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British Broadcasting Corporation v Kelly-Phillips [1998] EWCA Civ 662 (8 April 1998)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/1998/662.html
Cite as:
[1998] EWCA Civ 662,
[1998] 2 All ER 845,
[1998] ICR 587
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IN
THE SUPREME COURT OF JUDICATURE
EATRF
97/1051 CMS3
IN
THE COURT OF APPEAL (CIVIL DIVISION)
ON
APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
Royal
Courts of Justice
The
Strand
London
WC2
Wednesday
8th April, 1998
B
e f o r e:
LORD
JUSTICE EVANS
LORD
JUSTICE PETER GIBSON
LORD
JUSTICE THORPE
-
- - - - -
BRITISH
BROADCASTING CORPORATION
Appellant
-
v -
LINDA
KELLY-PHILLIPS
Respondent
-
- - - - -
(Handed
down Transcript of Smith Bernal Reporting Ltd
180
Fleet Street, London EC4A 2HD
Tel:
0171 421 4040
Official
Shorthand Writers to the Court)
-
- - - - -
MR
P ELIAS QC
and
MR
J BOWERS
(
MR
A SENDALL 8.4.98
)(Instructed
by BBC Litigation Department, London, W12 7TS) appeared on behalf of the
Appellant
MR
J HENDY QC
and
MISS
J EADY
(Instructed by Thomsons, London, WC1B 2LW) appeared on behalf of the Respondent
-
- - - - -
J
U D G M E N T
(As
approved by the Court
)
-
- - - - -
©Crown
Copyright
Wednesday
8th April, 1998
JUDGMENT
LORD
JUSTICE PETER GIBSON: This appeal gives rise to a short but important point on
the true construction of s.197(1) of the
Employment Rights Act 1996 ("the 1996
Act"). In strictness, because of the dates at which the relevant events
occurred, the point arises on the antecedent statutory provision, s.142(1) of
the Employment Protection (Consolidation) Act 1978. But the parties' Counsel
have sensibly agreed that as the minor differences between the language used in
that and other relevant provisions of the 1996 Act and the language used in the
earlier legislation do not amount to any change in substance, we can confine
our attention to the 1996 Act.
Under
Part X of the 1996 Act an employee has the right not to be unfairly dismissed
and if so dismissed to bring a complaint to an industrial tribunal and to
obtain remedies for such dismissal. Those rights are protected by s.203(1),
which provides that any provision in an agreement (whether a contract of
employment or not) is void in so far as it purports to exclude or limit the
operation of any provision of the 1996 Act or to preclude a person from
bringing any proceedings under that Act before an industrial tribunal. That
subsection is, however, made inapplicable by s.203(2)(d) to any provision of an
agreement relating to dismissal from employment such as is mentioned in
s.197(1) or (3). S.197(1) allows an employer and an employee to contract out
of the application of Part X where there is a dismissal from employment under a
contract for a fixed term of one year or more if the dismissal consists only of
the expiry of that term without it being renewed.
Unhappily
there have been inconsistent interpretations of the statutory provisions in
question, the Employment Appeal Tribunal in
Housing
Services Agency v Cragg
[1997] I.C.R. 1050 at p.1055 rightly describing the state of the authorities as
confused. The point has also divided commentators (compare Harvey on
Industrial Relations D[126] with [1997] I.R.L.R. 657). The problem arises over
extensions by agreement of the fixed term of a contract, the dismissal
occurring on the expiry of the extended term. Is the contract governing the
employment from which the employee is dismissed the varied contract and is it
one for the extended fixed term? Or is the contract governing that employment
the agreement by which the original fixed term is extended, the term of which
is the extension only?
The
facts can be stated shortly. The Respondent, Linda Kelly-Phillips, on 23
August 1993 agreed in writing to work for the Appellant, the BBC, as a
temporary assistant in the Community Programme Unit. By clause 3 of the
agreement the term was from 6 September 1993 to 5 March 1994 unless previously
determined by a month's written notice on either side. The agreement provided:
"In
so far as it is permitted by current employment legislation, non-renewal or
non-extension of this engagement when its term expires shall not constitute
grounds either for a claim of unfair dismissal or for any redundancy payment."
I
shall call such a provision a "waiver clause".
Miss
Kelly-Phillips took up that employment on 6 September 1993. On 10 January 1994
she was asked to agree to extend her fixed term contract beyond 5 March 1994 to
3 September 1994. She was asked to sign a copy of what the BBC called "a
variant letter", by which clause 3 of the earlier contract was amended so that
the term of her employment expired on 3 September 1994. She was told that the
other provisions of her contract would continue in force, including her
agreement to a waiver clause. On 17 January 1994 she signed an acceptance of
that variation.
