UK: Agency Workers – Managing the Risks

Last Updated: 8 May 2007
Article by Charlotte Hughes Scholes

Recent cases continue to consider the standard triangular arrangement between an agency worker, employment business and client company, i.e. where the worker enters into a contract for the provision of services with an employment business, the client company enters a contract for the supply of services with the employment business and there is no express contract between the worker and the client company.

Generally, a worker will only be regarded as an employee - and, therefore, benefit from statutory employment protection rights (for example, the right to minimum notice and the right not to be unfairly dismissed) - if a contract exists between him and the employer, he undertakes to provide services personally in return for payment (i.e. mutuality of obligation), he is subject to the employer’s control and all other circumstances are consistent with employment status.

In the standard triangular relationship, early case law suggested that an agency worker could be neither an employee of the employment business nor the client company. The employment business retained insufficient day-to-day control over him and there was neither a direct contractual relationship nor mutuality of obligation between him and the client company.

The Court of Appeal (CA) in Franks -v- Reuters Ltd & another 2003, Dacas -v- Brook Street Bureau (UK) Ltd 2004 and Cable & Wireless plc -v- Muscat 2006 caused something of a stir by suggesting that there may be circumstances in which a contract of employment could be implied between the agency worker and the client company. In Dacas, Sedley LJ stated that it was simply not credible for the worker to be employed by nobody and in Muscat the worker was held to be an employee of the client company.

Subsequently, however, the Employment Appeal Tribunal (EAT) has been cautious in its interpretation of these decisions.

In James -v- Greenwich Council 2006 and Craigie -v- London Borough of Haringey 2007, where agency workers were held not to be employees of the client company, the EAT provided the following guidance:

  • The key issue is whether the reality of the relationship is only consistent with the implication of an employment contract between the agency worker and the client company. A contract will only be implied when it is necessary to do so, and not where it is merely possible or desirable.
  • Provided that the standard triangular arrangement is genuine and continues accurately to reflect the actual relationship between the parties, it will be rare for an employment contract to be implied.
  • The main features pointing away from employment status are that the client company (i) cannot insist on the agency providing the particular worker; and (ii) is not paying the worker directly for the work done, but is paying the employment business a sum which includes wages, expenses and profit.
  • The passage of time does not, by itself, justify the implication of a contract - even where the arrangements were initially expected to be temporary. Sedley LJ’s remark in Dacas, that there should be an inexorable inference of a contract of employment once arrangements have been in place for a year or more, was rejected.
  • The decision in Muscat was distinguished as the claimant started out as an employee of the client company and the CA simply found that arrangements subsequently made for contracting out his services via an employment business did not obscure that continuing state of affairs.

In Cairns -v- Visteon UK Ltd 2006 the EAT considered the possibility of the agency worker having parallel contracts with the employment business and client company in respect of the same work. Whilst not ruling this out in all circumstances, the EAT held that there was no good policy reason nor business necessity to imply an employment contract with the client company where there was already an express employment contract between the worker and the employment business.

Top tips for companies using agency workers
  • Confirm that the content of the contracts between your company and the employment business and between the employment business and the agency worker does not suggest an employment relationship between your company and the worker. If the worker is not employed by the employment business, ensure (for example) that the employment business pays, taxes, appraises, disciplines and, where possible, exercises day-to-day control over the worker and that the employment business is required/entitled to provide a substitute where the worker is unavailable due to sickness, holidays etc.
  • Consider seeking appropriate warranties and indemnities from the employment business in relation to the worker’s employment status.
  • Ideally, ensure that the duration of the worker’s assignment is less than 12 months.
  • Limit the worker’s integration into your business. For example, where possible, exclude them from organisation charts, supervisory/management roles, training and wearing any uniform.
  • If the worker enters into a confidentiality agreement directly with your company, consider inclusion of a clause expressly excluding mutuality of obligations.
  • Avoid contrived arrangements designed to escape employment obligations. For example, where former employees or new recruits found by your company are engaged as consultants or contractors via one or more intermediary companies.
  • Consider whether the worker should be directly employed within your organisation, under a fixed-term contract or otherwise.

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.

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