Legal Status of Temporary Agency Workers

Since the introduction of the Employments Rights Act 1996, the question whether a claimant in an unfair dismissal case is or is not an employee is becoming increasingly litigated before employment tribunals. This distinction between contracts of employment and self-employment must be made for the determination of statutory rights. It would seem logical then that the formulation of the test for employment status came from statute, however the definition provided by the 1996 act of ‘employee’ is, ‘an individual who has entered into or works under a contract of employment’ [1] . This is at best circular and thus leaves the decision to the courts and tribunals. More cases are being litigated as a result of recent developments: the length of the qualifying period for protection has been reduced to 1 year meaning more “temporary workers” are eligible for protection; an increasing proportion of the workforce are employed by agencies and the maximum award for compensation for unfair dismissal has been substantially increased [2] . In 2007 the President of Employment tribunals, HHJ Meeran, issued a further direction staying many of the cases pending the outcome of the Court of Appeal’s decision in James. We can infer from this that the employment tribunal intended to use James to finally clarify the status of Temporary agency workers. This was a decision that not only affected agency workers but the private recruitment industry and any employer currently using agencies to find staff. Naturally, a delicate situation existed which meant that a decision in either direction would have negative impacts. Therefore, despite clear intention from HHJ Meeran to clarify the situation using James, i think from the offset inhibitions existed in the minds of those making the decision. As a result was the status of temporary agency workers ever likely to be resolved by James?

As i have mentioned a large volume of cases have reached tribunals to ascertain the employment status of agency workers. However the majority have occurred to seek understanding of the legal relationship between the agency and employer. In fact it was thought to be clear that the worker could not be the employee of the client until Franks v Reuters [3] . Here it was concluded by the Court of Appeal that the employment tribunal had erred in not considering whether there could have been an implied contract of service between the agency worker and the client. This statement got the ball rolling on potential contracts between worker and end-user and was soon followed by Dacas v Brook Street Bureau [4] . In this case the court said the cleaner could not claim to be the agency’s employee but they said obiter that she could have had a claim through an implied contract of service.Therefore, no authority had changed, the case was remitted in Franks and said obiter in Dacas. However, the Court of Appeal upheld a tribunals decision in Cable & Wireless plc [5] that an agency worker was the employee of the end-user through an implied contract of employment. This was a ground -breaking decision set to alter the tide of agency workers and employers alike. Nevertheless its implications were short lived when James came to appeal. In a dramatic backlash the EAT found there was no necessity to imply such a contract when the claimants relationship with the end-user was fully explained by express agreements between both her and the agency and the agency and the end-user.

James had closed the door opened by Cable & Wireless and Dacas with regard to implying a contract with the end user. It created a tough test that it must be necessary to find an implied contract with the end-user in order to make sense of the situation, rather than simply requiring that the agency worker looks like a direct employee. “In many cases agency workers will fall outside the scope of the protection of the 1996 Act because neither the workers nor the end users were in any kind of express contractual relationship with each other and it is not necessary to imply one in order to explain the work undertaken by the worker for the end user.” [6] James also expelled thinking that depending on length of service, a contract could be implied. Furthermore it was concluded that irrespective of how integrated an agency worker is into the workforce it was not appropriate to imply a contract unless; “in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.” [7]

In considering whether James has finally resolved the legal status of agency workers we are required to look at similar cases post 2007. RSA Consulting Limited v Dr Patricia Evans [8] demonstrates the strict necessity test laid down by James. LJ Mummery’s comments in James relating to necessity are cited and they talk at length about the conclusions drawn in James with regard to whether a contract can be implied. They shadow comments from James that implying a contract requires a consideration of all the evidence relating to the nature of the relationship between the parties, and not merely the documents. Another case that cites James heavily is Miss J Kennedy v Ormonde Terrace Limited [9] . In this example the Tribunal rejected the Claimant’s appeal by relying upon a judgement in James as authority for the proposition; an increase in the amount of time spent on a job does not affect the nature of the relationship. These two cases clearly demonstrate James has been prominent in the courts position on agency workers, it’s also worth noting these are not stand-out examples. The majority of agency cases that have been litigated post James have been decided with citations to James. On the surface then, it seems logical to conclude that James has finally resolved the legal status of agency workers and very few will have unfair dismissal rights.

However another such mean of an agency worker achieving a successful unfair dismissal claim is if they can prove the relationship is not what it seems from the express documents; it’s a ‘sham’. In Consistent Group v Kalwak [10] it was upheld by the court of appeal that here there had been a deliberate alteration of the relationship explained in the express contract. Despite the sham being successfully exposed, Elias P cautioned tribunals that ‘armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or to provide work in employment contracts….even where such terms do not begin to reflect the real relationship.’ This fact is something that courts and tribunals are in effect powerless to act against, also the necessity test established in James doesn’t combat this tactical maneuver. A further contentious issue that James failed to resolve involves situations where it is necessary to imply a contract because the contractual arrangements are no longer accurate. A case example is that of National Grid Electricity Transmission v Wood [11] where the court of appeal held the conduct of the parties had changed, and that the ET had erred in finding a ‘sham’. It went on to say that the changes were not consistent of a sham arrangement but reflected ongoing ‘direct face to face negotiations on classic features of the contract’ [12] . In my opinion Wood opens a door which James had sought to close with the necessity test. On a day-to-day basis negotiations exist between end-user and client, so where should the line be drawn as to discussions which affect the express contract and discussions which are congruous with everyday working relationships. On the conclusion of this subject, the boundaries of this approach will need to be questioned in future courts.

