BBC v Kelly Phillips Court of Appeal 1469/98 Case No. EAT RF 971051 CMS3 (Unreported)
The Court of Appeal has given the green light to unscrupulous employers to extend the abuse of waiver clauses in fixed term contracts to deny workers unfair dismissal rights and redundancy payments.
In general, the law does not allow workers to sign away their statutory rights to employment protection. The exception is for rights to claim unfair dismissal and a redundancy payment at Industrial Tribunal. These rights can be signed away where workers are employed on a fixed term contract of one year or more for unfair dismissal rights and two years or more for redundancy payments where the worker agrees in writing before the expiry of the fixed term contract to waive their rights.
These agreements are known as waiver clauses. Waiver clauses apply only to dismissal by reason of expiry of the fixed term contract and do not stop a worker claiming unfair dismissal if they are dismissed during the term and not at the end of the fixed term contract.
The question in this case was where a worker is employed on a series of fixed term contracts can the employers add the different contracts together to create a contract for a year or more or does the last fixed term contract have to be for a year or more to make the waiver clause valid?
Ms Kelly-Phillips worked for the BBC on a series of four fixed term contracts renewed one after the other, the last contract being for a fixed term of three months. All four contracts contained waiver clauses.
As concerns had arisen over her capability, the fourth contract was not renewed and she was dismissed. She was given no proper opportunity to challenge the capability concerns, no disciplinary action was taken against her, the contract was simply not renewed.
She wished to pursue a claim of unfair dismissal to the Industrial Tribunal and argued that as her last contract was only for three months the waiver clause was not valid. The BBC argued at the Industrial Tribunal that the clause was valid because the tribunal were entitled to aggregate earlier contracts to create a fixed term contract of a year or more.
The tribunal found for Ms Kelly-Phillips commenting, 'We have to be astute to ensure that the protection afforded to an employer by the use of fixed term contracts is only used in proper circumstances and not permitted or encouraged by judicial laxity to be used so as to have the effect of undermining the intention of the employment protection legislation. The use of fixed term contracts could have this effect if they were used consecutively, continuously and over several years'.
The BBC appealed to the Employment Appeal Tribunal who again found for Ms Kelly-Phillips and affirmed the 'Denning test' on this issue established in the case of BBC v Ioannou 1975 ICR 267 CA.
In that case, then Master of the Rolls Lord Denning said: 'where a worker was employed on a series of fixed term contracts one must always look at the final contract which expires for the purposes of the waiver clause'; 'it matters not whether the final contract is a renewal or re-engagement. It is the final contract alone which matters in this regard'.
He said that the BBC's arguments (which resurfaced in Kelly-Phillips) about whether the last contract was a renewal or re-engagement were 'too fine a distinction for ordinary mortals to comprehend'.
The BBC took Ms Kelly-Phillips' case to the Court of Appeal. The Court said they agreed with the Denning test - that it was the final contract which mattered - but disagreed with what they described as Denning's assumption that the last agreement for an extension is the relevant final contract. In Ms Kelly-Phillips' case the Court of Appeal accept that the last fixed term contract was a contract but say that it did not create a new contract of employment. The last contract they say was only an extension of the earlier contract.
The Court base their decision on their interpretation of Section 197 of the Employment Rights Act 1996 which allows contracting out of employment protection if the dismissal complained of consists 'only of the expiry of that term without its being renewed'.
Ms Kelly-Phillips argued that that section should be given a literal meaning; that the words 'that term' mean that the term has to be 'a fixed term of one year or more' so that a worker employed on a fixed term contract of one year and then a fixed term contract of three months should be regarded as being employed on a fixed term contract of one year followed by a further fixed term of three months and not one fixed term of fifteen months.
The court said they could see force in that argument if they could construe Section 197 on its own but felt they had to construe it with Section 95 which provides that for the purposes of unfair dismissal protection an employee is deemed to have been dismissed if 'he is employed under a contract for a fixed term and that term expires without being renewed under the same contract'.
The court placed great significance on the words under the same contract and decided that the words referred to a renewal including an extension of the term on the same or substantially the same terms as the original contract; section 95 contemplates there being no dismissal where a second fixed term is entered into.
Importing those considerations into Section 197 the court say it follows that (contrary to the view of the EAT) the words 'that term' in Section 197 can and do mean 'a contract which has been varied by an extension of the term under the same contract'.
The Court of Appeal recognised that the effect of their decision is that where employees are employed on a series of fixed term contracts it is unnecessary for any of the contracts to be for a year or more - the employer can aggregate them together to create a fixed term contract of one year or more.
The Court of Appeal recognised that there may be potential for abuse of the extensions by fixed term contracts being extended repeatedly but say that it is for Parliament to correct if their interpretation of the statute is seen to be abused.
Help may be at hand from Europe. On the 5 March 1998, a mandate was agreed for negotiations on a Framework Agreement on fixed term contracts. The negotiating group on fixed term contracts had their first meeting in the first week of April.
Any evidence of abuse by employers of fixed term contracts and waiver clauses will be gratefully received by Thompsons (FAO: Stephen Cavalier, Congress House, Great Russell St, London WC1B 3LW).
An application has been made for leave to appeal to the House of Lords in this case.