Despite being only two months into 2008, the appeal courts in both the UK and Europe have handed down a number of decisions and opinions that may have a significant impact on employers. These decisions and opinions deal with questions relating to agency workers' status, whether to take expired disciplinary warnings into account when dismissing an employee, whether employees on long-term sickness accrue holiday leave and whether an employee can suffer direct discrimination and/or harassment because she is "associated" with a disabled person.

In James v London Borough of Greenwich (2008) EWCA Civ 35 the Court of Appeal held that only on grounds of necessity could an Employment Tribunal imply a contract of employment between an agency worker and the end-user.

There has been much uncertainty surrounding the employment status of agency workers in recent years. Their status is important as it affects their statutory rights. The Court of Appeal's decision in James should reassure end-users that agency workers are still worth taking on in certain circumstances.

Ms James was supplied by an agency to work for London Borough of Greenwich. She had no express contract with the Council direct but had entered into a "Temporary Worker Agreement" with the agency, which made it clear that she was not its employee.

After a period of absence due to sickness she was informed that she was no longer required by the Council as the agency had sent a replacement. When the agency terminated Ms James' services she claimed unfair dismissal against the Council, contending that in light of Dacas v Brook Street Bureau (2004) IRLR 358 CA the Tribunal should imply a contract of employment between her and the Council. It concluded otherwise, as did the Employment Appeal Tribunal.

Ms James appealed to the Court of Appeal, which has now upheld both of the earlier decisions. The Court has held that when deciding the employment status of an agency worker, an Employment Tribunal should only imply a contract of employment between the agency worker and the end-user of his or her services where it is necessary to do so and, in very extreme circumstances, by exposing sham arrangements between the parties. The Court also made it clear that it is not for the courts or tribunals to extend employment protection rights to agency workers and that further developments will need to come from Parliament.

Key point for employers: Provided that end-users and agencies set up arrangements which accurately reflect the real relationship between the parties, a Tribunal should not (certainly not automatically) imply a contract between the worker and the end-user, even if he or she has been working for the end-user for some time.

Further to a Practice Direction issued last November by the President of the Employment Tribunals, a large number of agency worker tribunal cases had been put on hold pending the Court of Appeal's decision. Further guidance now is awaited.

In Airbus v Webb (2008) EWCA Civ 49 CA the Court of Appeal held that the tribunal erred in deciding that an expired final warning should be disregarded for all purposes and in all circumstances.

Mr Webb was employed by Airbus since August 1990 as an aircraft fitter. In July 2004 he was accused of gross misconduct and was summarily dismissed. He appealed against the decision and the penalty was reduced to a final written warning.

Shortly after his final written warning expired Mr Webb and 4 other employees were found watching TV in a locker room, again in working time. Following an investigation, Mr Webb was summarily dismissed, whilst the other employees received only a final written warning because of their good prior disciplinary records. Mr Webb's appeal against his dismissal was rejected, partly because of the earlier warning, even though now expired. Mr Webb brought a claim and, citing Diosynth Ltd v Thomson (2006) IRLR 284 CS, the Employment Tribunal found the dismissal to be unfair because there was reliance upon a spent final warning for misconduct on his record. The EAT agreed.

The Court of Appeal held that whilst there are no doubts on the correctness of the decision in Diosynth, the Tribunal erred in treating it as the authority for the general proposition that "the misconduct, in respect of which a final written warning was given, but has expired, can never be taken into account by the employer when deciding to dismiss an employee, or by a tribunal when deciding whether that employer has acted reasonably or unreasonably". In Diosynth, the decision was whether the expired warning tipped the balance in favour of dismissal, whereas in the present case the reason for the dismissal was not the expired warning but the subsequent misconduct of the employee.

Key point for employers: In taking a decision on whether to dismiss an employee an employer can take into account an expired warning in tipping the balance in favour of dismissal. However, this will depend very much on the facts, since if applied literally this would mean that there was no distinction between current and expired warnings.

In Stringer and ors v HM Revenue and Customs (Case C-520/06) a European Court of Justice Advocate General (there are eight in total) held that the existence of the right to paid annual leave cannot be made subject to a worker's capacity for work and, therefore, a worker rendered incapable of work through illness still has the right to annual leave. However, she also found that a worker may not take this leave during the period of sick leave, which seems to make a nonsense of the first point. The right to annual leave and right to sick leave are not interchangeable and it would be against the spirit of Directive 2003/88 – concerning aspects of organizing working time – to deem people to take their holiday while off sick.

The Advocate General further held that where an employment relationship is terminated, workers are entitled to an allowance in lieu as a replacement for leave which has been acquired but not taken due to illness. This is the case even where the worker was on sick leave for all or part of the leave year in question.

The Advocate General also gave her opinion in the co-joined case of Schultz-Hoff v Deutsche Rentenversicherung Bund (Case C-350/06). She said that accrued statutory holiday not taken due to sickness can be taken at a later date (even if it is during the next leave year when the worker returns to work) and, as in Stringer, that a worker is entitled to a payment in lieu on termination in respect of untaken leave due to sickness (in either case, even if the worker is absent for all of the leave year in question).

Key point for employers: The ECJ is not obliged to follow the Advocate General's opinion, but often does. If it does, employers may incur increased costs in relation to workers who return from long-term sick leave or whose employment is terminated at the end of a period of long-term sick leave. The opinion seems likely to encourage employers not to provide PHI schemes and to dismiss the long-term sick earlier than might otherwise have been the case.

Finally, at the end of January another Advocate General gave his opinion in the case of Coleman v Attridge Law and anor (Case C-303/06). Sharon Coleman worked as a legal secretary for Attridge Law, a firm of solicitors, from 2001. In 2002 she gave birth to a disabled son and in 2005 she resigned from her job after her employers allegedly described her as 'lazy' for trying to take time off to care for her disabled child.

Ms Coleman also claimed that her employer had refused to allow her to work from home or to work flexible shifts to care for her son. Attridge Law argued that it could not be guilty of disability discrimination since Mrs Coleman was not herself disabled, but at the ECJ the Advocate General gave his opinion in favour of employees who have to care for disabled dependents.

Key point for employers: If the ECJ follows the Advocate General's opinion when it rules later in the year, the case may result in it becoming unlawful for companies to discriminate against employees who care for a disabled relative or friend, so-called 'discrimination by association'. The decision may also result in such discrimination becoming unlawful in the fields of sex and age etc.

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.