By
a letter of 5 September 1994 the BBC offered her "a new fixed term contract of
employment" as Assistant in the Disability Programme Unit from 4 September 1994
to 5 September 1995 inclusive. It was explained to her that she was being sent
a new contract rather than extending her old contract because on the new
contract she was eligible to join the Group Personal Pension scheme, and she
was also eligible for severance payments after a qualifying period of 2 years'
service. The terms again included a waiver clause. Miss Kelly-Phillips signed
the contract on 20 September 1994. On 14 November 1994 she was told that her
designation was to change to "Facilitator DPU" from that date and she signed an
acceptance of that variation of her contract on 28 November 1994. Neither side
regards that variation as significant.
On
23 August 1995 the BBC wrote to her, offering to "extend your fixed term
contract beyond 5th September 1995 until 31st December 1995." In a second
letter of the same date the Personnel & Training Manager said:
"I
write to confirm that we would like to vary the provisions of your fixed term
contract dated 4th September 1994 as follows:
"The
term of your engagement shall now expire on 31st December 1995; clause 3 of
your contract being amended to that effect.
The
other provisions of your contract will continue in force, including your
agreement that, in so far as it is permitted by current employment legislation,
non-renewal of this engagement when its term expires shall not constitute
grounds either for a claim of unfair dismissal or for any redundancy payment.
I must emphasise that this variation does not imply that there is any prospect
of your employment continuing beyond the expiry date of your fixed term
contract or of your transfer to a pensionable staff contract."
Miss
Kelly-Phillips on 30 August signed a form of acceptance: "On the terms and
conditions set out above, I accept the variation of my fixed term contract
dated 4th September 1994."
By
letter dated 22 December 1995 the BBC wrote to Miss Kelly-Phillips to tell her
that her contract would come to an end on 31 December 1995 and was not being
renewed "because the question arose of the appropriateness of your approach to
your position". Accordingly her dismissal took effect on the expiry of the term.
On
27 March 1996 Miss Kelly-Phillips applied to an Industrial Tribunal complaining
of unfair dismissal. The BBC opposed that claim, relying on the fact that she
had contracted out of claiming for unfair dismissal. The Industrial Tribunal
in London (North) held a preliminary hearing on the issue, which it determined
in favour of Miss Kelly-Phillips. It held that (1) at the time of her
dismissal she was not engaged on a fixed term contract, (2) if wrong on that
point, she was at the date of her dismissal engaged on a fixed term contract
for a period of a little less than 4 months and so s.197(1) did not apply, and
(3) the dismissal did not consist only of the expiry of the term of a fixed
term contract without its being renewed. Accordingly her complaint of unfair
dismissal could proceed.
The
BBC appealed. The Employment Appeal Tribunal held that the Industrial Tribunal
was wrong in the first and third of its holdings but right in its second
holding and so dismissed the appeal. The BBC now appeals to this court.
It
is convenient at this point to set out the relevant statutory provisions.
S.197 (so far as material) is in the following form:
"(1)
Part X does not apply to dismissal from employment under a contract for a fixed
term of one year or more if-
(a)
the dismissal consists only of the expiry of that term without its being
renewed, and
(b)
before the term expires the employee has agreed in writing to exclude any claim
in respect of rights under that Part in relation to the contract.
....
(3)
An employee employed under a contract of employment for a fixed term of two
years or more is not entitled to a redundancy payment in respect of the expiry
of that term without its being renewed (whether by the employer or by an
associated employer of his) if, before that term expires, the employee has
agreed in writing to exclude any right to a redundancy payment in that event.
(4)
An agreement such as is mentioned in subsection (1) or (3) may be contained-
(a)
in the contract itself, or
(b)
in a separate agreement.
(5)
Where-
(a)
an agreement such as is mentioned in subsection (3) is made during the currency
of a fixed term, and
(b)
the term is renewed,
the
agreement shall not be construed as applying to the term as renewed; but this
subsection is without prejudice to the making of a further agreement in
relation to the renewed term."
Two
other provisions in the 1996 Act should be noted. One is that by s.235(1)
"renewal", except in so far as the context otherwise requires, includes
extension and any reference to renewing a contract or a fixed term is to be
construed accordingly. The other is s.95(1)(b) by which for the purposes of
Part X an employee is dismissed by his employer if, amongst other things,
"he
is employed under a contract for a fixed term and that term expires without
being renewed under the same contract".
