UK: Agency Workers - Who Is The Employer?

In recent years companies have increased their use of agency workers : workers supplied by employment agencies to the client "end user" to provide work on a temporary basis. Recent cases however have cast doubt on the question : who is the employer in this relationship? This leads to other questions as to who is liable for the acts or omissions of the worker and against whom should the worker bring a claim for unfair dismissal? This edition of employment highlights will look at the troublesome issue of the status of agency workers and consider what agencies and end users can do to clarify the situation.

In the majority of cases a written contract exists between the agency and the client business (the end user) and a separate contractual arrangement exists between the agency and the worker. There is usually no contractual arrangement between the end user and the worker. The main difficulties arise when the worker has no written contract with either party and then seeks to clarify the identity of their employer. There are four different possibilities as to the employment status of the worker. Either the worker is:

• an employee of the employment agency; or
• an employee of the end user client; or
• an employee of both; or
• not an employee.

It is important to determine who is the employer for the purpose of, for example, unfair dismissal claims, liability for redundancy payments and the question of whether an individual should be transferred pursuant to a TUPE transfer.

Historically, courts concentrated on the contractual relationship between the agency and the worker. In Hewlett Packard Limited v O'Murphy [2002] IRLR 4, the EAT found that there was no direct contract between the worker and the end user and therefore although the worker had worked for the end user for six years there could be no employer/employee relationship.

However, recent cases have resulted in the courts looking beyond the contractual arrangements and considering the end user client as the employer. In the case of Dacas v Brook Street Bureau (UK) Limited [2004] IRLR 358 the court considered the use of "implied contracts". In that case the applicant (an agency worker with Brook Street Bureau) had worked exclusively as a cleaner for Wandsworth Council for at least four years. The Court of Appeal concluded that the agency was not the employer of the worker as the necessary mutuality of obligation or control was not present. The Council however exercised a high degree of control over the individual. Therefore, notwithstanding that there was an express contractual arrangement between the worker and the employment business and a separate arrangement between the employment business and the client, the Court of Appeal held that there could be an implied contract between the agency worker and the client.

The case of Cable and Wireless Plc v Muscat [2006] IRLR 355 extended the idea of implied contractual arrangements. The Court of Appeal held that notwithstanding the existence of a contract between Mr Muscat's service company and the employment business a contract of employment could exist between Mr Muscat and Cable and Wireless.

Dacas and Muscat have caused considerable concern for employers, many of whom use agency staff for the flexibility that it affords them. However, recent cases have acknowledged that tribunals lack guidance in this area and have endeavoured to clarify how tribunals should deal with these issues.

In the James case, the EAT qualified the Court of Appeal's comments in Dacas and set out situations in which a tribunal may infer an implied contract between the worker and the end user. In this case, the individual originally worked for Greenwich Council. Following a three year break, she resumed working for the Council through an employment agency. She then switched agencies and received a higher hourly rate of pay, but continued to work for the Council. There was no express contract between her and the Council. The contractual arrangement between the worker and the agency provided that she was a self employed worker in relation to each assignment and that it was not to give rise to a contract of employment. Following an absence from work due to sickness, the worker was told that she was no longer required by the Council because the agency had sent a replacement. She brought a claim of unfair dismissal.

The EAT laid down the following guidance on the issue of implying a contract of employment in these situations :

• The issue in agency cases is whether the way in which the contract is performed is consistent with the agency arrangements or whether it is only consistent with an implied contract between the worker and the end user.

• In a tripartite relationship of the kind in James, the end user is not paying directly for the work done by the worker but rather for the services supplied by the agency. The amount paid is not merely for the payment of wages, but also includes other elements such as expenses and profit.

• The key feature is not just that the end user is not paying the wages, but that he cannot insist on the agency providing the particular worker at all.

• Where the arrangements are genuine and accurately represent the relationship between the parties, then it will rarely be necessary for the tribunal to imply a contract between the worker and the end user. The tribunal may need to make such an inference if subsequent to the relationship commencing there are some words or conduct which entitle the tribunal to conclude that the agency arrangements no longer dictate or adequately reflect how the work is actually performed.

• The mere passage of time does not in itself justify any such implication to be made. The mere fact that the arrangements carry on for a period of time may be explained by convenience for all parties providing workers who have knowledge of the end user's environment.

