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Lower termination payments for fixed term workers justified

BY Sophie Macphail
Employment Law & HR

The European Court of Justice (ECJ) has found that it may be objectively justifiable to pay fixed term workers a lower termination payment as compensation for dismissal compared to permanent employees. The decision concerned two separate casing on the same point originated in Spain where a national law permits employers to treat fixed term workers differently when making termination payments. The law was challenged as incompatible with the Fixed Term Worker directive which guarantees equal treatment between fixed term and permanent employees unless the difference can be objectively justified.

The ECJ held that, in these cases, the difference in treatment was objectively justified despite the comparable nature of the roles. The permanent workers had an expectation of continued employment which was frustrated by their dismissals. As a result, they were worthy of greater protection than the fixed term workers who worked on the understanding that their contracts would be terminated at a specific point. It was notable that, if the fixed term workers’ contracts were terminated earlier than expected, they would receive the same termination payment as permanent employees.

While the case concerns a Spanish law, it is of interest to UK employers given that the Fixed Term Worker Directive is enshrined in UK law through the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. The decision serves as a helpful reminder that differences in treatment will be permissible if they are objectively justified and gives guidance as to when the justification may be invoked.

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