In many business sales, the seller does not simply disappear after completion. It’s common for the buyer to want a handover period, and for the seller to stay on in some capacity – whether informally, on an ad-hoc basis, or under a formal fixed-term employment contract. That arrangement can be sensible, particularly where specialist knowledge or client relationships need to be transferred smoothly.

But there’s a trap that both buyers and sellers often overlook: if the seller is given a fixed-term contract lasting more than two years, they may acquire employment rights – including the right to claim redundancy pay at the end of the term. What was intended as a temporary support role can become a legal obligation if not handled carefully.

This article explains the legal position on redundancy at the end of a fixed-term employment contract, and also covers how things differ where the seller stays on as a consultant. As always, the detail matters.

What Is a Redundancy?

Redundancy has a very specific legal meaning. It’s not just any dismissal, and it’s not just the end of a contract. Redundancy arises when a job is no longer needed, for one of the following main reasons:

• The employer has shut down the whole business.

• The workplace has closed.

• The need for employees to do a particular type of work has reduced or disappeared.

So, if a fixed-term contract ends because the handover is complete or the buyer no longer needs the seller’s continued involvement, that can count as a redundancy – provided the role is genuinely no longer required. But not all contract endings are redundancy situations.

For instance, if someone was hired to cover maternity leave or to stand in for another employee on secondment, and that person returns, then the reason the job ends is not redundancy – it’s the natural completion of the arrangement.

Can Fixed-Term Employees Claim Redundancy Pay?

Yes, they can – but only if they qualify.

To claim statutory redundancy pay in the UK, the key requirements are:

• At least two years’ continuous service with the employer; and

• A genuine redundancy situation at the end of the contract.

For example, if a business seller is given a two-year fixed-term employment contract post-sale to help transition key clients and staff, and that contract is not renewed at the end because the buyer no longer needs that support, the seller may be legally entitled to redundancy pay – even though both sides assumed it was always going to be temporary.

Even if the contract was originally described as “non-renewable” or “fixed for two years only”, that does not stop it being classed as a dismissal for redundancy purposes.

The Law on Fixed-Term Contracts

The relevant legislation is the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. This says that fixed-term employees must not be treated less favourably than permanent employees doing similar work, unless there’s an objective justification.

That includes the right to be considered for redundancy pay, to be included in consultation exercises, and to be offered alternative employment if available.

Sellers sometimes assume that because they’re only staying on temporarily, they won’t be treated like ordinary employees. But if they’re on the payroll and working under a fixed-term employment contract, they may well be entitled to the same protections.

Also worth noting: waiver clauses in fixed-term contracts – those that try to exclude redundancy pay – are no longer valid. Since October 2002, an employee cannot contract out of the right to redundancy pay, no matter what the contract says.

Redundancy vs Expiry: What’s the Real Reason?

One of the most common errors employers make is to assume that when a fixed-term contract ends, that’s the end of the matter. But legally, the non-renewal of a fixed-term contract is still treated as a dismissal. That means:

• The employer must have a fair reason for ending the contract.

• If that reason is redundancy, and the employee qualifies, redundancy pay is due.

• The employer should also follow a fair process, including consultation and consideration of alternative roles.

Employees with over two years’ service may also have claims for unfair dismissal if the proper procedures are not followed. Buyers often treat the end of the fixed-term as a natural cut-off point, but if there’s no clear written reason tied to business need, and the seller has been employed for two years or more, they may be entitled to redundancy – and possibly claim unfair dismissal if it’s not handled properly.

What Should an Employee Do?

If your fixed-term contract is ending, and you think it may be a redundancy situation, it’s worth taking a few steps:

1. Ask for clarity on the reason the contract is ending. Is the work genuinely disappearing?

2. Check your length of service – if you’ve hit the two-year mark, you may qualify.

3. Consider any internal roles that may be suitable alternatives.

4. Query your entitlement to redundancy pay – politely but firmly.

5. Review your contract, but don’t be put off by any clauses trying to exclude redundancy rights – these are unenforceable.

It’s also worth raising a formal grievance if you feel your redundancy rights are being ignored.

What Should an Employer Do?

If you’ve bought a business and agreed that the seller would stay on in an employed role post-completion, it’s vital to treat the end of their contract with care. Even if it was always intended to be temporary, the law may see it as a dismissal – and potentially a redundancy. Employers need to be careful with fixed-term contracts. The expiry of a fixed-term contract is still a dismissal, and it must be handled lawfully.

If the role is no longer needed, and the employee qualifies, redundancy pay should be offered. It’s also wise to document the rationale for the decision and to offer any suitable alternatives where possible. Consultation – even if brief – is a good practice, especially where there’s more than one employee affected.

Simply letting a contract “expire” without considering whether a redundancy situation exists is a legal risk, particularly if the employee has over two years’ service.

What About Fixed-Term Consultancy Contracts?

Now, let’s turn to a related but quite different situation: fixed-term consultancy contracts. These are typically self-employed or independent contractor roles, where someone is brought in temporarily to provide services.

Can a consultant claim redundancy at the end of their contract?

In short, no – not unless they’re actually an employee.

A genuine consultant or freelancer is self-employed, so they don’t have the same rights as employees. That means no redundancy pay, no unfair dismissal rights, and no obligation to follow dismissal procedures.

But that’s only true if they are genuinely self-employed. Many so-called consultants are, in reality, working like employees. They:

• Work exclusively or mainly for one business;

• Have to follow instructions;

• Work fixed hours or use company equipment;

• Can’t send a substitute in their place;

• Are integrated into the company.

In those cases, tribunals may find that the consultant is actually an employee or at least a worker, and that opens up a whole raft of employment rights.

It’s not unusual for a seller to stay on post-sale under a consultancy agreement, often for tax efficiency. But if the reality of the working arrangement looks more like employment – regular hours, reporting in, using company systems – then the consultancy label won’t protect the buyer. Employment rights, including redundancy, may still apply.

IR35 and Employment Status

This overlaps with the tax rules under IR35, which look at whether a contractor is genuinely self-employed for tax purposes. But employment tribunals use a slightly different test for legal employment status.

It’s perfectly possible to be outside IR35 for tax purposes but still be classed as a worker or employee for employment rights.

So if a long-term consultant finds their contract suddenly terminated, and they believe they’ve really been working as an employee, they might argue that the contract termination is a dismissal. If it’s due to lack of work, they may even claim it’s a redundancy – with all the rights that come with that, provided there’s at least two years’ continuity.

Of course, such claims are fact-sensitive and often hotly contested.

Final Thoughts

In the context of a business sale, it’s all too easy for both sides to gloss over these details. But when sellers stay on post-completion, buyers need to be alive to the employment law risks – especially if they’ve agreed to a contract of two years or more. Redundancy rights don’t disappear just because someone used to own the business.

Fixed-term contracts are not a loophole for employers to avoid redundancy pay. If a role ends because the work is no longer required, and the employee has two years’ service, then that’s likely to be a redundancy – and should be treated as such.

For consultants, it’s more complicated. If you’re genuinely self-employed, redundancy pay is off the table. But if your relationship with the company looks more like employment, it’s worth taking advice on whether you actually have more rights than you’ve been led to believe.

If you are unsure where you stand – whether as an employee or consultant – it’s always worth getting proper legal advice before you let a contract end quietly.