Healthcare - March 2010
When is a contract not a contract?
In Shrewsbury & Telford Hospital NHS Trust v Dr
Lairikyengbam (UKEAT/499/08) the EAT was asked to consider
the decision of the Employment Tribunal (“ET”) as to whether a
locum consultant employed by the Respondent NHS Trust could claim
unfair dismissal, despite the Trust’s contention that Dr L’s
contract of employment was ultra vires on the grounds that his
appointment failed to comply with the National Health Service
(Appointment of Consultants) Regulations 1996 (“the 1996
Regulations”). Reversing the decision of the ET, the EAT held that
the contract of employment was unenforceable. Consultant’s
appointments of less than 12 months are exempt under the 1996
Regulations. By extending the contract beyond the 12 month maximum,
the 1996 Regulations applied. The Trust failed to comply with the
1996 Regulations in making appointment, rendering the appointment
void as it was made outside the scope of the Trust’s powers.
Facts
Dr L was
appointed by the Trust as a locum Consultant Cardiologist in May
2003 for an initial fixed term of 6 months pending the permanent
appointment of a Consultant for the position. Dr L’s fixed contract
was extended by a series of further fixed term contracts up until
his dismissal in March 2007 following the Trust’s decision to cease
the employment of locums in positions pending permanent
appointment. Dr L unsuccessfully applied for the permanent
position. The Trust offered Dr L an enhanced contractual redundancy
payment but subsequently refused to make the payment on the basis
that Dr L’s contract of employment was void. Dr L brought a claim
for unfair dismissal.
Law
The Trust argued
that Dr L could not have been unfairly dismissed as his employment
was void on the grounds that his appointment breached the
Regulations governing the NHS’s power to appoint consultants. The
Trust had failed to establish an Advisory Appointments Committee
(AAC) to approve Dr L’s appointment as required by Regulation 9(1).
The only way in which a Trust may avoid compliance with the 1996
Regulations is if the appointment is deemed exempt under Regulation
5. In this case, Dr L’s fixed term contract had been extended
several times exceeding the 12 month maximum for an “exempt
appointment”. Any employment contract subsisting after an initial
period of 12 months would be ultra vires unless wholly compliant
with the 1996 Regulations.
ET decision
Relying on
the distinction in Rolled Steel Ltd v British Steel
Corporation [1986] 1 Ch 246 the ET decided
that Dr L’s appointment was an act done within the Trust’s capacity
as oppose to an act in excess or abuse of its powers, therefore not
ultra vires. In addition, the ET held that whether or not the
contract was ultra vires in relation to the 1996 Regulations, Dr L
was still an employee within the meaning of s230(1) of the
Employment Rights Act 1996 (“ERA”) on the grounds that his first
fixed term contract was continually renewed until his
dismissal.
Having established an alternative employment
relationship the ET went on to draw a distinction between the post
of locum consultant, which Dr L had previously held, and the
substantive role of permanent consultant. As the Trust had decided
they would no longer employ locums in this “holding role” the
Claimant’s post had effectively been made redundant within the
meaning of s139(1) of the ERA 1996 Act, therefore he had been
unfairly dismissed on the grounds of redundancy and was entitled to
a contractual redundancy payment.
EAT decision
On Appeal,
it was held that the ET had erred in its decision that the
Claimant’s contract was not ultra vires. Considering the more
recent decision in Rose Gibb v Maidstone and Tunbridge
Wells [2009] EWHC 862 (QB) (in which an excessively
generous compromise agreement was held to be ultra vires), the EAT
held that, as a public body, the Trust’s general power to appoint
staff had been circumscribed by the 1996 Regulations. Dr L’s
employment post May 2004 was void by virtue of the Trust’s failure
to adhere to the 1996 Regulations and submit the appointment to an
advisory committee as soon as the term exceeded the 12 month
maximum.
The EAT held that any contracts subsisting at
the end of the initial 12 months, were ultra vires but acknowledged
the practical problem of former public body employees continuing to
work under ultra vires contracts. The EAT turned to the Court of
Appeal’s judgement in
EastbourneBCv Foster
(No.1) ([2001] EWCA Civ 1091)for guidance as to whether an
employment relationship may be implied based on parties’ conduct
even where the contract itself may be ultra vires. In
Foster, the Court of Appeal held that despite the
fact that a compromise agreement was ultra vires, reality provided
that the conduct of the parties thereafter could not be ignored and
was sufficient to imply the relationship and status of employment
to Mr Foster.
It was not in dispute that the parties had
performed all responsibility and liabilities amounting to a
relationship of employment. Dr L’s appointment itself was not
prohibited. Overturning the ET’s decision, the EAT held that any
contracts after the initial 12 months were ultra vires based on the
failure to comply with the 1996 Regulations, nevertheless the EAT
upheld that employee status could be inferred consequently Dr L was
to be treated as an employee under the Employment Rights Act 1996
providing him with a right to bring proceedings for unfair
dismissal. The Appeal Tribunal held that it was not in a position
to make further judgement as to whether the dismissal was unfair or
not on the evidence, remitting this issue to be determined by a
different tribunal.
In relation to redundancy, the EAT held that
the ET had erred in its finding that Dr L’s position as a locum was
different to that of the permanent consultant who would be
appointed to take over the role as previously held by Dr L. Dr L
was no longer entitled to a contractual redundancy payment on
account of the fact that the ET’s decision on redundancy was
perverse. Once more the EAT was unable to substitute the ET’s
decision and therefore the issue of redundancy was left to be
determined by another tribunal.
Comment
The EAT’s
inference of an implied employment relationship under an ultra
vires contract is relatively novel and may be subject to further
appeal. By adopting the realistic approach in
Foster, where the conduct of the parties and the
facts of the individual case warrant so, a relationship of
employment may be inferred thus potentially preventing public
authorities from relying on the argument that a person does not
have a the status of an employee on the sole ground that the
contract of employment is ultra vires. Each case will be analysed
on its facts providing scope for tribunals to find that an ultra
vires contract is insufficient in itself to negate the entirety of
the alleged employee’s relationship with that body. Coupled with
reluctance of the courts and tribunals to leave claimants without
effective remedies, this means that NHS Trust must take extra care
when appointing, reviewing and terminating locum consultant
contracts, especially in view of the potential costs of contractual
redundancy pay.
Mari
Griffiths
Weightmans LLP