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Collective redundancy and fixed term contracts

17 February 2012

In a surprising decision this week, the EAT held that the expiry of a fixed term contract is not necessarily 'redundancy' for the purposes of determining whether collective consultation is triggered.

University of Stirling v University College Union concerned an allegation by the union that the University had failed to carry out collective redundancy consultation in compliance with its obligations under s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). The issue which arose was whether four employees who had been employed on fixed-term contracts, limited by time or by reference to a specific event, and whose contracts had not been renewed, were dismissed as redundant within the meaning of s.195 of TULRCA. If they were dismissed as redundant they should be counted when determining whether the threshold for collective consultation had been crossed.

The University habitually engaged employees to carry out research work on projects dependent on third party funding. One of the employees concerned was engaged on this type of fixed term contract. The other three were engaged as maternity cover or to teach specific modules.

Under s.188, an employer is required to carry out collective consultation when proposing to 'dismiss as redundant' 20 or more employees at an establishment within a 90 day period. S.195 of TULRCA states that references to dismissal as redundant are references to dismissal for a reason not related to the individual concerned or for a number of reasons all of which are not so related.

The central issue was whether dismissal because of the expiry of a fixed term contract was for a reason or reasons not related to the individual concerned.

The European Directive from which UK collective redundancy law is derived excludes all fixed term contracts from the ambit of collective consultation. S.282 of TULRCA, however, provides only that in no circumstances can the collective consultation requirements apply to fixed term contracts of three months or less.

The employment tribunal held that the collective consultation obligations applied to 3 of the 4 employees. On appeal, however, the EAT overturned that decision and held that the collective consultation obligations did not apply.

The EAT held that the reason for dismissal does not have to be direct and personal in order for it to be related to the individual. The fact that fixed term contracts of three months and under are excluded from collective consultation did not mean that the expiry of all fixed term contracts over three months should be included. The key question is whether the failure to renew the fixed term contract was for reasons not related to the individuals concerned.

The EAT said that there will be cases where the failure to renew a fixed term contract does fall within the scope of collective consultation. The tribunal must consider on the facts and circumstances of the individual case before them whether dismissal was for a reason relating to the individual concerned. A reason relates to the individual if it is something to do with him such as something he is or something he has done. It is to be distinguished from a reason relating to the employer such as the need to effect business change in some respect.

In the case of all four employees concerned the reason for the dismissal was that the employee had agreed to a fixed term contract accepting that it would come to an end at a particular date or on the occurrence of a particular event. Those were reasons relating to the individual concerned. In order to come within s.188, it must be that none of an employer's reasons for dismissal may be related to the individual concerned.

Implications

Although any decision which limits the circumstances in which collective consultation will be required is likely to be welcomed by employers, this decision creates unwelcome uncertainty. Employers will need to consider the specific reasons for non-renewal of fixed term contracts expiring during a period in which redundancies are being made, in order to determine whether the threshold for collective consultation has been reached. This point has never been considered in the EAT before, but the decision goes against a general view and should be treated with caution.

Employers should consider whether the expiry of any fixed-term contract (and failure to award a new contract to the individual), could be seen as part of a wider exercise involving potential job losses within its business. If it could be, and the number of potential redundancies triggers the obligation under section 188, then the employer will have to consult with those individuals. The penalties for getting this wrong can be severe: an employer who fails to carry out collective consultation when required to can face a protective award of up to 90 days' pay per affected employee.

It should also be noted that the expiry and non-renewal of a fixed term contract will be redundancy for the purposes of unfair dismissal and statutory redundancy pay.

The government's call for evidence on the collective consultation rules, which closed on 31 January, asked for views about the interaction of fixed term contracts with collective redundancy consultation law. It would be open to the government to follow the directive and exclude fixed term contracts entirely from the scope of collective consultation, which would have the benefit of creating certainty for employers.

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