Legal advice: Agency workers employment status

THE SUBJECT of agency workers and their status under employment law is still a hot potato.

The Court of Appeal decision in Dacas v Brook Street Bureau (UK) Ltd (2004) raised the serious prospect of a long-term temporary agency worker, even though supplied by an employment agency - and where there was no contract between the worker and the client company for whom the work was carried out - being regarded as an employee of that client or end user.

The Court of Appeal's reasoning was that where an agency worker had worked for the same end user for a year or more, an implied contract of employment may well have come into being. An end user who terminates a long-term assignment with an agency is, therefore, exposed to a claim of unfair dismissal.

A different approach

In James v London Borough of Greenwich (2006), a different approach was adopted by the Employment Appeal Tribunal.

The agency worker acted under the direction of the local authority without any intervention from the agency, and was treated in all respects as a full time member of staff. When she was off sick, the agency supplied another worker in her absence, and upon her return, was told she was no longer required.

Her claim of unfair dismissal was rejected. Despite the fact that Ms James worked for a number of years for the local authority under its supervision, this by itself was not enough to imply a contract of employment with the local authority. Something more had to be demonstrated that the worker was not working pursuant to the agency arrangements but because of mutual obligations between the worker and end user.

Alternative possibility

An alternative possibility is that the agency itself is the employer.

This may well apply where there is a strong degree of control exercised over the worker, the agency has disciplinary and grievance procedures for such workers, and there are other features contained in the contract between the agency and the worker which indicate that there is a contract of employment.

Often agencies have worked on the basis that, if there is no obligation on the part of the worker to provide their services, and no obligation on the part of the agency to provide work, a key ingredient of an employment contract known as 'mutuality of obligation' is therefore absent. In this case there can be no employment contract with the agency or with the end user.

The agency worker is instead a 'worker' (as defined by the law) but not an employee, rather like a self-employed person even though, by law, tax and National Insurance must be deducted from their pay.

A recent example is an agency which provided accommodation and transport for foreign national workers, in which it was held that, as the agency exercised an exceptional level of control over them, this was sufficient to give rise to a contract of employment, even though the agency did not manage their day-to-day working activities (Consistent Group Ltd v Kalwak & Others).

The agency involved supplied staff to hotels and food processing factories. These were regarded under the contract as self-employed sub-contractors. When they were dismissed they brought claims of unfair dismissal and trade union discrimination.

It was argued that as there was no obligation to provide work and no obligation on the part of the workers involved to do the work, there could be no contract of employment. The contract also provided that if the person involved could not do the work, the person involved could provide a suitable substitute.

The Employment Appeal Tribunal regarded these terms as a sham because they did not realistically reflect the true nature of the relationship. The workers involved were heavily dependent upon the economic power of the agency. They had come from Poland expecting to work for the agency, their accommodation depended on doing their work, and there was no realistic chance of their working elsewhere while the agency still needed their services.

Arguing the case

We are still left in a situation where a number of judgments have followed the guidance or observations made in the Dacas case that the end user is the employer whereas other judgments have sought to argue around it.

This can mean that the worker is not employed by the agency or end user. Other cases say the agency was the employer. The law on the status of agency workers is in a mess. But economic factors are taking over. Agencies are more likely now to regard themselves as employers under contracts with agency workers. The trend now is for the agency worker to be labelled an employee of the agency as deliberate policy.

This has the advantage for the client end user of eliminating or seriously minimising any risk of being regarded as the employer for unfair dismissal purposes; it means that there is mutuality of obligation but at least the temporary or agency worker is compelled to work when required by the agency.

It also avoids - or minimises - the risk that the worker will claim unfair dismissal when the assignment is over, because they are still employed by the agency.

Ultimately, the government must consider whether or not to intervene to identify the employer once and for all.

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Peter Doyle is a senior partner of Doyle Clayton Solicitors based in London and Reading. Doyle Clayton specialising in employment law, acts for a wide range of employers across the whole spectrum of individual and collective employment law. If you require any further information then please contact Peter Doyle by telephone (020 7329 9090) or by email (pdoyle@doyleclayton.co.uk). Alternatively, visit the Doyle Clayton website (link top right)