UK: Agency Worker Or Employee?

Originally published in Recruitment Consultant magazine.

In the intensely competitive 24/7 world we live in, the need for a flexible workforce is increasingly important. Traditionally that flexibility and, in particular, the ability to hire and fire agency workers with reduced notice, and without exposing an organisation to the risk of claims for unfair dismissal, has been central to the concept of agency work.

Now, however, the relationship between recruitment agencies, agency workers and end-users is under threat. This is due to a series of decisions by the law courts and employment tribunals.

Historically, courts and tribunals have not regarded an agency worker as an employee of either the recruitment agency, or the end-user. This is because of the nature of the relationship between the agency worker and agency client. Firstly the client does not pay the worker, nor does it have an express contract with the worker. Secondly, the agency does not control the worker.
Now a series of cases has changed the traditional view. In Brook Street Bureau (UK) Ltd v Dacas, the Court of Appeal stated that, when assessing an agency workers employment status, an employment tribunal should consider the possibility of an implied contract of employment between the agency worker and the client.

In Cable & Wireless v Muscat, the Employment Appeal Tribunal (EAT) held that an agency worker was an employee of the end-user. Even though the contract between agency and worker stated otherwise, and there was no express contract between worker and end-user.

More recently, in Royal National Lifeboat Institution v Bushaway, 2005, the EAT was again willing to go behind the written contracts and imply a contract of employment.

Muscat will be appealed in the Court of Appeal. In the meantime, however, there has been another important EAT case. In Astbury v Gist Ltd, (EAT 14/4/05), the tribunal noted that where an employment tribunal is asked to decide upon the legal consequences of a relationship between agency, agency worker and end-user, "it is highly desirable that all three parties should be involved". Historically if a claim was made against one, the other was not made a party.

These decisions have profound implications for all the parties. Potentially they open the way for agency workers to claim benefits normally reserved for employees, such as share options and pensions. The end-user will also be responsible for disciplinary and dismissal matters.

Both end-users and agencies are exposed to risk of spurious claims made by disgruntled agency workers. And if a claim is made against an end-user, the agency is likely to be joined in the action. With the courts likely to apply Dacas and Cable & Wireless pending an appeal, agencies, agency workers and end-users are left to argue it out in court.

Even where workers bring spurious claims the chances of obtaining a cost award is slim. The likelihood is a big legal fee bill, and a costly waste of management time.

So what are agencies and end-users to do? There are several steps they can take to protect themselves.

Firstly, agency workers should be treated differently from the client’s regular employees, and clearly identified as agency workers. There are two reasons for this. On a legal basis it can’t be implied that they are being treated as an employee and therefore are an employee. And, on a psychological basis, if they are treated differently workers won’t believe they are employees. This may mean, for example, wearing a security badge, or indicating on the workers desk that they are an agency worker.

Secondly, agency workers should be treated with consideration as sensitive human beings. Don’t give them undue cause to take offence.

Contractual arrangements should accurately reflect the circumstances. If a written contract says that a worker is working 37.5 hours per week, but they actually work 45 hours it might allow a court to say that the written contract didn’t reflect what was agreed.

Finally, agencies must understand the basis upon which agency workers are engaged. For example, agency workers are paid net of tax in the same way as an employee. This is because there is tax legislation deeming them to be employees for tax purposes. It does not mean that they are employees in law. Agencies have a habit of referring to agency workers as staff, or employees, when this is not the case.

These are just a few steps agencies and end-users can take to protect their position. Failure to adopt these simple measures is like playing a corporate version of Russian roulette. It’s only a matter of time before agency, end-user, or both, takes a hit.

By implementing these tips at least there is some measure of protection. Then it is a matter of waiting until the House of Lords revisits the case law and, hopefully, reaffirms the traditional view of an agency worker’s employment status.

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.