Continuous employment: employer guidance

The continuous employment rules can play a crucial role in determining the employment entitlements of your workforce.

It is therefore important to understand how these rules work and how they can potentially impact your decision-making when dealing with an employee’s workplace rights and terminating a contract of employment.

What is continuous employment?

Continuous employment refers to the uninterrupted period during which an employee has worked for one employer. Continuous employment can also apply where an employee undertook work for a previous employer, for example, where the employee transfers from one employer to another.

Subject to certain exceptions where continuity of employment is not deemed to be broken, such as on the transfer of a business, an employee must complete a minimum period of continuous employment with an employer to be eligible for certain employment rights and pay entitlements.

There are standard rights that all employees will be entitled to from day one of their employment, whilst others that only accrue with time. Those rights that are acquired automatically and without a minimum service requirement include the right to take maternity leave, working time rights and the right to be paid the national minimum wage.

Having completed a certain qualifying period of service, employees will then become entitled to enhanced employment rights, including:

• The right to claim unfair dismissal
• The right to a statutory redundancy payment
• The right to statutory maternity, paternity and adoption pay
• The right to take paternity leave
• The right to make a flexible working request

An employee may also be entitled to enhanced contractual rights once they have reached a certain length of service, depending on the terms of their employment contract. This could include, for example, additional annual leave, enhanced contractual redundancy pay or any other enhanced rights that trigger under the contract after a qualifying period of time with their employer.

What are the rules on continuous employment?

The rules on continuous employment are governed by the provisions of the Employment Rights Act 1996, giving employees with a certain qualifying period of service various enhanced statutory employment rights.

The period of service required will vary depending on the right that the employee is seeking to assert, for example, a period of 26 weeks’ continuous employment is required for an employee to claim statutory maternity or paternity pay, whilst a period of two years’ service is usually necessary to claim either unfair dismissal or statutory redundancy pay.

An employee’s period of continuous employment begins on the first day of their contract of employment and is typically calculated on a week-by-week basis, unless it is necessary to compute the length of the period of employment in months and years instead. This period then ends on the day on which the length of the employee’s period of continuous employment is to be ascertained, where both the first and last day must be taken into account in the calculation.

For example, an employee who starts employment on 1 September 2018 will reach two years’ continuous employment on 31 August 2020 for the purposes of claiming unfair dismissal or statutory redundancy pay.

Below we look at these two key examples where the calculation of the period of continuous employment will impact an employee’s rights and entitlements:

Unfair dismissal

To be eligible to make a claim for unfair dismissal, an employee must usually have accrued two year’s continuous employment. This is calculated from the date of their employment contract to the effective date of termination.

Where employment is terminated with pay in lieu of notice, the effective date of termination for the purposes of unfair dismissal rights is the date upon which the relevant statutory notice period would end. This means that an employee who started working for you on 1 September 2018, would actually gain the necessary qualifying two-year period on 24 August 2020.

It is also worth noting that some dismissals can be classed as automatically unfair, for which no qualifying service period is required. This could include, for example, where the dismissal is shown to have been discriminatory by reason of a protected characteristic, such as age, disability or sex.

Statutory redundancy payments

To be eligible for statutory redundancy pay, as with unfair dismissal, an employee must have accrued two year’s continuous employment.

This means that where an employee has less than two years’ service with you, they will not be entitled to a redundancy payment, unless they are otherwise entitled to payment under the terms of any occupational redundancy scheme.

It is important to remember that length of service will also impact the level of the statutory redundancy payment to which they are entitled.

The amount of a redundancy payment must be calculated by determining the period of continuous employment, ending on the relevant date, reckoning backwards from the end of that period the number of years of employment falling within that period, and allowing the appropriate amount for each of those years.

This is calculated using a formula involving a week’s pay (capped at £538), the employee’s length of service (capped at 20 years) and their age bracket:

• 0.5 week’s pay for each full year they were employed under 22 years old
• 1 week’s pay for each full year they were employed between 22 and 40
• 1.5 week’s pay for each full year they were employed and 41 or older

As with unfair dismissal, where an employee is dismissed with payment in lieu of notice, to calculate their length of service for the purposes of statutory redundancy pay, you should add on the minimum statutory notice period to the employee’s service as at the date on which the employment ends.