Further evidence of the argument that the legal status of agency workers is still unsatisfactory is seen in Mummery LJ’s rather forceful comments in paragraph 56 of James. “Some litigants and their advisers and representatives appear to have unrealistic expectations about what courts and tribunals can legitimately do to remedy their grievance…….they are not architects of economic and social party…..they cannot confer the right not to be unfairly dismissed on a worker who is without a contract of employment” This is a powerful call to parliament to change or update legislation. The courts have exhausted all jurisdiction available and any questions that remain unresolved are not legal questions appropriate for comment by courts or tribunals. Therefore, unless reform is made the issue will remain unresolved.

It would make sense then, had a man of such influence as Mummery LJ did, and due to the high number of cases, that parliament responded with new legislation finally resolving the status. However Parliament are conscious of the fact that an alteration to the status of agency workers would have a far-reaching effect on both social and economic policy. This apprehension was demonstrated in 2002 when the UK government strenuously opposed a draft work directive produced by the EC.

As i have argued above, James has not fully resolved the legal status of agency workers, however it ended the trend that contracts could be implied if the situation was such that the agency worker looked like a direct employee. This was a positive implication for large-scale users of agency workers because it enabled them to employ staff capable of completing a high standard of work, but who did not benefit from the usual rights enjoyed by direct employees. The main benefit here being that the large-scale users remained under no obligation to offer work, therefore maintaining high flexibility with regard to replacing workers or even removing posts. On the flip-side, this was a dent in the agency workers plight for further protection. If James had not ended the idea of implications of contracts due to looking like an employee then arguably thousands more agency workers would benefit from statutory rights. This would have stabilised their job positions and improved general consensus on the necessity of agency workers as genuine, valued workers.

Despite the outcome in James appearing favourable for large- scale users of agency workers, it did not conclude the issue resolutely. In some cases, as i explained, agency workers could still be considered as direct employees of end-users. If legislation was introduced that eliminated any possibility of agency workers becoming employees, then change in the labour market would occur. A situation would be apparent where little risk was involved in hiring agency workers, so companies would be more attracted to do so. The UK labour market would, arguably, be more flexible which in turn would increase the competitiveness of the economy on a global level. Businesses would be more attracted to employing temporary staff because it would be less costly and more straight forward administratively. Furthermore, skepticism about the true status of agency workers has lead to companies taking the easy route and giving long-term employees the work a temporary should do. In the long-term this is ineffective for competition and in extreme examples can lead to over-worked individuals that through stress are forced to quit work. In summary a push for a more flexible approach to agency workers is likely to be good for employment figures, which arguably is why the government is ignoring calls from many to improve their rights.

It’s important that we also consider the counter-arguments to not awarding employment status to agency workers. Mummery LJ stated in James that “A significant move in the direction of the casualisation of labour and the growth of a two tier workforce, one tier enjoying significant statutory protection, the other tier in a legal no man’s land being neither employed nor self employed…….may create social injustice and a festering sense of grievance”. The ramifications of the occurrence of this would be that the workforce was not more flexible but less efficient resulting in a reduction in competition. Andrew Miller, a labour MP, said: “there are 1.4 million agency workers in the UK, and agency workers are sometimes employed to undercut permanent workforces, creating divisive conditions and resentment” His sentiments clearly concur with Mummery LJ’s fear of a two-tier workforce and once again display why the government could be reluctant to intervene and finally resolve the status of agency workers.

I proposed before that the impact of James on agency workers was for the most part negative. However it’s apparent when you look more closely that most agency workers are not there through want of flexibility but instead through necessity. Those that are genuinely skilled entrepreneurs hiring out their services on an independent basis in fact benefitted from James. Indeed they represent the minority of agency workers, however they benefit from maintaining the agency end-user relationship as flexible. If it was to be made more formal it’s likely a situation could arise where some end-user’s oblige employees to work which pre James may well have lead to the implication of a contract of employment.

In conclusion i feel that James did not resolve the legal status of agency workers on a long term basis. But, in the short term it provided correction for the idea that you can imply a contract through simply looking like a direct employee. It did so via the creation of the necessary test, which has been subsequently used in numerous decisions post James. Despite this short-term fix, as time has progressed,problems have been exposed which point to an incomplete resolution. Elias P was quick to question the validity of the ‘sham’ argument, for example. Situations may still exist where the contract does not successfully reflect the true relationship, however a ‘sham’ not exposed due to guilefully worded contracts. Furthermore James neglects to resolve circumstances where the contract, through no intention from end-user or employee, has changed due to everyday face-to-face discussions. These are problems that the courts do not have the jurisdiction to correct, to implement change a reform of legislation is necessary. The government, it seems, have been reluctant to do so however because tampering with the state of affairs of agency workers would have dramatic repercussion on both social and economic policy. The government has finally agreed to the directive on Conditions for Temporary agency workers-Directive [13] , however this does not affect the employment status, so we still lack authoritative guidance in this area. It’s apparent that there are both negatives and benefits to the private recruitment industry and individuals who value flexibility in their working arrangements. As the situation exists it would be impossible to predict the spread of these benefits or negatives. The reason for this is that there are varying motives to becoming an agency worker. Therefore, breaking agency workers down into their respective motives – such as those there through necessity and those there because they are highly specialised – and customising legislation accordingly, may control the detrimental effects that would occur if agency workers continue to be grouped under one umbrella.