A New Deal For Agency Workers In The European Union

At A Glance

The EU has for many years been attempting to reach agreement on a draft directive protecting the rights of agency workers in Europe. Meanwhile, the UK Government has come under mounting pressure from trade unions and its own parliamentary members to improve employment protection for UK agency workers – of whom there are estimated to be 1.4 million.

This Stay Current describes the legal conundrum relating to agency workers, outlines the landmark agreement that has been reached between the UK Government, the Trade Union Congress and the Confederation of British Industry in an attempt to resolve the issues once and for all, and highlights the timetable for new EU and UK legislation.

1. What Is The Issue?

Employees benefit from various statutory rights in Europe, including important protections that apply on termination of employment, such as the right not to be unfairly dismissed, or to receive severance indemnities, or redundancy pay. An employee is an individual who is paid for services provided under a contract of employment with the recipient of services (the "end-user"). But what about those who are employed instead under a contract of employment with an agency/employment business which lends the employee's services to the end-user, under a commercial agreement between the agency and the end-user? In those circumstances, there is no contract between the employee and the enduser, so there is no employment relationship, surely?

UK courts have been reluctant to accept such straightforward logic. In Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358, it was held that courts should always consider the possibility of an implied contract of employment between employee and end-user. If the relationship has lasted for a considerable period, and the enduser clearly exercises day-to-day control over the worker, then it is possible to identify the key element of an employment relationship – mutuality of obligation. Such circumstances may justify the implication of an employment contract between worker and end-user.

In Cable & Wireless v Muscat [2006] EWCA Civ 220, the worker was originally employed directly by the end-user, but was subsequently asked to provide services two steps removed, through a personal service company, which contracted in turn with an agency. The court held that the arrangement simply amounted to the outsourcing of a payroll function, and that the underlying relationship with Mr Muscat had not changed. Therefore, an employment relationship should be implied.

These cases resulted in understandable concern on the part of end-users that their expensive agency arrangements, aimed at ensuring that headcount was managed and that flexibility was preserved, could unravel.

However, good news was just around the corner. In the 2008 case of James v Borough of Greenwich [2008] EWCA Civ 35, the Court of Appeal stressed that the test for implying an employment contract is necessity. In an agency situation, it is generally not necessary to imply an employment contract; the existing contractual structure, if genuine, adequately explains the mechanics of the relationship, and the legal status of the parties concerned. It also makes no difference how long the relationship lasts; the mere fact that a worker may provider services to the end-user for a long period does not justify the implication of an employment contract between the two parties.

So, if the worker isn't an employee of the enduser, could he/she claim employment rights against the agency? Possibly, but such a claim could easily fail, because the worker provides no services to the agency, which is one of the key elements of an employment relationship. Many agencies are deliberately unclear about the nature of the relationship between the agency and the worker. Worst case, the worker is left with no employment rights against either agency or end-user. The view in Europe was that something had to be done.

2. European Developments

In March 2002, a draft Directive on temporary (agency) workers was introduced by the European Commission. It aimed to give agency workers the right to pay and conditions equal to those of comparable permanent end-user employees. Separately, in 2003 the European Commission commenced a review of other controversial issues arising under the Working Time Directive (including the future of the UK's opt-out of the maximum working week).

The EU Council last debated the proposed Temporary Workers Directive, as well as proposed amendments to the Working Time Directive, in December 2007. Since no agreement could be reached, the future of both Directives was linked to enable "work on a simultaneous and integrated solution, allowing member states to find a balance between the two Directives that would be acceptable from the political point of view".

3. What Has Been Agreed?

Against this politically-charged background, the UK Government has negotiated a seemingly bold agreement with the Trade Union Congress and the Confederation of British Industry for UK agency workers to receive equal treatment (as compared with end-user permanent employees) after 12 weeks of service. The TUC has heralded the agreement as a victory for union campaigning.

Some of the finer detail is still to be finalised in legislation, although the CBI press release states that "while pay is covered, occupational benefits that recognise the long-term relationship permanent staff have with an employer, like sick pay and pensions, are rightly excluded". Other aspects of the agreement include: equal access to collective facilities, such as canteens, childcare facilities, and transport services; an obligation to inform agency workers about permanent employment opportunities with the end-user; and, appropriate penalties for noncompliance.

This agreed UK position was fed into wider EU discussions between the Ministers on the Employment, Social Policy, Health and Consumer Affairs Council on 9 and 10 June 2008. The EU agreement on agency workers derived from those discussions will now go to the European Parliament, which is expected to adopt the EU agreement before the end of the current legislative session, in Spring 2009. On that basis, it is expected that UK agency regulations could be implemented in April or October 2010.

4. What Are The Implications?

Since the UK Government removed a significant stumbling block to reaching agreement over the Temporary Workers Directive, it was also agreed by the Ministers (at the meeting on 9 and 10 June 2008) that the UK may preserve its opt-out of the 48 hour weekly working time limit under the Working Time Directive – although the optout will be subject to a new overall cap of 60 hours per week. It is also important to note that, in future, no opt-out can be agreed until the employee has been employed for a month or more.

Employers who utilise agency workers should begin to consider their business reasons for using such workers - and review whether, going forward, it will make sense to explore other possibilities, such as fixed-term employment relationships, or contractor agreements.

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.