Employment status – where are we now?

The issue of the employment status of an agency worker has
been one on which there has been a flurry of judicial activity over the
past two years. The recent trend in court decisions has been to find
that there has been an implied contract of employment between the agency
worker and the end user client.  Whilst this may at first, appear to be
more of a concern for the end users than recruiters, the knock on
effect on the recruitment industry may not be insignificant as end
user’s turn to their supplying agencies to cover the costs involved.

Dacas v Brook Street Bureau Court of Appeal 2004

After 4 years of working as a cleaner through Brook Street
for Wandsworth Borough Council Mrs Dacas’ assignment was abruptly ended
due to a dispute between her and the council. Even though her written
contract was with Brook Street,
the Court reached the conclusion that an end user could be the employer
of an agency worker, due to an implied contract of employment between
the agency worker and the end user.

What is an implied contract of employment?

An unwritten agreement between the worker and the end user, the
terms of which can be assumed from the arrangements and the manner in
which the end user and the worker treat each other. If the manner is the
same as an employer would treat an employee the Courts consider that
the treatment is evidence that the parties intended there to be
employment. A contract is therefore implied directly between the worker
and the end user, with the payment arrangements continuing via the
agency in the normal way.

“Employment” is defined in the Employment Rights Act 1996 as including employment under an express or an implied contract.

Cable and Wireless v Muscat EAT 2005

This case challenged the decision in DACAS and argued that it
should not be followed. However the EAT rejected this argument. The
employment tribunal held that they must look at all the circumstances of
an employment relationship and not just the contractual documentation
between the agency and the worker (contract 1) and the agency and the
end user (contract 2), even if those documents expressly state that the
parties have agreed that there is no employment relationship. Such
documents cannot affect a contract between the worker and the end user
(contract 3).

Importantly the EAT has also held that the fact that the worker operated through a personal service company makes no difference.

The decision in Cable & Wireless v Muscat is subject to an
appeal to the Court of Appeal, currently due to be heard late November
2005. It is only one possible outcome that the Court of Appeal reverses
its guidance in the Dacas case, which it would need to do to find in
favour of Cable and Wireless. Another possibility is that the Court will
adhere to its Dacas decision and issue a judgment that sets a further
precedent which may be damaging to the recruitment industry and
advantageous to agency workers.

RNLI v Bushaway EAT 2005

The EAT upheld the decision of the Employment Tribunal that Ms
Bushaway was the employee of RNLI, the end-user client, from the
beginning of her temporary placement. 

The agency introduced Mrs Bushaway to work direct but on a temp
basis, with the possibility that the placement may lead to a permanent
post with the end user client. 6 months after starting the assignment
Mrs. Bushaway successfully applied and was appointed to a permanent
position, when she became employed. Some 7 months later Mrs Bushaway
later resigned and claimed unfair dismissal against the end user client,
since she needed to show that she had been employed for at least 12
months she claimed that she was employed by RNLI during her temp period.

The focus was therefore on whether she had been employed during
the temp period. The EAT held that it must look behind the contractual
documentation at all the circumstances of the relationship to determine
whether it is one of employment or not. In doing so it found that Mrs.
Bushaway had been employed for the entire period.

This case clearly causes concern wherever there is a temp to perm situation.

Astbury v Gist EAT 2005

The claim had been brought against the end user client and not
the agency. Astbury was supplied by Pertemps. The EAT decided that the
ET, in finding that the end user was not the employer, because amongst
other things Pertemps provided an on site supervisor, it had failed to
consider whether there was an implied contract of employment. Pertemps
had not been joined into the proceedings, which was criticised. The case
was remitted back to the ET to consider that issue and guidance was
given that all parties should be joined in wherever there is an agency
case. The upshot of this finding, being that where a claim is brought
against only an end user or an agency, the other party is likely to be
joined as a party to the proceedings and therefore will incur the
additional time and costs involved in defending such a claim.


Overall the courts are looking to the reality of the relationship
between the agency worker and the agency and end user client, as
opposed to what is stated in the contractual documentation. It is
therefore essential that recruiters take a proactive approach, work
together with end use client’s and reduce as much as possible the risk
of an employment status claim arising.

Lawspeed can help in this area. Crucial to success is the taking
or preventative measures both so that the evidence shows that no
employment was intended and so that a worker does not believe he or she
was employed. This dual approach, legal and psychological, is key to
reducing the risk of claims.

Lawspeed has a range of available measures dependant on the
circumstances, from simple advice through to a fully managed service.
For more information call Lawspeed on 01273 236236.

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