Fixed-term contracts as alternatives to redundancy #law #management #HR

CIPD: When a particular kind of work is redundant, the employees at risk of dismissal may well have skills which remain useful to their employer. In this situation employers are likely to be well-disposed to finding alternative employment for some of the potentially redundant employees. If so, they should not automatically assume that the employees concerned won’t be interested in a role which makes use of their skills just because it’s short term and not permanent.

If those at risk of redundancy are interested in a fixed-term role (for example, running a project which will only last a few weeks or months), the employer could agree to ‘postpone’ the redundancy to the end of the fixed-term contract. Employees would be unlikely to accept this kind of arrangement if they were made to work their notice while in the project role, but the parties could come to some commercial deal involving (taxable) retention bonuses, enhanced severance payments, or payment in lieu of notice that suited the requirements of both.

Suitable alternatives

Permanent employees offered a fixed-term role are within their rights to reject it as not being ‘suitable alternative employment’. If they did so, employers should make sure they understand they are likely to be made redundant in the absence of any other suitable alternative roles. But what happens if an employee takes a fixed-term role which comes to an end in a year’s time, for example?

The expiry of a fixed-term contract which is not renewed will always be considered to be a dismissal. An employee with over two years’ continuous service (when the fixed-term employment is aggregated with the employee’s previous continuous service) is entitled to protection from unfair dismissal. An employer in this position should follow a fair termination procedure and consider the options for suitable alternative employment again. If the employee has accepted a fixed-term contract once, they may well accept another one.

The next question is whether the employee is entitled to a redundancy payment when the fixed-term contract ends. As with many employment law scenarios, it depends on the circumstances. If the employee was employed to carry out a particular project which has come to an end, the employer will have no further need of staff to carry out work of the particular kind which was undertaken during the fixed-term contract. This is a classic redundancy situation and, in the absence of further suitable alternative employment, the employee would be entitled to a statutory redundancy payment.

Maternity returners
Sometimes a redundancy coincides with another employee going on maternity leave or maybe a continuous period of shared parental leave. When the person on leave returns, is the employee covering the role then redundant?

Because there is a continuing need for the work carried out by the person providing maternity/shared parental leave cover in this situation, it is not a redundancy. Whenever employees are providing cover in these circumstances, employers should ask them to sign a new contract which clearly states that their employment will be terminated on the return to work of a named absent employee (the person they are covering for). This then leaves no scope to argue that this is a redundancy as long as the employee providing the cover is dismissed to allow the absent employee to return to their role. If this is done, the law specifically states that this can be a dismissal for “some other substantial reason”. But, of course, it will only be fair if a fair procedure is followed.

It would be best for the employer to discuss with employees at the start of a fixed-term contract precisely what will happen at the end of it, especially if the contract is an alternative to redundancy. Even if the law is in the employer’s favour, most organisations would not want to argue with an employee who’s just given an extra year’s service that, by taking up the fixed-term role, the employee has deprived him or herself of what might have been a substantial redundancy payment.

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