Expiry of fixed term contracts and UK collective redundancy consultation

 

The Employment Appeal Tribunal (EAT) has provided guidance on when the expiry of a fixed term contract will count toward the number of dismissals proposed by an employer that triggers collective redundancy consultation obligations.

The EAT held that employees who were dismissed by virtue of the expiry of their fixed term contracts were not dismissed for “redundancy” under the wider definition of that concept contained in s.195 Trade Union and Labour Relations (Consolidation) Act 1992 (TULCRA) and therefore their dismissals did not count toward the number of dismissals required to trigger collective redundancy consultation obligations under s.188 TULCRA minimum 20 employee threshold. (University of Stirling v University and College Union). This decision should be treated with caution since not all dismissals on expiry of fixed term contracts will fall outside s.188 obligations. Such dismissals may ‘count’ when the dismissals are part of a wider exercise involving job losses and in other circumstances where the dismissal does not relate to the employee’s performance or conduct.

 

What happened in this case?

The University of Stirling engaged researchers on fixed term contracts to carry out research funded by third parties. Two of these (Claimants in this case) were employed on this basis. The other two Claimants were engaged on fixed term contracts to provide sick leave cover and maternity cover respectively.

When the various contracts expired, the University and College Union brought claims in the Employment Tribunal on behalf of those employees against the University complaining that it had breached its collective consultation obligations under s.188 TULRCA.

Collective consultation obligations under s.188 are triggered when an employer is “proposing to dismiss” as “redundant” 20 or more employees at one establishment within a period of 90 days or less. Failure to consult “appropriate representatives” as required by s.188 in such circumstances can result in a protective award being made against the employer. This was a test case concerning four of the employees whose dismissals, it was argued, should count towards the critical 20 employee threshold which triggers the collective consultation obligations.

The key question before the Tribunal was whether the expiry of the fixed term contracts was caught by s.188. The reference to “dismissed as redundant” under s.188 is much wider than the usual definition of redundancy (which triggers a statutory redundancy payment and is relevant for unfair dismissal purposes). “Dismissed as redundant” in s.188 means “a dismissal for a reason not related to the individual concerned or for a number of reasons all of which are not so related” (s.195 TULRCA).

Taking a narrow view of the meaning of “a reason relating to an individual”, the Tribunal said this meant a reason which was “direct and personal” to the individual, such as conduct and capability. The Tribunal decided that there was no direct and personal link in this case and so the relevant employees had been dismissed as redundant and should therefore have ‘counted’ for the purpose of the collective redundancy consultation provisions.

On appeal, the Employment Appeal Tribunal (EAT) disagreed with the Tribunal. The EAT found that a reason relates to an individual if it “has something to do with him such as something he is, or something he has done”, which should be distinguished from a reason relating to the employer, such as a need to change its business. The fact that the individuals had agreed at the outset that their contracts would expire at a particular time was held to be sufficient in this case to constitute a reason relating to the individual. Accordingly, the EAT found that their dismissals were not caught by the collective redundancy consultation provisions under s.188, and did not count towards the threshold figure of 20.

What this case means for employers?

At a basic level, this case reminds employers that collective redundancy consultation obligations may be triggered in circumstances other than redundancy situations for the purposes of statutory redundancy payments. They may be triggered, for example, when changing terms and conditions where the employees are dismissed and immediately offered new employment on different terms. Many employers will be unaware that expiry of fixed term contracts may potentially fall within s.188 (only the expiry of fixed term contracts of less than 3 months are expressly excluded). This could be crucial for large employers who regularly use significant numbers of fixed term employees. Unfortunately, however, this case does not provide employers with complete clarity on the issue. According to the EAT in this case, dismissal on expiry of a simple fixed term contract entered into for a particular project or short term purpose (such as maternity cover) will probably fall outside s.188 (because the reason for the dismissal relates to the particular employee individually – i.e. the reason is simply expiry of their contract to which they had already agreed from the outset). However, this finding can be criticised since this reasoning, arguably, would logically lead to the conclusion that all dismissals on expiry of fixed term contracts fall outside s.188, despite the EAT’s apparent view to the contrary (see below). This seems too wide and would be at odds with what Parliament presumably intended. It is possible, therefore, that the decision could be reversed in a future EAT case, or on appeal, such that collective redundancy consultation obligations could arise in relation to the expiry of fixed term contracts where the specific event or purpose of each fixed term contract has come to an end. This is not, in our view, highly likely bearing in mind the purpose of the collective consultation provisions and the far reaching consequences of such a broad interpretation of s.188 for larger employers who regularly employ large numbers of fixed term employees and who might at any one time have more than 20 fixed term contracts expiring within any given 90 day period.

In practice, fixed term contracts are sometimes used by employers who believe (wrongly) that termination on expiry will be more straightforward than under an open-ended contract which is terminable by notice. In such circumstances, it is often the case that the fixed term may not be for the purpose of a specific project and may well be renewed on expiry provided the employer is happy with the employee’s performance. The EAT’s reasoning suggests that dismissal on expiry of a fixed term may be caught by s.188 where the non-renewal is related to the employer’s business decision and does not involve any focus on the individual employee. Although the EAT’s reasoning is not entirely clear on this point, if the expiry of fixed term contracts can be seen as part of a wider exercise involving job losses, it will be prudent for employers to include those dismissals within the total number of individuals it proposes to dismiss as redundant in order to calculate if this triggers the collective redundancy obligations under s.188. If the inclusion of expiring fixed term contracts would make the difference as to whether the collective redundancy consultation threshold is reached, the circumstances resulting in the expiry (including the reason for the fixed term in the first place) should be examined in detail.

Finally, it is interesting that the EU Directive on Collective Redundancies (which sets out the requirement for collective consultation where in any establishment, there are to be at least 20 dismissals over 90 days) expressly excludes fixed term contracts altogether. The provisions in TULRCA therefore go further than is required by the Directive and, although this is for historical domestic reasons, this could potentially be an area where changes may take place as part of the Government’s Red Tape Challenge, and in particular could be included in any future consultation relating to collective redundancies. The Government’s recent Call for Evidence on this topic closed on 31 January this year and we now await hearing whether the Government intends to consult on any proposed changes to the collective redundancy laws contained in TULRCA.

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