UK: Agency Workers - Who Is The Employer?

Last Updated: 21 June 2007
Article by Peter Talibart

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.

Background

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.

James v Greenwich Council. (18 December 2006)

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.

Cairns v Visteon Limited (29 November 2006)

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.

Conclusion

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.

Practical implications for employers

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.