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Media Releases
2006

07 August
2006

Fixed Term Contracts likely to be reviewed as employment law changes

Specialist warns that long term contracts will be unlikely

A controversial change in the law is likely to result in UK businesses reviewing their position on fixed-term staffing levels - with a leading employment law specialist warning that the days of fixed-term contracts extending beyond four years may well be over. This could have a significant effect on employees within the oil and gas industry, as fixed-term contracts are particularly common in the sector.

From now on, fixed-term staff who have four or more years of continuous employment, and who have their contract renewed, will be deemed to be employed on a permanent contract unless a further fixed-term agreement can be objectively justified, although agency contracts on a fixed term basis are excluded from the new law.

Department of Trade and Industry (DTI) figures estimate that there are more than 1.3 million fixed-term employees in the UK and employment law specialist, Kim Pattullo, from leading law firm Shepherd and Wedderburn in Aberdeen, has warned that many employers believe those in the category can be excluded from the contractual benefits being offered to permanent colleagues.

"A fixed-term employee who believes that the renewal of their contract triggers their conversion to a permanent employee can now request in writing from their employer a statement of variation of their contract in order to reflect the change in status," she said.

"Some employers have, in the past, abused the use of fixed-term contracts, resulting in a second tier workforce. The law went a long way in 2002 to provide parity between fixed-term workers and comparable permanent employees. Now, the law goes one step further in requiring employers to objectively justify any further use of a fixed-term contract after four years continuous service."

"Until case law evolves on the interpretation of objective justification, employers will need to be wary of the risk of continuing to have people working on fixed-term contracts for more than four years. They would also be wise to implement an audit system for monitoring the operation of fixed-term contracts, and potentially offering fixed-term workers permanent contracts where appropriate.

"The restricting of the maximum duration of a fixed-term employment contract or a series of such contracts is one of the more controversial aspects of the Employment Law Regulations [the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002] issued in 2002 and the effect of today?s changes is such that it may now be rare for successive fixed-term contracts to last more than four years, as employers look to manage the risks they present post-July."

Under the Regulations issued in 2002, a fixed-term employee who has four or more years of continuous employment and who has their contract renewed will be deemed to be employed on a permanent contract, unless a further fixed-term contract can be objectively justified. This is known as the "Four Year Rule" and will apply:

  • where an individual has a single fixed-term contract renewed or,
  • where an individual has a number of successive fixed-term contracts and continuity of employment has been preserved

Only service since 10 July 2002 counts towards the calculation of the four years? continuous service. The Four Year Rule does not mean than an employee on a fixed-term contract that lasts for five years will automatically become a permanent employee on the expiry of the fourth year, but he or she may become permanent in the event that the fixed-term contract is renewed.


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