who are temporarily absent may be an objective reason for renewing a fixed-term contract, this will be more difficult to justify where the employee’s fixed-term contract is renewed to cover permanent rather than temporary needs. In considering if the renewal of a fixed-term contract is justified by an objective reason it is, therefore, necessary to consider all the circumstances. This may include the number of fixed-term contracts that the employee in question has worked under for the same employer and the cumulative duration of those contracts.

That is not to say that an employer cannot justify continued use of fixed-term contracts over a number of years (see Duncombe and others v Secretary of State for Children,) This will always be determined by the circumstances of the case.