Where Are We With Agency Workers? - Employment Law News Autumn 2007

01 October 2007

A series of recent legal cases has once again placed the status of agency workers under the legal spotlight.

Temporary or contract 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.

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, a sufficient degree of control over the worker; and thirdly, a mutuality of obligation between the worker and the employer.

Who is the employer, where were we?

Up until 2004, 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 between the two, 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 beneficial for the agency and the end user, maintaining the benefit of a flexible labour resource.

The Court of Appeal decision in Dacas v Brook Street Bureau (UK) Limited (2004), however, challenged the common and legal perception that, in the absence of a contract between the two, an agency worker could not 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 could exist between the agency worker and the end user. The decision in this case was followed by a number of subsequent cases.

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

It, therefore, seemed probable that if an agency worker was retained for 12 months or more by the same end user, they would qualify for the right not to be unfairly dismissed by the end user (and acquire other employment rights). This would have clearly negated one of the tangible reasons why the engagement of agency workers has been so popular in recent years.

It is noteworthy that the Dacas case also left open the possibility that a parallel contract could exist. In other words, could the agency worker be an employee of both the agency and the end user?

Where are we now; all change and back to where we were?

The Employment Appeal Tribunal decision in James v Greenwich Council (2006) and subsequent cases in 2007 questioned and appear to have reversed the decision in Dacas.

A summary of these cases would suggest: (1) where the parties’ dealings are genuinely consistent with a triangular relationship, it is not necessary to and would only be in rare circumstances that you would infer an employment contract; the fact that an agency worker might look and be treated like an employee by the end user is unlikely to be enough; (2) the passage of time within itself does not justify the implication of an employment contract; (3) it is possible for an agency worker not to be employed by the agency or the hiring end user, thus once again depriving the worker of an “employer” for the purposes of employment rights; and (4) parallel contracts are ‘problematic’ and rare.

Where does this leave us? Practical points for end user businesses

The recent line of cases is undoubtedly good news for businesses who hire agency workers and hopefully removes many of the legal concerns that had been raised following the decision in Dacas. However, notwithstanding the recent line of cases, we still recommend that businesses apply caution and note the following practical points:

• Ascertain 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, still 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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