It
may be noted that the last 4 words are not to be found in s.197(1)(a). But it
is not suggested that there is any difference in meaning between the reference
in s.95(1)(b) to the expiry of the fixed term without being renewed under the
same contract and the reference in s.197(1)(a) to the expiry of the fixed term
without being renewed. In other words the concept of dismissal in s.197(1)(a)
is the same as that in s.95(1)(b).
Lindsay
J., giving the judgment of the Employment Appeal Tribunal, first considered the
statutory provisions in the absence of authority. He referred to the argument
of the BBC that the contract of employment under which Miss Kelly-Phillips was
dismissed was one which was for a fixed term which had began in September 1993
and which by renewal (by way of extension) had an end-date of 31 December 1995.
The judge commented:
"A
difficulty in accepting that is that it reads the statutory meaning of
"renewal" as including extension into the opening words of [s.197]".
He
set out the opening words and continued:
"They
make no mention of renewal or extension. One cannot, merely by giving a large
meaning to the word "renewal", reach the conclusion that a later contract which
is a "renewal" of an earlier one is the same contract as the earlier one or is
to be treated as having been made when the earlier one was or for a term which
had begun when the earlier one's term had begun. Both [s.95(1)(b)] and [s.197]
deal with cases "without" renewal; they have no need to regulate what has been
an earlier renewal. Whatever the meaning of the word "renewal", it has no
place in the construction of those opening words which are therefore to be
construed by reference only to the ordinary and natural meaning of words."
Lindsay
J. then considered the facts and said that the contract for employment under
which Miss Kelly-Phillips was dismissed was the contract made on 30 August
1995. He then turned to the authorities and found nothing that required the
Employment Appeal Tribunal to depart from the view which he had expressed on
the meaning of s.197(1).
Like
the Employment Appeal Tribunal I shall start by considering the statutory
wording in the absence of authority. Mr. Hendy Q.C. for Miss Kelly-Phillips
submitted that one must start such consideration from 3 basic propositions:
(1) any
term in any contract between an employer and an employee will be void if and in
so far as it purports to contract out of the statutory rights afforded by the
1996 Act unless it can be shown that the term in question falls within an
exception specially provided for by that Act;
(2) it
is for the party relying upon an exception to this underlying proposition to
prove the existence of the term in question and to prove that it meets the
requirement of the statutory exception upon which reliance is placed; and
(3) under
both domestic and European law, any exception or derogation from statutory
rights must be construed narrowly.
Mr.
Patrick Elias Q.C. for the BBC did not dispute those propositions.
Mr.
Hendy supported the reasoning of the Employment Appeal Tribunal. He submitted
that s.197(1) should be construed as having its literal meaning: the
requirement of para. (a) for "that term", i.e. that which expires without being
renewed, is that it is "a fixed term for one year or more". An employee, he
said, who is engaged under a fixed term contract for one year and who then has
his engagement extended for a further 3 months is properly to be regarded as
having been employed on a fixed term contract for one year followed by a
further fixed term of 3 months, and Mr. Hendy suggested that to regard the
contract and the agreed extension as one fixed term contract of 15 months for
the purposes of s.197(1) distorts the natural meaning of the language.
For
my part I can see force in this reasoning if s.197(1) could be construed on its
own. But, as Mr. Elias submitted, it cannot be so construed. In particular,
s.95(1)(b) is of crucial importance because that recognises that there can be
an extension of a fixed term of a contract "under the same contract". In other
words the extension does not necessarily mean that there is a new contract
whereby the term is extended. That gives rise to the question of the
significance of the preposition "under". In the course of argument I raised
the possibility that it might signify that the extension was effected pursuant
to some right or power in the contract, and Mr. Hendy adopted that suggestion.
But on reflection I do not think that it would be right to give the word so
limited a meaning. Such a provision would, I think, be unusual to find in a
contract of employment for a fixed term and it would mean that save in such a
case there was a dismissal every time the fixed term expired, even though the
employee continued to be employed on precisely the same terms and the only
variation of the contract was the extension of the term. In my judgment the
more natural construction of the words in s.95(1)(b) is to treat them as
referring to a renewal (including an extension) of the term on the same, or
substantially the same, terms as the original contract, the contrast being with
a new contract. Some support for this can be obtained from the contrast drawn
in ss.138 and 141 between renewals of a contract and reengagement under a new
contract: in the former case the renewal of the contract causes the same
contract to continue, whereas in the latter a new contract comes into
existence. Because, under s.95(1)(b), there can be an extension of the term
without there being a new contract, thereafter the term of that contract must
be the extended term, so that on its expiry a further extension under the same
contract would also mean that there was no dismissal. If one imports these
considerations into s.197(1), it would follow that, contrary to Lindsay J.'s
understanding of the opening words of the subsection, the reference to a
contract for a fixed term does encompass a contract which has been varied by an
extension of the term under the same contract.
