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Commercial Angles' Newsletter - January 2002

Fixed-term employment contracts

Two changes to the rights of employees on fixed-term contracts have been made recently. Firstly, the DTI has made a U-turn in its attitude to the pension rights of employees on fixed-term contracts. Secondly, the Working Time (Amendment) Regulations 2001introduced the right to holiday pay for employees covered by contracts dated on or after 25 October 2001.

Pension rights of employees on fixed-term contracts

The Department of Trade and Industry said initially that it had no plans to include pay and pensions as part of its obligation to meet EU directives concerning employees on fixed-term contracts. But the TUC had been mounting a campaign to improve fixed-term workers' rights and it is thought that lobbying by the TUC is responsible for the DTI U-turn. The DTI explained its changed stance as being due to consultations which produced evidence of pay and pensions discrimination against those on fixed-term contracts. The resulting changes to the law will take effect from July 2002.

The new law does not require that employers must let fixed-term contract workers join their company pension schemes. However employers must ensure that fixed-term contract workers receive the same benefits as permanent employees doing similar work. Where employers have set up stakeholder pension schemes specifically for fixed-term contract employees, they will have to show objective justification for treating fixed-term employees less well than their permanent staff. The employers may have to compensate fixed-term employees so that their employment package is equivalent to that of the permanent staff.

The DTI turn-round is slightly puzzling. Although it is clear that fixed-term contract employees are being discriminated against, there is little evidence to suggest that many such workers would choose to contribute to pension schemes set up by their employers for them. However the move would make sense if the government intends to make it compulsory, at some future date, for all employees to join some form of contributory pension scheme. With the low voluntary take-up of stakeholder pensions, there is a strong possibility that the government will introduce such compulsion in the near future.

Working Time (Amendment) Regulations 2001

The original 1998 Working Time Regulations provide that all workers are entitled to twenty days' paid annual leave. The twenty days may include the eight statutory bank and national holidays but the employment contract should be specific as to whether national holidays are included or excluded in the twenty days. The regulations contain a definition of workers which are affected by the regulations. Broadly speaking, if someone contracts to provide services personally to a company and the relationship with the company is not that of a customer/client then the person providing the services will be entitled to paid annual leave. The Working Time Regulations 1998 thus apply both to employees and to people who work under contracts for services.

The 1998 regulations stipulated that workers had to have been employed by the employer for thirteen weeks before they were entitled to any paid leave. The Working Time (Amendment) Regulations 2001 changes this so that employees who started their new jobs on or after 25 October 2001 will accrue paid leave from the first day of the contract. For a full-time worker the entitlement is to 1.67 days' paid leave per month. Pay in lieu of holidays is not permitted for the first twenty days holiday per year and holidays not taken are lost - unless the contract of employment states that unused holidays may be carried forward to the next year. However, when an employee leaves during the holiday year, any untaken holiday entitlement may be taken as pay in lieu of holidays. If an employee leaves during the year and has taken more paid leave than he has accrued, the employer may deduct the overpayment of holiday pay from the employee's final pay, but the company should only make such a deduction when it has been specifically mentioned in the contract of employment.

Articles from previous newsletters