Triangular agency arrangements, where an agency supplies a worker to an end user, are commonplace. The perceived advantage to the end-user is that agency workers are not employees and so do not have certain statutory rights, notably the right not to be unfairly dismissed. However, recent cases in the Court of Appeal have found that employee status may be implied. End users should take care in how they structure their agency arrangements.

In James v Greenwich Council, the claimant had worked full-time as an employee for Greenwich Council until 1997 but later started working for them again through an agency. She had a Temporary Worker Agreement with an agency as a self-employed person. In August and September 2004 she was off sick and the agency supplied another temporary worker to the council. When she was fit to return she was told that there was no job for her. She claimed unfair dismissal against the council but she had no written contract with the council and the employment tribunal decided that there was no implied contract either. There was a genuine agency arrangement. The tribunal considered it significant that the council had replaced her when she had gone off sick; that she had no entitlement to sick pay or holiday pay from the council and that she had switched agencies to get better pay.

She appealed to the EAT, arguing that she had virtually no contact with the agency, had been treated as a member of staff by the council and had been on a permanent rota there for over one year.

She relied on the recent Court of Appeal decisions in the cases of Dacas v Brook Street Bureau and Muscat v Cable & Wireless.

In Dacas, an agency worker had brought her claim against the agency, Brook Street Bureau. The Court of Appeal said that she had no contract of employment with the agency but if her claim had been against the end user, they would have implied a contract.

In Muscat, an engineer had provided his services through a company to an end user, Exodus. Exodus was taken over by Cable & Wireless. Muscat was told that he must now provide his services through an agency and did so. The Court of Appeal decided that this arrangement was a sham – in reality he was a Cable & Wireless employee. However, in James, the EAT decided that Ms James was not an employee of the end user and laid down some useful guidance for tribunals faced with the difficult issues that arise in these cases.

• Tribunals should not imply a contract between a worker and end user unless, having considered the totality of the triangular arrangement, it was necessary to do so. The issue to be decided is whether the way in which the contract is performed is consistent with the agency arrangement or whether it is only consistent with an implied contract between the worker and the end user.

• In a genuine agency arrangement, the end user cannot insist on the agency providing the services of a particular worker.

• The passage of time alone will not suggest that an agency arrangement no longer exists. Contrary to what was suggested by the Court of Appeal in Dacas, it will often be convenient for the agency to send the same worker to the end-user and the end-user may prefer someone who understands their systems.

• Where, as in Muscat, an agency arrangement is created where there used to be a contract, the tribunals may be more likely to consider the agency arrangement a sham and decide that the original contract between worker and end-user still exists.

Points to note –

• The EAT in James also commented that different tests apply to casual workers and to agency workers when deciding whether they have an employment contract with the end-user.

For casual workers, the question is whether there is there an overarching contract of employment despite no day-to-day involvement.

For agency workers, the question is whether there is a relationship between the agency worker and the end user. Or is the work being done under obligation to someone else (ie the agency)?

• Although tribunals do not like it when they have to decide, as in Mrs James’ case, that an agency worker is not an employee of either the agency or the end-user and so has no statutory protection against unfair dismissal, they will do so where there is no written contract of employment and a genuine agency arrangement exists. Proposals for an EU Temporary Workers Directive, which was intended to give agency workers more legal rights, made no progress last year.

An agency worker cannot be treated as having two employers – the agency AND the end user –even though for other purposes the courts may make two organisations jointly liable for workers under their joint control. In the recent case of Cairns v Visteon UK Ltd the EAT decided that an agency worker could not have two employers. In this case, the worker, who had previously been employed by the enduser, changed her status by becoming the employee of an employment agency which then provided her services to the end-user. When the end-user said that it no longer required her services, the agency made her redundant. The employment tribunal hearing her case said that, if it had not been for her contract of employment with the agency, it would have found that there was an implied contract between her and the end-user. She argued that there could be two parallel contracts of employment between an individual and two employers. The employment tribunal, and the EAT, disagreed.

Dual liability can be implied in some cases. In the recent case of Viasystems (Tyneside) Ltd v Thermal Transfer (Northern) two fitters were working for their own employer under supervision of a ‘temporary employer’ who was in turn subcontracted to a main contractor to mend ducting in a factory. One fitter set off fire sprinklers which caused extensive damage. The main contractor had to pay the factory owner compensation and was allowed to recover that sum from the ‘temporary employer’ and the actual employer of the negligent fitter jointly on the basis that they shared the blame for his actions.

However, the EAT said that, where statutory employment rights were concerned, it would be too difficult to allow for dual liability. The provisions of the Employment Rights Act 1996 in relation to carrying out the statutory dispute resolution procedures and the decision to dismiss, for instance, could only apply to one employer.

Points to note –

• The decisions in James and Cairns are good news for businesses which use the services of agency workers. The EAT is saying that it will not follow the suggestion of the Court of Appeal that perhaps it would be easier for agency workers to rely on an implied employment contract with the end-user to give them employee status, particularly if they have been working for that enduser for some time.

• Documentation and factual background will always be important, if not deciding, factors. Any agency arrangement must be properly documented. We shall be happy to advise further.