That
construction receives some support from s. 197(5), referring, as it does, to
"the term as renewed" and "the renewed term". These references seem to me to
point clearly to the fact that where there has been a renewal of the fixed term
under the same contract the term from the commencement date under the original
contract to the expiry date of the extended term was in contemplation. True it
is that s.197(5) refers to a case within s.197(3) relating to contracting out
of entitlement to a redundancy payment whereas s.197(1) relates to contracting
out of the right to complain of unfair dismissal. But that difference does not
mean that the draftsman could not, by the language used in s.197(1), have
intended to refer to dismissal from employment under a varied contract for an
extended term. In my judgment, as a matter of construction he must be taken so
to have intended and I respectfully disagree with the views of the Employment
Appeal Tribunal on this point. It may well be that the argument for the BBC
was developed more fully before us than it had been below.
On
this approach, when one applies that construction to the facts, there was a new
contract, described as such, which was entered into in September 1994 and the
term commenced on 4 September. That contract was "varied" in August 1995 by
the extension of the contract beyond its expiry date of 5 September 1995 until
31 December 1995 but save for the amendment of clause 3 relating to the term,
all the other provisions of the contract continued in force. The extension of
the term was effected by a contract but did not create a new contract of
employment. The extension was therefore under the same contract as that
entered into in September 1994, and for the purposes of s.197(1), there was no
dismissal on 5 September 1995 within s.95(1)(b). But there was a dismissal
from employment under a (varied) contract for an (extended) fixed term of one
year or more when the (extended) term expired on 31 December 1995 without being
renewed.
I
turn next to consider whether that provisional conclusion is falsified by the
authorities or by policy considerations.
The
earliest authority is
BBC
v Ioannou
[1975] Q.B. 781. In that case Mr. Ioannou was employed by the BBC on a 3-year
contract determinable on notice. The contract was renewed by a 2-year
extension, followed by a one-year extension, and a waiver clause was agreed for
the latter extension. At the time the statutory predecessor of s.197(1)
required the fixed term to be of two years or more for contracting out to be
permissible. This court held that as the contract was determinable on notice,
it was not a contract for a fixed period. However observations were also made
on the view taken in the National Industrial Relations Court that the final
year's extension was not a renewal of the previous contract but a reengagement
under a new contract of employment.
Lord
Denning M.R. at p.786 said:
"I
do not think it necessary in these cases to inquire whether there is a
"renewal" of a previous contract of employment or a "re-engagement" under a new
contract of employment. That is too fine a distinction for ordinary mortals to
comprehend . Suffice it to say that you must always take the final contract
which expires, and on the expiration of which he claims redundancy payment or
compensation for unfair dismissal. If the final contract is for a fixed term
of two years or more, it is permissible for the employee in writing to agree to
exclude his rights, so long as he does it before the term expires. If the
final contract is for less than two years, as for instance for a fixed term of
one year, then he cannot exclude his right. It matters not whether the final
contract is a renewal or re-engagement. It is the final contract alone which
matters in this regard."
I
agree with Lord Denning that it is the final contract that matters, but I
respectfully disagree with his assumption that the last agreement for an
extension is the relevant final contract. Nor did the majority in this court
agree with Lord Denning. Stephenson L.J., whilst agreeing with the Master of
the Rolls in the result, said (at pp. 787,8) of the first extension effected by
a letter and by Mr. Ioannou signing a declaration of agreement:
"It
is not and cannot be disputed that the effect of that letter and declaration is
that he was not re-engaged under a new contract of employment, but his existing
contract of employment was renewed."
He
contrasted that with the one-year extension effected by a letter, in which Mr.
Ioannou was "offered a further year's contract", and said:
"I
agree with both the tribunal and the court that what described itself as the
offer of a short term employment on terms and conditions which he accepted by
signing was a new contract and not a further renewal or extension of the old."
He
referred to the new provisions which were agreed and concluded that "the
parties meant what they wrote and were not again renewing the original contract
but were re-engaging the respondent under a new contract."
Geoffrey
Lane L.J. commenced his judgment at p.788 by posing the question:
"Was
the document [offering the further year's contract] a new contract for 12
months or simply an extension of the previous agreement which had run for 5
years?"
