Non-renewal
The Employment Rights Act 1996 provides that not renewing an employee’s fixed-term contract will amount to a dismissal. An employee with sufficient service will therefore be able to bring an unfair dismissal claim. For a dismissal to be fair, it must be for one of the potentially fair reasons set out in legislation:
• capability
• conduct
• redundancy
• contravention of a statutory obligation
• some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held (SOSR).
The fact that the contract provided for expiry on a certain date will not be a fair reason for dismissal.
Employers will need to establish which reason they seek to rely on, and follow a fair procedure. In many cases, the non-renewal of a fixed-term contract will be potentially fair by reason of redundancy, but this will of course depend on the circumstances.
Redundancy
Generally speaking there will be a redundancy situation if the employee is not being replaced because the business needs fewer employees to do work of a particular kind. There may also be a redundancy situation if the business, or part of it, is closing.
However, employers must be mindful that the usual obligations regarding searching for suitable alternative employment apply, and those with two years’ service or more would be entitled to a redundancy payment. It this situation the employer should also carefully consider the breadth of the redundancy pool and whether any selection criteria discriminate on the basis of fixed term status.
If an employer is proposing to make 20 or more employees redundant within a 90-day period, it must undertake a collective consultation process which involves consulting with employee representatives. However, the expiry of a fixed-term contract will not count towards dismissals for collective redundancy consultation purposes, unless the contract is being terminated early by reason of redundancy.
Some other substantial reason
An employer will be able to rely on ‘some other substantial reason’ as potentially fair where the fixed-term employee was replacing an employee who is absent on family leave or due to suspension on medical or maternity grounds. The fixed-term employee is dismissed to allow that person to return to work, and the fixed-term employee was informed at the outset that their employment would terminate on that employee’s return to work.
Acas Code
The Acas Code of Practice on Disciplinary and Grievance Procedures expressly states that it does not apply to the non-renewal of fixed-term contracts. This does not mean, however, that procedural fairness is irrelevant. For example, as we have seen, non-renewal of a fixed term contract does amount to a dismissal and could result in a claim for unfair dismissal. The dismissal process must therefore be fair regardless of its specific application, and the Acas Code provides a good benchmark of what such a process should look like. In terms of grievances, were a grievance to be raised about non-renewal of a fixed term contract, it would, again, be advisable for an employer to follow the Acas Code. Also, if a fixed-term employee is dismissed before the expiry of the fixed-term for misconduct the Acas Code will apply as normal. By extension, there is certainly an argument that the Acas Code applies to non-renewals that are influenced by conduct of performance and a rigorous process is therefore important in those situations too.
Wrongful dismissal
Wrongful dismissal is a dismissal that is in breach of contract. It differs from unfair dismissal in that fairness is not relevant; the only consideration is whether or not a term of the contract has been breached.
An employee who is dismissed before the end of a fixed-term contract may have a claim for wrongful dismissal. This is unless the contract contains a provision for earlier termination on notice and the employer has complied with that provision. Or if the employee has committed a very serious breach of contract (such as an act of gross misconduct) which entitled the employer to dismiss without notice. The employer may have to pay damages up to the amount the employee would have been entitled to had they worked until the end of the term. Although the Acas Code does not apply to dismissals due to the non-renewal of a fixed-term contract, it may still be relevant for employers to follow it if dismissing for conduct or capability reasons, to ensure that the dismissal is fair.