This means that if an employee would have reached an anniversary increasing their length of service during the statutory minimum notice period, the extra year should be included in the calculation of the redundancy payment. For example, an employee with 8 years and 11 months’ service is entitled to 8 weeks’ statutory minimum notice. If the employee is dismissed with a payment in lieu of notice, the redundancy payment will be calculated based on 9 years of service because the 8 weeks’ notice would take them past the anniversary date.

When is continuity of employment ‘broken’?

If there is a break in employment then normally none of the time worked before that date will count as continuous service. For example, if someone was employed by you for several years but took a job with another business for six months before returning to your company, their continuous employment would not include any of the time previously worked for you. Any computation of their period of service would need to run from the date of their new contract.

However, not all cases of a break in continuity of employment are this clear-cut. Moreover, there is a presumption that employment is continuous, unless you can prove a clear break in the employment contract.

Under the current provisions of the 1996 Act, continuity of employment will only usually be broken by a break of one clear week between two contracts of employment, where one clear week is to be measured from Sunday to Saturday.

There are also certain statutory exceptions where short breaks in normal employment can still be counted towards continuous employment. Absence from work due to any of the following events will not usually break an employee’s continuity of service:

• Periods of sickness or annual leave
• Maternity, paternity, parental or adoption leave
• Other time off allowed under the contract of employment
• When an employee is away from work in circumstances that is typically regarded as continuous employment because of an arrangement or custom in the workplace
• When an employee is absent from work as result of a temporary cessation of work, for example, the workplace is not safe
• Temporary lay-offs
• Service as a reserve in the armed forces, where the reservist is re-engaged within 6 months of the end of their active service
• Employment overseas with the same company, where the employee is classed as an employed earner for social security purposes
• When an employee moves between associated employers, meaning one of the companies is part of or related to the other company
• When a business is transferred from one employer to another under the Transfer of Undertakings (Protection of Employment) Regulations 2006
• When a corporate body gets taken over by another because of a legal change
• When an employee is reinstated following dismissal
• When an employee is dismissed on the grounds of ill health due to sickness or injury but they are reemployed within a 26-week period

Employer lockouts

During industrial or strike action an employee’s continuous employment is not broken, but rather postponed by the number of days falling within that intervening period, or the aggregate number of days falling within those periods.

This means that when an employee strikes, these days do not count towards continuous employment, but this is not treated as a break in their continuity of employment. For example, if an employee started to work for you on 1 January 2020 and over the course of one year they spent five days on strike, their starting date for calculating continuous employment would move to 6 January 2020.

How does continuous employment apply to fixed-term to permanent contracts?

The period of continuous employment for employees on a fixed-term contract moving to a permanent contract will depend on the extent of any break between the start and end-point of these contracts. However, the usual exceptions will apply, such as where an employee is absent through illness or injury or there has been a temporary cessation of work.

However, many fixed-term contracts will run for periods of several months or even years, where the employee will accrue the same statutory rights as with any other employee. Further, successive fixed-term contracts that are renewed or replaced after four years’ qualifying service are automatically converted into permanent contracts.

How does continuous employment apply to zero hours contracts?

Due to the nature of zero hours contracts, even where someone is employed regularly but on and off over long periods of time, there may be breaks in their contract of employment that affects their rights and entitlements.

As the law currently stands, a gap of just one week can break an individual’s continuity of service, such that if an individual is not provided work for a full calendar week, ie; seven consecutive days from Sunday to the following Saturday, this usually counts as a break in employment.

However, under new government proposals, the time required to break a period of continuous employment is set to extend from one week to four weeks. This means that employees who work on a sporadic or casual basis will be able to have a gap of up to four weeks in their service with an employer without it affecting their entitlement to enhanced statutory employment rights.

No exact date for the change in the statutory provisions relating to a break in continuity of employment is yet available, although employers should be alert for new and extended guidance on this issue.

Continuous employment FAQs

[wp-faq-schema accordion=1]

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.