Thereby
he recognised that the original 3-year contract had been extended for two years
without that extension creating a new contract. He answered his question by
noting that the letter offering a further year's contract materially altered
Mr. Ioannou's rights and said at p.789:
"In
the ordinary meaning of words, "extension" is not apt to describe that
document. It was a new contract. Consequently the respondent, Mr. Ioannou, in
this case was at the material time not employed under a contract of employment
for two years or more, but under a contract of employment for one year."
The
ratio of that case was acknowledged by this court, including Lord Denning, to
be wrong in
Dixon
v BBC
[1978] Q.B. 438: the fact that a term is determinable by notice does not
preclude the term being a fixed term.
In
Open
University v Triesman
[1978] I.C.R. 524 an employee was employed under a contract for a fixed term of
18 months. 3 months before that period expired she was offered and accepted
further employment for 7 months subject to a waiver clause. The Employment
Appeal Tribunal followed Lord Denning's observations in
BBC
v Ioannou
,
Phillips J. saying of them at p.528:
"not
only because they are of high persuasive authority, but because .... we
respectfully agree with them".
He
said that in reaching its conclusion the Employment Appeal Tribunal had in mind
3 considerations. The first was that the validity or otherwise of exclusions of
that character should so far as possible be easy to determine, and it would not
be if it was necessary to distinguish between reengagement under a new contract
and renewal and extension of an existing contract. The second was that it did
not necessarily follow that because a second or subsequent contract of
employment was a renewal of an earlier one, it was correct to say that together
they constituted a fixed term of a length equivalent to their cumulative
length, though Phillips J. acknowledged that one could so describe it. The
third was a point on what is now s.197(5). He said that because it referred to
a fixed term of two years or more which was renewed, the renewal must also be
of two years or more. With respect, that is an assumption, and if one
substitutes a reference to extension for the reference to renewal it is
impossible to see why it should follow.
The
Triesman
decision was followed by the Employment Appeal Tribunal in
BP
Oil Ltd. v Richards
,
unreported, 12 April 1983. Browne-Wilkinson J. said that the crucial question
was whether one looks at the whole term of the original contract plus
extensions as one contract or concentrates solely on the last contractual
arrangement made between the parties. He could see no ground for distinguishing
Triesman
on that point and said:
"As
a matter of comity and in the interests of orderly industrial relations, it is
undesirable for us to depart from that decision and therefore we follow it."
Thus
no view was expressed on the correctness of the
Triesman
decision, understandably so in view of the fact that no doubt it had been
applied for 5 years by industrial tribunals.
The
point arose again in a case in Northern Ireland,
Mulrine
v University of Ulster
[1993] I.R.L.R. 545. An employee was employed under a contract of employment
for 2 years with a waiver clause. 5 weeks before the end of that period the
employer wrote to the employee, extending her contract by nearly 4 months and
specifying that all other conditions of the contract were to remain.
MacDermott L.J. said at para.31 on p.549:
"In
many cases the correct answer may be reached by applying the "Denning test",
but if as in this case, an unfair and unreasonable result is produced one must
go back and ask the allegedly more difficult question : was the second contract
an extension of the first?"
He
considered that for an employer to incur a liability to make an unfair
dismissal payment by extending for a short period a contract under which the
employee had surrendered her compensation rights would be a conclusion which
would be:
"irrational,
unjust and contrary to the clear contractual terms into which the parties had
chosen to enter."
Sir
Brian Hutton L.C.J. agreed. At para.41 on p.549 he considered it clear as a
matter of construction that the employee was not employed under a new and
separate contract when the original contract was extended but that she was
employed under a contract for a fixed term of two years which was extended or
renewed to make it a fixed term of two years, three months and three weeks. He
thought it unreasonable and unjust to hold that because of the extension the
employer lost the benefit of the exclusion clause which would have operated to
protect it if the employment had ended on the expiry of the term of two years.
He said at paras. 47 and 48 on p.550:
"I
respectfully share the view that in the sphere of industrial relations and
employment law comity, the application of simple tests and the avoidance of
fine distinctions are important. But I do not consider that this approach
should be carried to the point where the application of a simple test, such as
that stated by Lord Denning, will lead to an unjust and unreasonable result in
a particular case. In my opinion this would be the consequence if the test
were applied to this case.
Therefore
I consider that the proper approach is to ask the question (which can be
answered without difficulty in this case): was the appellant's contract
extended or renewed (these words being given the same meaning by Stephenson LJ
and Lane LJ (as he then was) in the
Ioannou
case), or was there a re-engagement under a new contract?"
