Esther Smith, partner at Thomas Eggar, and Martin Brewer, partner and employment law specialist at Mills & Reeve, discuss the issues surrounding continuity of service for employees on short-term contracts.

The question:

We employ staff in open competition for up to 11 months, through adverts placed on the website. Some posts can be for a number of weeks and some up to the full 11 months. However, we specify that if a person was on a 10-month contract and the line manager received more funding for a difference project and wanted to extend or re-employ that person for another seven months, they would need a three-month gap, otherwise it is seen as continuous. If they do not have the three-month gap, we would then have to pay redundancy and they are entitled to the full employment rights. Is this correct?

Legal advice:

Esther Smith, partner, Thomas Eggar

Any employee with over one year’s continuous service, even if that service has been on a succession of short fixed-term contracts, will have protection against unfair dismissal. Once an employee has two years’ continuous service, again even if that service has been on a succession of short-term contracts, they will be entitled to a statutory redundancy payment if their employment is terminated by reason of redundancy.

What you appear to be trying to do with your arrangements is preventing continuity of service and seeking to effectively break continuity between two periods of employment. This can work in some situations but is not always that easy!

If there is a break of a week or less, there is a provision in the Employment Rights Act 1996 which creates a ‘statutory bridge’ over the two periods of employment and deems them to be continuous. Whilst you appear to have a policy of having a gap of at least three months, you may still not be safe to assume there is no continuity.

If at the expiry of the first fixed-term contract, under a year, there is a promise or assurance of a new contract in the future, and an expectation on the employee to be re-employed, then there is likely to be a bridge over the two periods and a tribunal is likely to find that the employment is continuous. This finding would give the employee protection against unfair dismissal and potentially an entitlement to a redundancy payment depending on how their employment is subsequently terminated.

Therefore, you could only effectively terminate the employment if there was absolutely no evidence to suggest that there was a promise or assurance of re-employment or an expectation on the part of the employee. This evidence does not have to be in writing; an employee could rely on something they have been told by their manager or their colleagues about returning to their job in three months’ time, and can also rely on custom and practice to support a claim that their employment is continuous. So, if you have an employee who has been working on 11-month contracts, with a three-month break between, for two or three years, they are highly likely to be deemed to have continuous service.

If you have good people who you want to continue to employ, it may be better business sense to take the risk on the employment rights and take them on a permanent basis. It is also worth bearing in mind that many employment rights kick in from day one of employment; so even by using short-term contracts you are not going to effectively prevent your employees from having any rights or protections.

Discrimination legislation provides protection from day one and there are also a significant number of exceptions to the one-year qualification rule to unfair dismissal, so you may still find yourself facing claims from someone who has only been with you for a short time.

Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information please visit Thomas Eggar

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Martin Brewer, partner and employment law specialist, Mills & Reeve

The issue you raise relates to the concept of continuity of service and, for your purposes, you need to be aware of the statutory definition. The Employment Rights Act 1996 says that if there is a whole week during which the employee’s relations with you are governed by a contract of employment then that week counts in computing the employee’s period of continuous service.

The ‘whole week’ point is important. If an employee is dismissed on Tuesday of week one, and re-employed the following Monday (week two), there are two weeks during which part of each was governed by a contract of employment, and despite the dismissal, there will be no break in continuity of service.

On the other hand if the employee is dismissed on the Tuesday of week one, is not employed for the rest of that week, nor the next (week two) but is re-employed in the week following that (week three), continuity is broken. This is because the Act defines a week as a week ending on a Saturday.

Thus, if there is any whole week in which relations are not governed by a contract of employment, subject to what I say below, continuity of service is broken. So your reference to three months is incorrect. One whole week ending on a Saturday without an employment contract in place is, generally, sufficient to break continuity.

The caveat to that is as follows: if the person is absent from work for any period up to 26 weeks, in circumstances such that by arrangement or custom he is ‘regarded’ as in remaining in your employment then that week continues to count as part of the period of continuous service. Whether there is such an arrangement or custom is a matter of fact in each case.

So to answer your question: if there is a genuine break in continuity of service of three months after 10 months’ service, then the employee starts afresh with you on a new seven-month contract and no previous service counts as part of the new period of continuous service.

Martin Brewer is a partner at Mills & Reeve. Martin can be contacted at: martin.brewer@mills-reeve.com

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