End User held to be the employer of agency worker

Following the case of Dacas –v- Brook Street Bureau last
year the Employment Appeal Tribunal (EAT) has upheld a decision of an
Employment Tribunal that an agency worker, operating through a personal
services company, is the employee of the end user company.

Although subject to a right to appeal, in the case of Cable and Wireless –v- Muscat
it has been found that express terms in a contract between the agency
and the worker cannot affect the existence of an implied employment
relationship between the worker and the end user company. This is
because the terms between an agency worker and an end user company are
not set out in the agency and worker contract, but are instead implied
from the circumstances and actions of the worker and the end user
company towards each other. The EAT has also held that the fact that the
worker operated through a personal service company makes no difference,
and it has ruled that it considers it must follow the precedent set in
the Dacas case.

In the case of Dacas, Brook Street
was held not to be the employer. However, the Court of Appeal gave a
very strong indication that the end user in that case, Wandsworth
Council, may have been an employer of the agency worker, Mrs. Dacas,
under an implied contract of employment. This was despite the fact that
the contract between Brook Street
and Mrs. Dacas was a contract for services and that an Employment
Tribunal had already held that there was no express contract of
employment between Mrs. Dacas and Wandsworth Council. The Dacas case
therefore set an unhealthy precedent so far as companies using agency
workers and recruiters are concerned for the likelihood that agency
workers may actually be employees of the end user companies depending on
the circumstances of the engagement.

However, this is not necessarily the end of the story. Although the
usual rule is that a ruling in a higher court must be followed by lower
courts, there are arguments that were run by Cable and Wireless that
the ruling in Dacas concerning employment status as regards the end user
company should not be followed. This is because the Court of Appeal in
Dacas had not had various other relevant precedents drawn to its
attention before issuing its judgment. In legal terms this would have
meant that the decision in Dacas was per incuriam and need not be
followed by lower courts.

Also two Judges in the Court of Appeal had argued that almost
certainly Wandsworth was the employer of Mrs. Dacas, but the third
Judge, Mr. Justice Munro, argued that there was no employment because
there was no mutuality of obligation between Wandsworth and Mrs Dacas,
and Mrs Dacas was not paid by Wandsworth. Cable and Wireless has been
granted leave to appeal to challenge on the per incuriam point and to
put forward arguments about creation of contracts and other points
alluded to by Mr Justice Munro. However it is not yet known whether an
appeal will be pursued.

There is one other point. In the Cable and Wireless case all
parties agreed in their contracts that there would be no employment
relationship. However, the agency concerned, Abraxas, is obliged in its
contract to indemnify Cable and Wireless against obligations arising in
the event that a worker is found to be an employee of the end user
company. Since the workers claim is for compensation upon termination of
employment and there has been a finding of employment, Abraxas can
probably expect a claim by Cable and Wireless.

Once again the position in relation to employment status of agency
workers is in question, and, as we have recommended at the time that the
Dacas decision was announced, it is essential that companies using
agency workers have regard to the actual circumstances of an engagement
and set up the correct contractual terms. The decision in Cable and
Wireless indicates that protection against employment claims is not
afforded by the simple device of engaging contractors operating through a
limited company. It is also crucial that companies properly assess the
risk of employment rights arising from the outset and consider possible
changes in the effect of the law over the longer term.

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