I
respectfully agree with the conclusion reached by the Northern Ireland Court of
Appeal, but I find it difficult to accept that it would be appropriate to apply
Lord Denning's test in
BBC
v Ioannou
except where it leads to an unfair or unreasonable result. In my judgment that
cannot be the right approach to what is a question of statutory construction
containing no such exception.
In
Housing
Services Agency v Cragg
[1997] I.C.R. 1050 the point arose again in the Employment Appeal Tribunal in a
case where an employee had been employed for a fixed term of more than 2 years
under a contract containing a waiver clause, and thereafter entered into
contracts for 3 subsequent extensions of his employment, each for a term of
less than a year and each containing a waiver clause. Judge Peter Clark said
that the Employment Appeal Tribunal adopted an independent approach, since in
its judgment each of the earlier cases overlooked two important factors. One
was that there is a difference between the provisions relating to unfair
dismissal and redundancy payment waiver agreements, and the other was the
statutory definition of "renewal". In respect of unfair dismissal waiver the
judge stated that the following requirements must be met:
"(1)
There must be a fixed term contract....
(2)
It must be for a term of one year or more. It is not permissible to aggregate
successive fixed terms so as to amount to one year or more.
(3)
There must be a term of the contract or separate agreement ... entered into
before the expiry of the fixed term excluding the right to claim unfair
dismissal.
(4)
If dismissal, consisting of the expiry of the fixed term without it being
renewed (on the same terms) (section 95(1)(b); section 197(1)(a)), occurs, the
employee is excluded from the right to bring a complaint of unfair dismissal
under section 94(1).
(5)
If there is no dismissal under (4) above, the parties must start again.
Whether by renewal or re-engagement, if the employment continues for a further
fixed term, that must be for a term of one year or more, and there must be a
waiver agreement complying with section 197(4) entered into before the expiry
of the new term (section 197(1)(a))."
The
assertion in the second sentence of para.(2) was based on Lord Denning's test
which the Employment Appeal Tribunal accepted. It declined to follow
Mulrine.
To suggest that the previous cases had overlooked the differences between
unfair dismissal waiver and redundancy payment waiver is rather bold. There is
no reason why in construing the relevant provisions consistency should not be
sought. Assistance can be derived from the redundancy payment provisions in
construing the unfair dismissal provisions. I doubt if the statutory
definition of "renewal" (which is not to be found in the Industrial Relations
Act 1971 relevant to
BBC
v Ioannou
)
did more than enact what in that case was assumed to be its meaning.
The
next case was the present case in which Lindsay J. made a careful review of the
authorities, preferring Lord Denning's test and declining to follow
Mulrine.
The
last case in which the point has been considered was
Bhatt
v Chelsea and Westminster Health Care Trust
[1997] I.R.L.R. 660. While that appeal was being heard by the Employment
Appeal Tribunal it became known that the present case had been heard by another
division of the Employment Appeal Tribunal and when the judgment in the present
case was delivered, Counsel in the
Bhatt
case made written submissions on it. The Employment Appeal Tribunal had the
advantage of submissions from Mr. Elias on the lines of those which he advanced
to us, and they were in substance accepted, Kirkwood J. saying at para. 43 on
p.664:
"We
accept the submission that a contract for a fixed term may be extended as to
its term, leaving the same contract in place. We accept too, that when a
contract of employment for a fixed term of a year or more is extended as to its
term by a lesser period, that extension alone is not to be taken as the correct
point of focus for the purposes of s.197(1). The contract remains in place and
the extension does not taken it outside s.197(1)."
Accordingly,
I do not see in the authorities any compelling reason to depart from the view
provisionally expressed earlier on the construction of s.197(1), which receives
support from the observations of the majority in this court in
BBC
v Ioannou
,
from the approach of Sir Brian Hutton in
Mulrine
and from the decision in
Bhatt.
Finally,
I turn to the considerations of policy on which we were addressed by Mr. Elias
and Mr.Hendy. Mr. Elias pointed out that many employers have limited funding
sufficient only to enable them to employ employees for fixed periods. He
submitted that it would be wrong if an employer employing an employee under a
contract which qualifies for the exemption under s.197(1) or (3) were unable to
extend the employment for a further period, which on its own would not so
qualify, without losing that exemption. Mr. Hendy on the other hand stressed
the dangers and the undesirability of employers being able, if Mr. Elias was
right, to give employees short term contracts which were extended repeatedly.
