Are temporary staff entitled to redundancy pay when they complete their contracts?

Under the provisions of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, employees engaged under fixed-term contracts may not be treated less favourably than comparable permanent employees on the grounds that they are fixed-term employees, unless that treatment can be justified objectively.

The Regulations apply only to employees; agency staff are specifically excluded.

If an employee is dismissed or selected for redundancy simply because of working under a fixed-term contract, the action is likely to be less favourable, or detrimental, treatment. Consequently, at the time the 2002 Regulations came into force, the redundancy provisions set out in the Employment Rights Act 1996 (ERA) were amended to provide that, in certain circumstances, a fixed-term employee would be treated as being dismissed by reason of redundancy.

For the purposes of redundancy rights, the ERA uses the term "limited-term contract" instead of "fixed-term contract". A "limited-term contract" is a contract that is intended to come to an end when a "limiting event" occurs. It is not, therefore, simply a contract for a pre-determined period of time. It is also a contract that ends when a task or project is completed, or when an event of any kind occurs or fails to occur, e.g. the return of a woman from maternity leave, or the end of a period of peak trading or production.

What, then, is an employee's situation when the "limiting event" occurs? Section 136 of the ERA says that the employee is "dismissed by the employer if ... he is employed under a limited-term contract and that contract terminates by virtue of the limiting event without being renewed under the same contract". The employee is dismissed, therefore, if the contract is not renewed. The reason why the contract is not renewed then becomes important. According to section 139 of the ERA, if the contract is not renewed because the need for employees to carry out work of a particular kind has ceased or diminished, the dismissal is by reason of redundancy.

Consequently, if a limited-term employee's contract is not extended or renewed, and the reason is that there is no longer a requirement for the work done by the employee, it amounts to a dismissal by reason of redundancy. There is entitlement to all redundancy rights, including redundancy pay, if the employee has the necessary length of service.

This does not mean, however, that there is a redundancy situation every time a fixed-term employee's contract ends. For example, if an employee is covering for an absent permanent employee, e.g. a woman on maternity leave, the reason for the contract ending is not by reason of redundancy. The need for someone to perform that kind of work has not ceased or diminished.

Another important issue is the requirement for an employer to consult if 20 or more employees are to be made redundant over a period of 90 days or less. If the employment of a large group of temporary seasonal workers is to end at Christmas, the dismissals are only treated as being by reason of redundancy for consultancy purposes if, according to section 195 of the Trade Union and Labour Relations (Consolidation) Act 1992, the dismissals are "for a reason not related to the individual concerned". The failure to renew their contracts amounts to dismissal, the reason is redundancy because the need for their work has ceased, but it is not the kind of redundancy that requires consultation.

The objective of the Fixed-term Employees Regulations is to ensure that fixed-term employees have the same or equivalent terms and conditions as permanent employees doing the same jobs - unless the difference can be objectively justified. This means that a fixed-term employee would also be entitled to the benefit of any contractual redundancy provisions, at the same levels that apply to permanent employees, unless the employer can objectively justify different treatment.

Prior to October 2002, employees were able to waive their right to redundancy pay if they were engaged under fixed-term contracts for two years or more. That concession was removed completely from 1 October 2002. However, such a waiver clause in a contract that was made before 1 October 2002 continues in force until the contract is either renewed or extended, at which time no further waiver is permitted.

For further information about the Fixed-term Employees Regulations, see the DBERR's guidance at
www.berr.gov.uk/employment/employment-legislation/employment-guidance/page18475.html.

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