In an important case which will be welcomed by employers, the Court of Appeal has upheld the Employment Appeal Tribunal’s decision in James v Greenwich Borough Council, confirming that an employment tribunal can only imply a contract of employment between and agency worker and the end-user for his or her services where it is “necessary” to do so.

What did the Court of Appeal decide?

Ms James, an agency worker had supplied her services through a series of agencies to the London Borough of Greenwich for a number of years. Written agreements between her and the agencies provided that she was a self-employed ‘temporary worker’ and that her work would not give rise to a contract between herself and the end-user of her services. After a period of absence through sickness, she was told that her services were no longer required because the agency had found a replacement. She brought a claim for unfair dismissal against the Council. The Employment Tribunal found that there was no contract of employment between the agency worker and the Council and this decision was upheld by the EAT.

The CA has upheld the EAT’s decision confirming that the Tribunal had applied the correct test; the issue to be decided was, whether, having regard to the way in which the parties have conducted themselves, it is necessary to imply a contract of employment between Ms James as worker and the Council as end user. The question as to whether an agency worker is an employee of the end-user is a question to be decided in accordance with the common law principles of implied contract. The Court also made clear that the implication of a contract of employment between the end user and the worker in a tripartite agency situation is not inevitable in a long term agency worker situation; it is only a possibility depending on the facts.

What this decision means for employers

This decision is good news to employers who use agency workers. Provided employers observe the rules as to how to treat and deal with agency workers, and have the correct documentation in place with the agency and not the worker, no contract of employment between the worker and the employer "end-user" should be implied. Some practical tips for employers to avoid employment relationships with agency workers:

  • Keep agency workers’ tasks specific and review regularly
  • Minimise integration into the work force 
  • Do not appraise or discipline agency workers 
  • Use reputable well organised agencies/employment businesses 
  • Ensure contractual documentation consistent with agency status 
  • Seek indemnities and warranties with employment businesses in respect of claims from agency workers

The question that arises from this decision is whether the Government will now be pressurised into changing the law to give agency workers more rights. Mummery LJ, the judge who gave the leading CA judgment in James pondered the current controversy over the absence of job protection for agency workers on the one hand, and the need to retain a flexible labour market on the other. He said, however, that it was not for the courts to “express views about a change or initiate a change”.

The Government indicated last year that it did not see the need to legislate in this area. Other commentators have disagreed – including Mr Justice Elias who decided James in the EAT. In the CA, Mummery LJ suggested that instead of expending vast sums and energy litigating these issues in tribunals, it might be more productive to invest in making representations to and through bodies which can pursue the debate on policy or even reform the law.

For a number of years now there have been ongoing discussions at European level to bring into force the EC Temporary Agency Workers Directive and as this was raised again in December 2007, we are likely to see further discussions on this during 2008. A private members bill was also introduced in December 2007 which proposes to prohibit discrimination against temporary and agency workers. Although the Government has pledged to support the aims to the proposed Directive, nothing has been done. The UK business lobby has been firmly against the directive, arguing that it would harm the economy, and will no doubt oppose this Bill.

Mummery LJ’s comments will fuel the ongoing debate as to whether agency workers should be given employment protection rights (such as unfair dismissal) in the same way as employees. The unfortunate consequence of any change of law, however, is that giving agency workers more rights will make employers more wary about employing them. This will serve no one - there will be less work for agency workers, and UK employers will have less flexibility in taking on staff as and when their businesses demand.

We do not know if this decision will be appealed to the House of Lords but for now, businesses can say hooray. However, this is not the end of the story. The pendulum is swinging in favour of businesses, but only for the moment.