This was a consideration which rightly troubled the Industrial Tribunal in the
present case, and it appears to have led the Employment Appeal Tribunal in the
Bhatt
case to incline to the view that the original term must be a fixed term of one
year or more ([1997] I.R.L.R. 660 in para. 41 on p.664). Just as in the
Bhatt
case that point did not matter as the original contract was for more than a
year, so in the present case it is common ground that the new contract from 4
September 1994 to 5 September 1995 was for more than one year (although the
offer was not formally accepted until 20 September 1994). It is therefore
unnecessary for us to decide that point, though I recognise that the logic of
Mr. Elias's argument would lead to the conclusion that it is unnecessary that
the original term should be for a year or more.
A
further suggestion made by Evans L.J. in the course of argument was that at the
time an extension was agreed by an agreement which did not amount to a new
contract there must be at least a year to run before the expiry of the extended
term. With respect, I see difficulty in implying such a qualification into the
statutory language. S.197(1) requires the contract to be "
for
a fixed term of one year or more". That requires one to look only at the term
and it is immaterial that the extension should be agreed a year or more before
the expiry of the extended term unless the contract was for that fixed term.
In the present case, for example, the term was either that provided for under
the extension (viz. from 6 September to 31 December 1995) or the extended term
from 3 September 1994 to 31 December 1995. But no one has suggested nor could
suggest that by reason of the contract constituted by the acceptance on 30
August 1995 of the offer of 23 August 1995 that contract was for a term from 30
August 1995 to 31 December 1995. Nor as a matter of policy is it easy to see
why the suggested qualification should be implied when by s.197(1)(b) the
waiver may be agreed at any time prior to the expiry of the term.
Although
I recognise that there may be potential for the abuse of the exemption by fixed
term contracts being extended repeatedly, I am not persuaded that that
justifies giving the statutory wording a gloss which otherwise it could not
bear. Employees must give their consent to the extensions and to the waivers,
though I accept that they may at times have little choice if they are to keep
their jobs. But ultimately it is for Parliament to correct if this
interpretation of the existing statutory language is seen to lead to abuse.
Mr.
Hendy also submitted that it was an important policy consideration that the
test should be kept simple and that is only provided by the Denning test. I
agree that simplicity is desirable, but again in my judgment the statutory
language should not be distorted to achieve that result. Industrial tribunals
have to decide in other contexts whether the terms of employment amount to a
different contract from that under which the employee was previously employed
(see, for example,
Hogg
v Dover College
[1990] I.C.R. 39), and as MacDermott L.J. observed in the
Mulrine
case in para. 17 at p.548:
"Sadly,
despite all the original anxiety to keep the work of industrial tribunals
simple and free from legal complication, experience has shown, and the various
series of reported cases confirm, that the work of a tribunal often does
involve questions of law".
I
therefore do not find the policy considerations urged upon us by Mr. Hendy to
be of sufficient weight to require a different interpretation to be given to
s.197(1).
In
my judgment, therefore, for the reasons which I have given this appeal should
be allowed and the application of Miss
Kelly-Phillips
to the industrial tribunal should be dismissed.
LORD
JUSTICE THORPE: I have had the advantage of reading in draft the judgment of my
Lord, Peter Gibson L.J., and I too would allow the appeal. I am in complete
agreement with his construction of the relevant statutory provisions and his
analysis of the conflicting authorities. I do not see much force in the policy
submissions advanced by Mr. Hendy. The rival constructions can be said to
produce anomalies either way. If anything, I am of the opinion that the
difficulties that might flow from my Lord's construction are less substantial
than the difficulties that might flow from adopting the rival construction.
LORD
JUSTICE EVANS: On 31 December 1995 the respondent's employment by the
appellants under a fixed term contract came to an end and the contract was not
renewed. This amounted to "unfair dismissal" within section 95(1)(b) of the
Employment Rights Act 1996 and she seeks damages accordingly. However, there
is an exclusion of liability in the employer's favour when
section 197 applies :-
"197
Fixed-term contracts
(1) Part
X does not apply to dismissal from employment under a contract for a fixed term
of one year or more if-
(a) the
dismissal consists only of the expiry of that term without its being renewed, and
(b) before
the term expires the employee has agreed in writing to exclude any claim in
respect of rights under that Part in relation to the contract."
The
question raised by the appeal is whether her contract, which was for a fixed
term, was for "a fixed term of one year or more" within
s.197(1).
The
difficulty arises because she was continuously employed by the appellants from
August 1993, but under a series of contractual arrangements. Initially, from 6
September 1993 until 5 March 1994 under a "temporary contract of employment".
