When is an agency worker an employee?

The issue of employment status is rapidly becoming a
minefield for recruitment agencies and their clients.  Failure to keep
up to speed with the constantly changing legal position can prove very

In Cable & Wireless v Muscat, for example, the Employment
Appeal Tribunal held that an agency worker was an employee of the end
user, despite the contract between the agency and worker stating
otherwise.  There are further recent relevant cases that affect the
position between an end user, agency and its worker.

These may pave the way for agency workers to claim full entitlement
to employee rights and compensation – including unfair dismissal.  The
decision raises some fundamental issues such as, are agency workers
entitled to employment rights?  How will end users of agency workers
respond?  How can recruiters protect existing business?

Central to the concept of agency work is the client’s need for
flexibility, in particular the ability to hire and fire at a reduced
notice and the risk of claims for unfair dismissal. Traditionally by
using agency workers, end users have been able to achieve that
flexibility. Furthermore, the Law Courts have supported the concept in
case after case where an agency has supplied a worker to the client to
work under the client’s direction and control.

The two features that have historically enabled the Courts and
Tribunals to determine that neither the agency nor a client is the
employer of an agency worker are that the client does not pay the
worker, and the agency does not control the worker. This is in respect
of those cases where the contract is a contract for services, and that
the written contractual terms have been properly formulated and exclude
an employment relationship. There has always been a risk that there may
be employment if the contractual terms are badly drafted.

The view now taken by the Court of Appeal, and followed by both
Employment Tribunals and Employment Appeal Tribunals, appears to be
that, despite the written contractual terms, there may still be a direct
implied (i.e. not written) contract between the agency worker and the
end user client. This can be evidenced by the actual working
circumstances under which the worker provides his or her services to the
end user.

This clearly exposes both end users and their agencies to risk of
claims being made by disgruntled agency workers. The Courts also take
the view now that even if a claim is made against an end user, the
agency should also be included. Historically if a claim has been  made
against one, the other has not been made a party.

So does this trend attack the entire concept of agency work? Some
end users may think so, with consequences for those agencies that supply
them. So what should agencies do to shore up this absolutely key

As things currently stand it has been left to the Courts
effectively to determine policy in relation to the status of agency
workers. This means that agencies and end users will have to fund the
arguments in Court, at a not insignificant cost in terms of legal fees
and management time.  There are few cases where a costs award can ever
be achieved against an agency worker who brings what appears to be a
spurious claim. If the end users and agencies consistently lose, one of
the major advantages to doing business in the UK,
the ability to use a flexible workforce, will have been lost. This
fundamental outcome raises  concern that the government remains silent
on the issue

Until the government does decide to stop the haemorrhage of time
and money by legislating on the position, agencies and end users should
work together to identify the issues and deal with them in advance. This
must mean that both agency and end user recognise that an agency worker
cannot be treated in the same way as a regular employee. In turn the
arrangements between agency and end user and agency and worker should
reflect this.

Of course agencies that take a considered approach in handling
their agency workers, particularly upon termination, are likely to be
rewarded by far fewer claims and greater end user confidence.

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