Agency workers - good news with caution

by Katie Wood

The status of agency workers has been in a state of flux since the Court of Appeal decision in Dacas v Brook Street Bureaux (UK) Limited.  In that case the Court took the opportunity to state that there may be an implied contract of employment between the agency worker and the end user (i.e. the client of the agency).  Seeking to extend employment protection, the Judge in the Dacas case stated that temporary agency workers who are placed with the same end user for many years, will be able to imply a contract, because in such circumstances the word temporary loses any sensible meaning.  This case led to a period of time where there was confusion as to whether the agency workers should be regarded as employees of the employment agency, the end user of their services or be self-employed.  This is extremely important as the agency worker can only bring a claim for unfair dismissal against his or her former employer.  As a result of Dacas, wherever an agency worker was under the effective control of the end user for a substantial period of time, there was a good chance that the agency worker would be found to be an employee of the end user.  This effectively meant that an agency worker, who had been placed at the same establishment for a year or more, could bring a claim of unfair dismissal against the end user of his or her services. 

There have been two recent cases which have attempted to resolve the confusion in this area of law: James v Greenwich Council, and Cairns v Visteon UK Limited.  The more important case is James, however Cairns did illustrate an important point; the EAT stated that there was no need to imply a contract of employment between the agency worker and the end user where the worker had already entered into a contract of employment with the agency.  This was because in such circumstances, the worker already had an employer, the agency, against whom he or she could bring a claim for unfair dismissal.

In James, Ms James claimed that she was an employee of Greenwich Council, however the Tribunal disagreed stating that there was no “irreducible minimum” of mutual obligation necessary to create a contract of employment.  In the absence of mutuality of obligation (which is the first of the two essential indicators of a contract of employment), the fact that she had worked under the Council’s control (“the second indicator”) was irrelevant.  Both mutuality of obligation and control have to be present for a contract of employment to exist.  In addition, it was important that the agency had supplied another worker during Ms James’ sickness absence, she was not paid by the Council whilst off sick, she did not receive any holiday and, when sick, she was not required to notify the Council.  The EAT ruled that the Tribunal was entitled to find that there was no basis for implying a contract of service between Ms James and Greenwich Council.  The EAT stated in James that, Tribunals should look at the actual working relationship between the agency worker and the end user.  Where the working relationship is consistent with a genuine agency arrangement, then the Employment Tribunal would rarely be justified in finding that there was an implied contract of employment between the worker and the end user.  The fact that the agency worker had been working for the end user for a long time does not necessarily mean that a contract of employment should be implied between the agency worker and the end user. 

The EAT has recognised that it is often convenient for an agency to supply the same worker, and the client may prefer someone who already has the experience, which may lead to the agency worker working for the end user for a significant period of time.  The EAT also made the observation that provided the express contracts between the parties are consistent with the nature of the relationship (i.e. employment or agency), it is not necessary to imply a contract of employment.  The issue is whether the way in which the contract is performed is consistent with agency arrangements or whether it is only consistent with an implied contract of employment between the agency worker and the end user.  If a contract of employment between the agency worker and the end user is to be implied, there must be some words or conduct entitling the Tribunal to conclude that the agency arrangements no longer adequately reflect how the work is actually being performed and that the reality of the relationship is only consistent with the existence of an employment contract.

Although this appears to be good news for businesses that use agency staff, the Dacas case still stands as good law, and the Tribunals are still able to follow it.  Importantly in the James decision, the EAT had the view that agency workers are highly vulnerable from abuse of the end user and the problem cannot be resolved by case law.  The EAT stressed that the law maker (Parliament) must undertake “a careful analysis of both the problems and the solutions, [and that] legislative protection, where necessary, is urgently required”.  However, at the moment this protection is not forthcoming.

It appears that the Employment Tribunal and the Employment Appeal Tribunal are dealing with this aspect of law on a case-by-case basis, which is far from ideal for businesses. (This is highlighted with two further cases on this matter, which are detailed in the case law section of this bulletin.) In the absence of tightly worded legislation there will continue to be unsatisfactory results with respect to agency workers.  Ms James is considering an appeal to the Court of Appeal, if so there may be further guidance from the Court of Appeal.

Although this case provides some relief to companies which regularly engage agency workers, it is crucial that there is a clear understanding of the worker’s position at the outset.  They need to ensure that the agency has a clear express contract with the worker and that their day-to-day activities do not deviate from that express contract.  The company must ensure that they do not act in any way that would, over a period of time, change the relationship and so give rise to the creation of an implied contract of employment.  Importantly, the company should make it clear to the agency that it does not have to provide a particular worker, and if that worker assigned to them is unable to attend for any reason, the agency should send a replacement.  Additionally, the company must not pay sick or holiday pay, to the agency worker.

If you require any specific advice in connection with agency workers, or on any other employment issues, please contact a member of the Burnetts employment team.

Back to Employment Law E-Bulletin April 2007
Cases in full - April 2007

Apr 2007