• The EAT acknowledged that a tribunal will more readily infer a contract in a case like Muscat where the agency arrangements were superimposed on an existing contractual arrangement. Depending on the circumstances, it may be appropriate to conclude that the arrangements were a sham. It will be particularly legitimate, for example, where the only perceptible change is in who pays the wages. In those cases the tribunal would not strictly be implying a contract as such but rather concluding that the agency arrangements have never brought the original contract to an end.

One of the difficulties with the James decision is that workers may find themselves with nobody against whom to bring a claim. In the case of Cairns (which was heard before James) the EAT considered whether two parallel contracts (that is an express contract with the agency and an implied contract with the end user) could exist in a triangular agency arrangement.

In this case, the worker worked for Visteon UK Limited for a period of about seven years. Part way through the arrangement she become employed by an employment agency, which provided her services to Visteon. On termination of her employment she brought a claim for unfair dismissal against the employment agency which was subsequently amended to include a claim against Visteon as well. The employment tribunal concluded that, but for the existence of the contract of employment between the worker and the employment agency, it would have accepted the need to imply a contract between the worker and the end user.

The EAT considered the general question of whether two contracts of employment could exist between a worker and two employers. The EAT identified three reasons for the difficulties in considering parallel contracts in these sort of arrangements :

• First, there would be no good policy reason in cases where the claimant is employed under a contract of employment with the agency for there to be a second and parallel employer. The worker would have protection for unfair dismissal as against the agency.

• Secondly, there was no business necessity for implying a contract of service with the end user in a triangular relationship where the worker has entered into an express contract of service with the employment agency.

• The statutory language of the Employment Rights Act 1996 suggests that there can only be one employer. If there are two employers then this raises questions as to who makes the decision to dismiss and which employer engages in any relevant statutory grievance or dismissal and disciplinary procedure.

In this particular case therefore the worker already had unfair dismissal protection by virtue of her contract with the agency. The fact that she had a better chance of establishing unfair dismissal against the end user was not sufficient to depart from the general principle.

Many of the decisions on agency arrangements seem to be affected by the fact that in some situations, the workers are left with no one against whom they can bring a claim. The Court of Appeal in the Dacas case felt that this was "simply not credible". Recent cases, however, including James indicate that tribunals are less ready to imply contracts between the worker and the end-user- but that each case must be considered on its particular facts. Two cases, subsequent to James, Heatherwood & Wexham Park Hospitals NHS Trust v Kulubowila and Others (29 March 2007) and Astbury v Gist (28 March 2007) have considered the Court of Appeals reasoning in Dacas. In both cases the EAT held that the claimants were not employees of the end-user. The EAT particularly considered the claims that the individuals could bring against the organisations. In both cases there were claims that could be brought (i.e. discrimination or a whistleblowing claim). The fact that the individuals could not claim unfair dismissal could not be changed by inferring an employment relationship. There are obvious benefits in flexibility for employers in hiring agency staff and many employees, particularly those with specialist skills also benefit from the flexibility in addition to enjoying the tax and fiscal advantages.

As a result of these decisions, what steps should employers take in order to ensure that the agency worker falls into the correct category? If acting for the end user the following points are useful guidance :

• End users should avoid taking on a member of staff as a contractor through an agency if that person was previously an employee of the client. As suggested in the James case, in such circumstances a tribunal may be more willing to conclude that the agency arrangements have never actually brought the original contract to an end and were merely a sham.

• Avoid paying for the individual's expense claims or annual leave or assuming or having responsibility for approval of these. Again, as in the James case, the end user frequently has no idea what sums the worker is receiving but simply pays an amount to the agency which covers the payment of wages. It would therefore be inappropriate for the end user to have full awareness of the amount of the wages and to deal with other arrangements which would be more likely to be carried out by an employer.

• Mutuality of obligation should be avoided. Therefore, other staff should be able to be appointed if the original worker is not available.

• Avoid integration of contractors into the permanent workforce, for example, in relation to training or career development. If possible, it is also useful to avoid exercising day-to-day control over the worker's activities. For example, performance reviews should be done by the agency rather than by the end user.

• Obviously, in the James case it was made clear that the mere passage of time does not in itself imply a contractual arrangement. However, the longer the individual has remained with the end user the more likely it is that he could argue that an employment relationship has developed. It would therefore be useful to have single assignments for certain periods. The fact that the same worker may be sent back at the end of the contract may be explained by wishing to provide a person who has knowledge and experience of the end user's systems.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.