Yes, I agree with that, Canary - very dodgy interpretation for the reason you stated.
Employer can't have it two ways - if it wants to give you a temporary contract, then I don't reckon it is right that parts of the benefits under that contract are calculated as if you were continuously employed.
For example, most employers provide for additional leave after say 5 years service. Are you entitled to such a benefit? (irrespective of whether you yet earned the right to it). If not, you might like to remind them of this, and suggest that they reconsider there approach. However, not worth taking it legally further if they still say no, I suspect.
It depends how much you are prepared to try upsetting the applecart.