The courts continue to grapple with the question: who employs the agency worker? Are they employees of the agency, the end-user, or neither?

In the landmark Court of Appeal (CA) decision of Dacas v Brook Street Bureau (2004), the concept of an implied contract of employment existing between an agency worker and an end-user was explored. In 2006, the CA decision in Cable and Wireless plc v Muscat swung the pendulum further in favour of finding an implied contract of employment with the end-user when an individual had worked under the day-to-day control of the same end-user for a significant period of time. However, 2007 saw several Employment Appeal Tribunal decisions which swung the pendulum back away from the end-user, including the case of James v London Borough of Greenwich.

The CA has now handed down its long-awaited judgment in James v Greenwich. To the relief of end-users, Mrs James' appeal has been rejected by the CA. Simply because an agency worker had worked for the same end-user for several years does not inevitably lead to an implied contract of employment being found. The question is one of necessity: is it necessary to imply a contract of employment to give effect to the business reality of the relationship between the worker and the end-user? 

Although not providing a definitive guide, the CA also used the opportunity to comment on the state of authorities and therefore went some way towards answering the question: who employs the temp? Is the agency, the end-user, or no-one at all?

What happened in James?

Mrs James worked full time for the Council until 1997. She stopped working for a while and in 2001 began working for the Council again through an employment agency. In 2003, she changed agency to receive a better hourly rate of pay.

While there was no contract directly between her and the Council, there was a Temporary Worker Agreement in place between her and the agency. In 2004, she was absent from work with sickness throughout August and most of September. Another worker was provided by the agency in her absence and when she wished to return she was told she was no longer required.

The Employment Appeal Tribunal (EAT) upheld the tribunal's finding that Mrs James (the agency worker) was not employed by the Council, even though she was supplied to the Council (the end-user) for five years. Significant weight was placed on the fact that Mrs James had changed agencies in order to obtain a higher rate of pay and that she was simply replaced with a different agency worker when ill. In particular, the EAT noted that the mere passage of time was not sufficient to require a contract of employment to be implied between the agency worker and the end-user.

What did the Court of Appeal say?

In rejecting the appeal, the CA stated that although Mrs James could hardly be described as a "temporary worker", it was not necessary to imply a contract of employment between her and the Council. The circumstances regarding the working relationship and the manner in which the Council received and paid for the work done by Mrs James were all explained by the respective express contracts (worker/agency and agency/end-user). Accordingly, it was not necessary to imply the existence of another contract directly between the worker and end-user to give business reality to the relationship.

The CA also expressed its approval of the guidance handed down by the EAT and stated:

  • In tripartite (worker/agency/end-user) situations, the correct test is necessity. Unlike casual worker cases, the presence of mutuality of obligation was not the essential point, it is a question of necessity.
  • The mere passage of time does not necessarily generate a legal obligation on the part of the end-user to provide the worker with work or a legal obligation on the worker to do the work.
  • Dacas does not say that there must be a finding of an implied contract. It merely guides tribunals to consider the possibility of an implied contract being in existence.
  • Muscat is important in its emphasis on the requirement that the implication of a contract of service must be necessary to give effect to the business reality of a relationship between the worker and the end-user.

So where does this leave us?

The pendulum has swung further away from finding an implied contract of employment with the end-user, even if the worker has worked under the day-to-day control of the same end-user for a significant period of time.

As stated by the CA, "just as it is wrong to regard all agency workers as self-employed temporary workers outside the protection of the 1996 Act, the recent authorities do not entitle all agency workers to argue successfully that they should all be treated as employees in disguise."

The possibility raised in Dacas of an implied contract with the end-user still exists. Tribunals may still investigate whether an implied contract of employment has arisen between the agency worker and the end-user. However, James illustrates that to establish an implied contract, the agency worker must overcome the high hurdle of 'necessity'.

Outside of situations where the contractual arrangements are a sham, it is difficult to envisage situations in which it would be necessary to imply a contract where clear contractual documentation between the worker/agency and agency/end-user exists.

The future?

The CA commented that the courts and tribunals cannot confer the right not to be unfairly dismissed on a worker who does not have a contract of employment because that is a matter of economic and social policy for government to address. However, there are no current Government proposals to address this. In light of the current negotiations about the possible regulation of agency workers, the most likely source will be the highly controversial proposed EU Directive on temporary workers. Watch this space.

We have put together suggestions for action to limit the risk.

What can end-users do to limit risk?

Robust documentation

All contracts and other documentation should support the intentions of the parties as regards employment status. In the end-user's case, this will usually involve, as a minimum, ensuring that the agency employs the worker in question and that there are express statements to the effect that the worker is not an employee of the end-user.

The Conduct of Employment Agencies and Employment Businesses Regulations 2003 are intended to make it clearer on what basis the agency is contracting. Case law has, however, made it clear that the labels that parties attach to the relationship are by no means conclusive.

Keep assignments as short as possible

Restrict the length of an assignment. Although mere length of time is not a determinative factor, it will at the very least limit the extent to which the individual will accrue employment rights based on length of service should an implied contract be found.

Indemnification

An end-user could seek indemnities in the contract with the employment agency against any claims by the agency workers that they have become employed by and accrued employment rights against the end-user.

Commercially, this may be difficult to negotiate. It would need to be considered on a case by case basis. Also, any agreement to indemnify an end-user would no doubt be reflected in the agency's charges.