Editorial from IDS Brief 847, February 2008

Agency workers: they’re exactly what it says on the tin

The Court of Appeal’s long-awaited judgment in James v London Borough of Greenwich, which we report on page 3, makes bleak reading for agency workers. In a nutshell, the Court confirmed that a tribunal will only be entitled to imply an employment contract between an agency worker and an ‘end-user’ – i.e. the client who purchases the worker’s services from the agency – where it is necessary to do so to give business reality to the situation. In the view of the Court, which expressly approved guidance given by Mr Justice Elias in the EAT, there will be no such necessity where agency arrangements are genuine and accurately represent the relationship between the parties. Furthermore, recanting from the obiter (and thus non- binding) comments of Lord Justice Sedley in Dacas v Brook Street Bureau (UK) Ltd (Brief 754), the Court held that an employment contract should not be implied simply because the worker has been engaged with one client for a significant period of time.

It follows that, regardless of the rights and wrongs of it, few agency workers will have the right to claim unfair dismissal against the end-user when their engagement is brought to an end – even if the engagement has lasted for a number of years. Likewise, few will be ‘employees’ of the employment business (agency) with which they are registered, leaving them – much, it would seem, to the incredulity of Sedley LJ – employed by nobody.

Are you an employee in disguise?

In reaching its decision, the Court in James played down what many considered to be a conflict of authorities in this area – with the Court of Appeal in cases such as Dacas seemingly in favour of implying employment contracts in agency situations, and the EAT appearing dead-set against the idea. In the view of Lord Justice Mummery, who gave the lead judgment in James (as well as that in Dacas), there was simply no conflict at all. His synthesis was thus: just as it is wrong (as the Court in Dacas pointed out) to regard all agency workers as falling outside the protection of the Employment Rights Act 1996, it is also wrong (as the EAT has been aware) to suggest that such workers ‘should all be treated as employees in disguise’. In each case, the question ‘must be decided in accordance with common law principles of implied contract and, in some very extreme cases, by exposing sham arrangements’.

This is bad news for the many long-term agency workers who, following Dacas, brought unfair dismissal claims against the end-users of their services. Such claims were stayed pending the Court’s decision in James, and many now seem destined to fail. Moreover, as Mummery LJ was at pains to point out, as long as a tribunal correctly applies the test of ‘necessity’ in line with Elias P’s guidance (which we summarise on page 4), agency workers who see their unfair dismissal claims thrown out are extremely unlikely to succeed on appeal.

James cannot be said to slam the door on agency workers claiming to be employees of the end-user, but it does substantially narrow the gap they need to squeeze through to make out an unfair dismissal claim. There are, of course, instances where an agency worker can successfully claim to be an employee of the agency itself. In such cases it is necessary to show an exceptional level of control by the agency over the workers, as an employment tribunal and the EAT found to be the case in Consistent Group Ltd v Kalwak and ors (Brief 833). That case was heard by the Court of Appeal on 5 February, so another, though less significant, twist in the agency workers saga could emerge when judgment is handed down in the Spring.

Hopes for reform?

As a postscript to his judgment in James, Lord Justice Mummery noted that courts and tribunals are well aware of the arguments for and against a change in the law to provide additional protection to agency workers. However, this, he said, is a matter of controversial social and economic policy for debate in and decision by Parliament, and it is not for the courts to extend employment protection rights to a category of worker in respect of whom Parliament has not seen fit to legislate. In Mummery LJ’s words, 'courts are not architects of economic and social policy’, and ‘must operate within the legal architecture created by others’. Thus, he rather curtly suggested, the effort invested in litigation in this area would be better spent in lobbying for reform.

Is any reform on the cards with regard to agency workers’ employee status? The simple answer is ‘no’. There is currently a Private Member’s Bill before Parliament entitled the Temporary and Agency Workers (Prevention of Less Favourable Treatment) Bill, but this does not have Government support and in any event is concerned with working conditions rather than with providing agency workers with a right not to be unfairly dismissed. The more likely source of legislation is the European Union, which has for some time been discussing a Temporary Workers Directive. Again, however, this would cover working conditions, discrimination, pay and maternity rights, but not unfair dismissal. Note that the Directive was put on hold in late 2007, but is widely considered to have enough support among Member States to be approved in 2008. We shall keep subscribers aware of any developments.