This was extended by agreement until 3 September 1994 (letters dated 10th
January 1994). On 5th September 1994 she was sent "a new fixed term contract
of employment" running from 4th September 1994 until 3rd September 1995, and
there was a particular reason why it was "a new contract"; she had become
eligible to join the Group Personal Pension scheme if she wished to do so
(letter dated 5th September). That contract, when it was drawn up and signed,
covered the period from 4th September 1994 to 5th September 1995 - just over
one year. It included a term (clause 4) by which she waived her right to claim
for unfair dismissal if the contract should not be renewed or extended when the
term expired. This waiver did not offend the 1996 Act, because the fixed term
was for "one year or more" (section 197(1)).
Towards
the end of the period, she was offered and accepted an extension of the period
until 31 December 1995. The offer was contained in a letter dated 23rd August
and she accepted it by her countersignature on 30 August. The agreement was
expressed as a variation of the fixed term contract dated 4th September 1994
and all other provisions of that contract were to continue in force, including
the waiver provision, the terms of which were expressly set out.
At
the date of her deemed dismissal, therefore, she was employed under a fixed
term contract which had been varied so as to extend the fixed term from 5th
September until 31st December 1995, a period of slightly less than 4 months.
But the effect of the variation was to increase the total period of employment
under that contract from one year and two days, which had already expired, to
nearly sixteen months. Was she employed at that date under a contract "for a
fixed term of one year or more"?
There
is a clear distinction in law between an agreement which varies an existing
contract and one which replaces an existing contract, which ceases to have
effect. In employment law terms, "renewal" is distinguished from
"re-engagement", and the concept is the same. Whilst it is sometimes clear
into which category a particular agreement falls, the distinction can be
notoriously difficult to draw. That was demonstrated by old authorities such as
Morris
v. Baron
[1918] A.C. 1 and it has re-appeared in more modern decisions on the statutory
provisions with which we are concerned, and their predecessors since 1965.
I
need not quote the celebrated dictum Lord Denning M.R.'S judgment in
BBC
v. Ioannou
[1975] 1 Ch 267 at 272F. That was a case where what I shall call the renewal
contract was clearly a new contract, and the other members of the Court based
their judgment on that ground. That contract was for one year, but that was
less than the two-year statutory minimum which then applied. It had been
preceded by a three-year contract which was renewed for two years, making "a
fixed term of five years" (see page 272D). The Court's decision clearly
precludes taking account of the length of employment. The inquiry is as to the
length of the period under the fixed term contract in question. So much is
common ground in the present case. The issue is whether, if the period of a
contract is extended by a variation of that contract, the fixed term referred
to in
section 197(1) is the whole of the period covered by the contract as so
varied or the period added to it by virtue of the later contract which varies it.
The
arguments are finely balanced. Some of the subsequent authorities have
preferred one view, some have approved the other. We have been pressed with
policy considerations and with different examples, of which I would identify
the following :-
(a) original
contract for one year, extended by agreement for a further six months. Total
period eighteen months, but the final six months are contracted for by the
subsequent agreement to vary.
(b) original
contract for less than one year, extended successively for similar periods,
each being less than one year, but in due course substituting a total period of
one year or more for the original shorter period.
The
first in effect is the present case. The second is the example given by Mr
Hendy Q.C. for the respondent as showing that a provision which was intended to
protect an employee who benefits from a fixed term contract of a certain length
would be misused and could be side-stepped by aggregating a number of shorter
periods each resulting from a separate agreement into a total period covered by
the original contract as so varied.
In
my judgment, the dilemma cannot be resolved merely by stating the issue in
these legal terms. The extended period whose expiry counts as dismissal under
section 95(1)(b) is contracted for by the agreement to extend, which is itself
a contract, but in law it is governed by the original contract. There have
been two contracts and both can be said to have been contracts of employment
for the period which expires.
This
is a powerful argument, and in my judgment it gains strength from the fact
that, where the original contract can be for as long a period as two years, and
the extension for as little as three months, the employer manifestly did commit
himself prospectively (for a period of one year or more). That cannot be said
where the total period is an aggregate of successive periods, each of less than
one year.
It
is important, in my judgment, that the employer can only rely on the
s.197(1)
exclusion when the employee has agreed in writing to waive his or her right to
claim the statutory compensation. That agreement must be found in a contract
of employment for a fixed term of one year or more. I would hold in agreement
with my Lords that the statutory requirement is satisfied when the original
contract was for such a period, notwithstanding that the employment was
subsequently extended by an agreed variation of that contract, even for a
period of less than one year.
I
too would allow the appeal.
ORDER:
Appeal allowed with costs. Leave to appeal to the House of Lords refused.
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