Dismissalby Kate Russell
Non-renewal of a Fixed-Term Contract
A failure to renew a fixed-term contract is regarded as a dismissal and therefore a fixed-term employee may be able to claim unfair dismissal if he has the necessary length of service. This means it is important to follow a fair procedure in respect of any non-renewal. Even if the ACAS Code does not apply, an employer will need to follow a fair procedure in such situations.
The assumption tends to be that the non-renewal of an FTC must be an SOSR dismissal (some other substantial reason). Quite often it will be a redundancy. For example, where an employee is taken on to complete a specific project, the termination of his contract on completion is likely to be a redundancy. This is because the employer’s need for employees to carry out work of a particular kind has ceased or diminished. If the employee on an FTC has two years’ service, he will be entitled to a statutory redundancy payment.
One of the most common reasons for taking on an employee on an FTC is maternity cover. Make sure that you set out the reasons for the FTC and clarify that it will end when the post-holder returns to work.
Section 106 ERA provides that such a dismissal will be for SOSR and therefore potentially fair if: ‘...
(a) on engaging him the employer informs him in writing that his employment will be terminated on the resumption of work by another employee who is, or will be, absent wholly or partly because of pregnancy or childbirth... and
(b) the employer dismisses him in order to make it possible to give work to the other employee...’
But you can’t make any assumptions. In one case the employer did not make a clear statement to the employee setting this out.
In this case Mr Durrant had worked for the museum since 1988. After seven months of sickness absence in 2005, he could not return to his original role and for a period of about 18 months, the museum gave a series of temporary contracts. He applied for other roles, but did not secure any alternative position.
In 2007 the employer decided to dismiss Mr Durrant on six months’ notice. He was transferred to a six-month fixed-term contract to provide cover for a permanent employee who was on maternity leave. The letter which the employer sent him at this time stated only that the reason for his six-month fixed-term contract was to ‘cover a period of maternity leave’, but it did not contain an unequivocal statement about future termination on the return of his colleague from maternity leave.
The employee opted to extend her maternity leave and Mr Durrant’s contract was extended. He was eventually dismissed on 18 April 2008. Mr Durrant claimed unfair dismissal and argued that the real reason for his dismissal was redundancy.
The EAT found that section 106 ERA did not apply to Mr Durrant because no clear notice had been given to him at the outset of the fixed-term contract as to the circumstances in which it would come to an end. It remitted the question of whether Mr Durrant was redundant back to the employment tribunal to re-consider.
Where employers need to make cost savings, they often consider releasing employees on FTCs first. It is seen as an easy solution to just let fixed-term contracts expire without renewal. Indeed it may be argued that as an employer has an obligation to look at ways of avoiding redundancies, this is actually a requirement to ensure a fair dismissal of permanent employees. But letting all the fixed-term employees go could be in breach of the regulations which protect fixed-term employees against detriment on the basis of their status. Employers should treat employees on FTCs in the same ways as employees with permanent contracts in order to demonstrate a fair selection.
Dismissal before the fixed term date has been reached
If a fixed term contract comes to its natural end on the given date (or upon the agreed upon action or task being completed), an employer is required to give no notice period. This is because the notice is effectively written into the contract.
However, if the FTC is to be terminated before the given end date, different rules apply. After one month of continuous work, a fixed term employee has the right to one week’s notice. Having worked continuously for two years or more, a fixed term employee has earned the right to one week’s notice for each year they’ve worked. As an example – if they’ve worked continuously for three years, they must be given three weeks’ notice or any contractual period of notice, if longer.
Make sure that if you have to dismiss an employee on a fixed-term contract before the date has been reached, you limit your liability. If you don’t, you may have to make full payment to the end of the contract.
If the Company takes the decision to terminate the fixed-term contract before the termination date identified in clause xx above has been reached for any reason, the Employee acknowledges and agrees that the organisation will only be liable for any remuneration and benefits accruing to the effective date of termination. The Employee further acknowledges and agrees that after the effective date of termination the Company is not liable to pay remuneration which would otherwise have been paid if the employee had worked to the due date identified in clause xx of this Statement.
Changes to fixed term contracts vis-à-vis redundancy
The Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment) Order 2013 excludes fixed-term contracts which terminate at the point it was agreed they would terminate from the collective consultation requirements. This means that where contracts are coming to their natural end they will not have to be included in the calculation for assessing whether or not collective redundancy consultation is required. There are some less obvious consequences of these changes to the legislation which employers should understand and these are set out below.
The exclusion for fixed-term contracts does not apply where such a contract is ending prematurely because of a redundancy situation. If this is the case then fixed-term employees will count towards the threshold for collective consultation.