Agency Workers or End User Employee?

27 June 2005

Temporary workers engaged through employment agencies have for a number of years been a popular choice for UK businesses. The benefits to businesses of engaging a flexible labour resource have been tangible. The resource can, in theory, be turned on and off at will, without the problems associated with headcount, the need for redundancy procedures or the risk of unfair dismissal. The burden of administering an employed workforce is also lightened without the worry of managing or funding national insurance contributions, flexible working requests, sickness payment schemes, pensions and other benefits. In short, temporary agency workers have proved a cost-efficient resource to end user businesses.

Who is the employer, where were we?

As part of the triangular relationship, the worker will generally have a contract with the employment agency, who in turn will have a contract with the hiring end user client to supply workers to them. As part of this arrangement the worker will be supplied by the employment agency to work on assignment at the end user client.

For an employment contract to exist, as a minimum the following ingredients must be met; firstly, a contract between the parties, secondly, an element of control over the worker and thirdly, a mutuality of obligation between the worker and the employer.

Up until last year, most cases considered by the courts found that whilst there may be sufficient control exercised by the hiring end user over the worker and mutuality of obligation, there was no actual contract between the worker and the end user. In contrast, the courts found that whilst there was a contract between the agency and the worker, there was insufficient mutuality of obligation or control by the agency over the worker for it to be an employment contract.

The consequence was that the worker was not employed by either the agency or the hiring end user. As the agency worker had no real “employer” they were deprived of protection against, amongst other things, unfair dismissal and redundancy. Whilst unfortunate for the worker, this was good news for the agency and the end user, maintaining the benefit of a flexible labour resource.

Where are we now?

Last year’s Court of Appeal decision in Dacas v Brook Street Bureau (UK) Limited (2004) has, however, challenged the common and legal perception that, in the absence of a contract between the two, an agency worker cannot be employed by the hiring end user. In this case it was accepted that, following a careful factual assessment of the relationship between the parties, an implied employment contract can exist between the agency worker and the end user.

Employment tribunals are now looking behind the contractual documentation to establish the true nature of the working relationship. If, in practice, there is mutuality of obligation and sufficient day to day control exercised by the hiring end user over the agency worker, there is likely to be an implied employment contract between the two. This is particularly relevant when a worker has been on long term assignment with the end user for a period of 12 months or more. In essence, employment, in all but name.

The consequences of this decision are considerable. It now seems probable that if an agency worker is retained for 12 months or more by the same end user, they will qualify for the right not to be unfairly dismissed by the end user (and acquire other employment rights). This clearly negates one of the tangible reasons why the engagement of agency workers has been so popular in recent years.

The Employment Appeal Tribunal has recently provided further assistance to agency workers. In the case of Astbury v Gist Limited (2005), it recommended that employment tribunals automatically add the employment agency or end user as a party to the proceedings in the event that the agency worker only issues proceedings against one of them. This enables the tribunal to undertake a fuller review of the true employment relationship and ensures that the agency worker will not be left without a practical remedy if they initially issue proceedings against the wrong party.

In the light of these cases, end user businesses that hire agency workers to provide services should be carefully reviewing their contractual and practical arrangements so that the employment status of an agency worker is more certain. End users must now be aware that even in the absence of a direct employment contract with an agency worker they, depending on the facts of the working relationship, could be deemed to be the employer under an implied employment contract and be sued for a number of employment claims, including unfair dismissal and/or redundancy.

Practical points for end user businesses to avoid implied employment contracts

• As certain whether the employment agency has issued written employment contracts to their agency workers. If so, consider the precise wording in the employment agency/agency worker contracts to see whether you have some built in protection;
• If possible, do not engage individual agency workers on long assignments, for example periods of 12 months or more;
• Be careful when undertaking procedures dealing with, for example grievances, dismissals or the termination of engagements relating to misconduct, capability and redundancy;
• Be cautious about integrating and merging agency workers into your employed workforce and channel dealings with agency workers through the employment agency, for example have different arrangements for the reporting of sickness absence and booking of holidays;
• Do not move agency workers from job to job within your organisation; and
• Do not allow agency workers access to general employee benefits, do not follow formal appraisal systems or, for example fill in their mortgage application forms.

For more information please contact Andrew Masters, Partner & Head of Employment.
 

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