England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE EATRF 97/1051 CMS3

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

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BRITISH BROADCASTING CORPORATION

Appellant

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LINDA KELLY-PHILLIPS

Respondent

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(Handed down Transcript of Smith Bernal Reporting Ltd

180 Fleet Street, London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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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

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J U D G M E N T

(As approved by the Court )

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©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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