Fixed-term contracts - waiver clauses

BBC v Kelly-Phillips (25 June 1997) EAT/1397/96 unreported
Housing Services Agency v Cragg [1997] IRLR 380 EAT

The Employment Appeal Tribunal has dealt a blow to the growing culture of using fixed term contracts to deprive employees of unfair dismissal rights, but the news on redundancy payments is not so good.

The two cases involved the use of waiver clauses in employment contracts aimed at excluding the employee's rights to claim unfair dismissal and redundancy payments on the expiry of the fixed term without renewal.

In an unfair dismissal claim the waiver clause is only valid where the contract is for a fixed term of one year or more (meaning it is not valid in contracts of less than twelve months). In redundancy payments cases the waiver clause is only valid in contracts of two years or more (meaning it is not valid in contracts of less than two years).

The approach which the EAT has taken differs between clauses which seek to exclude unfair dismissal rights and those which seek to exclude redundancy payments.

Unfair dismissal

Ms Kelly-Phillips had been employed by the BBC on a series of fixed term contracts starting in September 1993. For each contract there was a waiver clause excluding a claim for unfair dismissal.

The longest contract was for a period of one year from September 1994 until September 1995. At the end of August before this contract expired she was offered "an extension beyond the 5th September 1995 until 31st December 1995", a period of nearly four months.

When this contract expired she left the BBC and claimed unfair dismissal. The BBC argued that this extension meant the fixed term was for more than a year and therefore her claim for unfair dismissal was excluded.

The EAT did not accept this. They asked themselves under what contract of employment was Ms Kelly-Phillips dismissed on 31 December 1995. They found that it was the contract made at the end of August 1995 which ran for four months.

They therefore concluded that as the contract was for a fixed term of less than one year the BBC was unable to claim the benefit of her contracted-out protection. In doing so they adopted the "final contract test" first advanced by Lord Denning in BBC v Ioannou [1975] ICR 267. This means that you look at the last contract and if that is for less than a year the right is not excluded.

Redundancy

In the Cragg case the issue was whether the employee had waived his right to a redundancy payment. Tony Cragg's first contract of employment was not a fixed term contract, he was then employed running a private sector leasing scheme funded by the Government on a three year basis.

He did not at first receive a new contract but did sign a waiver clause excluding his right to claim unfair dismissal and redundancy pay. In December 1991 he entered into a new fixed term contract for a period of more than two years, he also signed a new waiver. There were the three extensions of the contract until the employment ended on 31 March 1995. Tony Cragg then applied for a redundancy payment which was refused on the grounds that he had waived his rights.

The Industrial Tribunal found that he was entitled to a redundancy payment. The employers appealed. The EAT looked at the language and legislative history of what is now s197 Employment Rights Act and in particular s197(5) which refers to a fixed term being renewed.

They found in Tony Cragg's case that there was a two year fixed term contract, followed by a succession of renewals, each accompanied by a waiver agreement, resulting in a fixed term contract for two years or more for the purposes of s197, and that he was therefore excluded from claiming a redundancy payment. In their decision the EAT said they were drawing a clear distinction between the unfair dismissal and redundancy payment waiver provisions that will create an anomaly.

Two different tests

In short in unfair dismissal cases if the final contract is less than one year, a waiver clause will not operate to exclude the right to claim unfair dismissal. In redundancy cases if the initial contract containing the waiver is for two or more years and is then renewed or extended by shorter contracts each covered by a waiver then there is no entitlement to a redundancy payment.