Successive fixed term contracts
Employers often utilise fixed term contracts in a variety of ways, both short and long term. Under the law, employees engaged on successive fixed term contracts for four years or more may be able to argue that they have automatically become permanent employees. However how does this interact with employers who are required to undertake specific recruitment processes in order to retain employees on a permanent basis? A good example is an NHS Trust who may engage locum consultants on fixed term contracts, sometimes for many years, but in order for those consultants to become permanent they would be required to undergo a specific appointments process.
Lobo v University College London Hospitals NHS Foundation Trust
In the recent case of Lobo v University College London Hospitals NHS Foundation Trust [2024] EAT 91, the Employment Appeal Tribunal considered the interplay between the Fixed-Term Employees Regulations 2002 and the NHS (Appointment of Consultants) Regulations 1996. This case provides some helpful guidance to NHS employers as well as other employers who may have similar recruitment processes.
Fixed-Term Employees Regulations 2002
Under the Fixed-Term Employees Regulations 2002 (“the Regulations”), employees who have been continuously employed for four years or more on a series of successive fixed term contracts are automatically deemed to be permanent employees unless the continued use of a fixed term contract can be objectively justified. The purpose of these Regulations is to prevent abusive practices within workplaces.
Due to the objective justification caveat, the ‘four year’ rule in the Regulations is not an automatic trigger for permanent employment status. However, the use of further fixed term contracts after four years’ continuous service will have to be objectively justified (regulation 8(2)). This is satisfied where the employer can show that it is required:
- To achieve a legitimate objective;
- Necessary to achieve that objective; and
- An appropriate way to achieve that objective
In certain industries, there may be objective justification for retaining employees on successive fixed term contracts passed four years. For example, in the NHS, to become a permanent consultant, many Trusts engage the NHS (Appointment of Consultants) Regulations 1996 (“the AAC process”), which requires a rigorous and specific selection process for permanent consultants. This means that locum consultants can often amass several years’ service in a post without obtaining a permanent position.
Employment Appeals Tribunal consideration
This scenario was very recently considered by the Employment Appeals Tribunal in the case of Lobo. In that case, the claimant worked under a series of fixed term contracts as a Consultant Breast Surgeon, acquiring four years’ continuous service. After she had obtained four years’ service, the Trust opened a recruitment process in her department under the AAC process for a substantive consultant post. The Trust extended the claimant’s fixed term contract for a further three months to cover the period of this recruitment process. The claimant applied for that role but was not successful. Her fixed term contract was extended again to cover an external recruitment process.
The Trust in that case had successfully argued in the original Employment Tribunal hearing that the use of successive fixed-term contracts in the claimant’s case had been the subject of mutual consultation and it was neither abusive nor discriminatory in all the circumstances. The Trust successfully argued that the claimant’s engagement under a fixed term contract was conditional upon the service review and agreement as to the way forward for the Breast Service, as well as being fixed term and not permanent in nature, and that this had been clear and transparent throughout.
The question for the Tribunal was whether, at the time of the most recent renewal, employment under a fixed-term contract was justified on objective grounds. The Tribunal accepted the respondent’s argument that there was a need to recruit a permanent substantive consultant under the AAC Regulations, that it had continued to engage the claimant under a fixed term contract despite her four years’ service because another candidate had been successful in being recruited permanently through the AAC process, and that the legitimate aim was providing a safe, efficient and fully functioning Breast Service.
Ms Lobo was therefore unsuccessful in arguing that she had become a permanent employee through attaining four years’ service via locum fixed term contracts. It should be noted that Ms Lobo’s fixed term contracts were extended specifically for the cover of the service whilst a substantive consultant was appointed.
Reminders for employers
Employers should be wary of automatically extending fixed term contracts past four years without review and consideration of the reasons behind this. Employers will always need to objectively justify the ongoing use of fixed term contracts beyond the four-year mark. The risk of not being able to make out that objective justification will be higher if the Trust could just as easily recruit to a permanent position. It will be difficult in those circumstances to establish that the use of a fixed term contract was necessary and appropriate. Employers who are using successive fixed term contracts should be conscious of the potential for legal challenge and ensure that decisions are documented clearly. Employers are also reminded that where fixed term contracts are in place or extended for a specific purpose, that purpose should be clearly communicated to the employee.
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Rachel Levine is a solicitor in our employment law team. If you have any questions or concerns related to the points raised in this article, please get in touch.