Fixed term contracts and collective redundancies
It has long been established that when a fixed term contract expires, and the employee’s contract is not extended resulting in his or her dismissal, that the reason for that dismissal is the employee’s redundancy. It is therefore best practice to follow redundancy procedures when an employee, on a fixed term contract, is approaching the end of the fixed term contract: certainly if the period of employment under the fixed term contract has extended beyond a period of 12 months.
It was also always important to ensure that, where an employer was dismissing a large number of employees, those employees’ whose fixed term contracts were coming to an end should be included within that number for the purposes of considering whether or not the obligations of s.188 of the Trade Union Labour Relations (Consolidation) Act 1992 (“TULRCA”) were triggered.
However, in University of Stirling v. University and College Union, the Employment Appeal Tribunal has provided a decision which effectively contradicts that previous understanding of the law. The EAT has stated that it is no longer necessary to include employees who are on fixed term contracts within the total number of redundancies that may be occurring at the time. In this instance, the EAT concluded that the reason for the employees’ dismissal was for a reason relating to them as individuals and not because of a business reason that the University required to action, such as compulsory redundancies, and so they were exempt from the provisions of TULRCA.
Section 188 (1) of TULRCA states that, where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer should consult about the dismissals with all the persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals. So, for example, if a University has 15 employees which it requires to make redundant and 7 fixed term contracts are coming to an end within the same establishment within the same 90 day period, it has long been considered, given the fact that the natural termination of a fixed term contract equated to a redundancy, that those fixed term employees would need to be included in the total number at risk of redundancy and, therefore, trigger s.188(1) of TULRCA. The obligation of s.188 would similarly have been triggered if (more simply) the contracts of 20 fixed term employees were to expire (without being reviewed) at around the same time.
When s.188 of TULRCA is invoked it requires that the employer must consult with employee representatives over a period of 30 or 90 days, depending on how many employees it may require to make redundant. It can therefore be more desirable for an employer to avoid the requirements of s.188. In addition, should the employer fail to adhere to the obligations of s.188, the liability can be very high. This is due to the fact that each affected employee will have the right to claim for a protective award in a sum not exceeding 90 days’ pay. The liability arising from not complying with the legislation is increased, therefore, depending on the number of potential employees involved and can result in a very costly award against the employer.
In University of Stirling v. University and College Union, the University found itself in such a situation where the number of employees at risk of redundancy, including those on fixed term contracts which were scheduled to terminate, exceeded 20 and therefore potentially triggered s.188 of TULRCA.
The Union raised an application as a test case using four separate employees and argued that, given the fact that the reason for the termination of a fixed term contract was redundancy, all the affected employees should have been informed and consulted and, therefore, that not having happened, each should be awarded a protective award.
In response, the University relied on s.195 of TULRCA which provides an exception in circumstances when an employee is being dismissed for reasons which do not relate to the redundancy but relate to issues concerning the individuals themselves. The University argued that the individuals were not being made redundant but were being dismissed as a result of the fact that they had signed fixed term contracts. They argued that this was the norm in the education sector and it was often the case that employees signed contracts that were limited in time or limited by the provision of funds.
The Employment Tribunal disagreed with the University’s arguments and interpreted ‘reasons relating to the individual’ as meaning situations when an individual was dismissed for an entirely separate issue, such as capability. It concluded that the exception did not lend itself to include instances where the employees had signed fixed term contracts with the expectation that their employment would end. The University appealed the decision.
The University argued again that the fact that an individual signed a fixed term contract is a situation where the dismissal is related to the individual themselves and their action in signing a fixed term contract and, therefore, not to any decision or requirement of the University to make redundancies. In short, that the dismissals fell within the exception in s.195 of TULRCA.
In deciding in favour of the University, the EAT concluded that the words of s.195 that a redundancy for the purposes of s.188 was ”for a reason not related to the individual concerned,“ were clear and unambiguous and, therefore, employees on fixed term contracts are excluded from the ambit of s.188.
This decision is good news for employers such as education providers who tend to use fixed term contracts more often than in other sectors. If the original Employment Tribunal’s decision had been upheld, the likelihood would have been than many education institutions would have been regularly caught out in collective redundancy situations. For example, if a College required to make all 17 of its cleaners at one establishment redundant and failed to notice that 4 of its lecturers, were on fixed term contracts which were about to expire, the obligations of s.188 would have arisen but would not have been complied with. This would have resulted in potential protective awards claims of up to 90 days for each of the 21 employees, making the penalty for making such a mistake very severe.
However, thanks to the above decision, education providers need only concentrate on the task at hand in relation to redundancies and need not count those on expiring fixed term contracts as within the ambit of s.188.