Agency contracts

On 5 March 2004, the Court of Appeal gave its decision in the case Brook Street Bureau (UK) Ltd -v- Patricia Dacas. The decision promised to be a landmark decision in the ongoing contractual uncertainties over the triangular working relationship between an employment agency, its client, and the worker supplied to provide services to the client. In the event, the decision has only served to clarify the uncertainties, due mainly to the dissenting views of one of the three judges.

Mrs. Dacas had been supplied by Brook Street Bureau to work for Wandsworth Borough Council over a period of five years. When the contract ended due to her alleged misconduct, Mrs. Dacas made a claim of unfair dismissal. This was not accepted by the employment tribunal, on the basis that Mrs. Dacas did not have a contract of employment, or contract of service, with either the agency or the client. However, on appeal, the Employment Appeal Tribunal decided that she had been an employee of the agency. Brook Street Bureau appealed that decision.

The Court of Appeal had no difficulty in unanimously overturning the decision of the Employment Appeal Tribunal.

"Brook Street was under no obligation to provide Mrs Dacas with work. She was under no obligation to accept any work offered by Brook Street to her. It did not exercise any relevant day to day control over her or her work. That control was exercised by the Council, which supplied her clothing and materials and for whom she did the work. The fact that Brook Street agreed to do some things that an employer would normally do (payment) does not make it the employer."

However, the judges explored in some detail the proposition that Mrs. Dacas could have worked for the Council under an "implied" contract of service, even though there was no explicit contract between them.

"The objective fact and degree of control over the work done by Mrs Dacas over the years is crucial. The Council in fact exercised the relevant control over her work and over her. As for mutuality of obligation, (a) the Council was under an obligation to pay for the work that she did for it and she received payment in respect of such work from Brook Street, and (b) Mrs Dacas, was under an obligation to do what she was told and to attend punctually at stated times. As for dismissal, it was the Council which was entitled to take and in fact took the initiative in bringing to an end work done by her. But for the Council's action she would have continued to work there as previously."

Had the relationship between Mrs. Dacas and the Council been the subject of the appeal, the Appeal Court judges agreed that they would have remitted the case to an employment tribunal to determine whether or not there had been an implied contract of services between Mrs. Dacas and the Council. As there was no appeal on that issue, they could not do so.

In the lead decision, Lord Justice Mummery stated

"In general, it would be surprising if, in a case like this, the (client) did not have powers of control or direction over such a person in such a working environment. The (client) is the ultimate paymaster. The arrangements were set up and operated on the basis that the (client) was paying the agency. What was the Council paying for, if not for the work done by Mrs Dacas under its direction and for its benefit?"

Dissenting from that view, Mr. Justice Munby summarised the contractual position of the three parties to the agency/client/worker relationship as follows:

1. "There can be no contract of employment - no contract of service - unless there is (a) mutuality of obligation as between the employer and the employee and (b) "control" of the employee by the employer.
   
   
2. There can be no mutuality of obligation in the absence of an obligation on the part of the employer to pay a wage or other remuneration.
   
   
3. Therefore there can be no contract of service unless there is (a) an obligation on the part of the employer to remunerate the employee and (b) "control" of the employee by the employer.
   
   
4. It follows that if the obligation to remunerate the worker is imposed on one person whilst control of the worker is vested in another, there cannot be a contract of employment with either."

And, in response to Lord Justice Mummery's rhetorical question, he stated that

"what the Council was paying for was not the work done by Mrs Dacas and her fellow workers but the services supplied to it by Brook Street in accordance with the Specification and the other contractual documents. The monies paid by the Council to Brook Street were not payments of wages, nor were they calculated by reference to the wages payable by Brook Street to Mrs Dacas and her fellow workers. There was no mutuality."

Although the arguments presented in this case give further clarification of the contractual issues involved in the supply of agency workers, there does not appear to be any change from the existing position that an agency worker could only be considered to work under a contract of employment if both "mutuality of obligation" and "control" can be demonstrated in one or other of the relationships.


(Source: www.courtservice.gov.uk/judgmentsfiles/j2356/brook_street-v-dacas.htm)
... back to 12 March 2004

Employment Agencies

In the news of 2 January, we reported the introduction of new Regulations governing the conduct of employment agencies and businesses from 6 April 2004. The DTI has now published detailed guidance on each of the Regulations, with examples to illustrate the new rules. The guidance is produced jointly by the DTI, the Recruitment and Employment Confederation and Equity.
(Source: www.dti.gov.uk/er/agency/newregs.htm)
... back to 16 January 2004

Employment Agencies

New Regulations come into force on 6 April 2004 that will directly affect the operation of employment agencies and employment businesses and provide greater protection for those using their services. The Conduct of Employment Agencies and Employment Businesses Regulations 2003 replace three existing sets of Regulations, namely

• the Conduct of Employment Agencies and Employment Businesses Regulations 1976
• the Employment Agencies Act 1973 (Charging Fees to Workers) Regulations 1976, and
• the Employment Agencies Act 1973 (Charging Fees to Au Pairs) Regulations 1981.

An "employment agency" is a business that provides services for matching workers and employers for the purpose of employment. They include recruitment agencies, entertainment and model agencies, and executive search agencies.

An "employment business" is a business that supplies workers to work under the control of other people, but not in their employment. Examples are agencies supplying temporary secretarial and other office staff.

The significant provisions of the new Regulations are

• limitations on the terms in contracts between employment businesses and hirers that prevent temporary workers from taking up permanent jobs unless a fee is paid
• a prohibition on employment businesses from withholding wages due to a temporary worker purely because the worker cannot produce an authenticated time sheet
• a requirement for agencies and employment businesses to confirm the identity of the work-seekers and that they have the experience, training and qualifications that the hirer expects for that position
• an ongoing obligation on agencies and employment businesses to inform the hirer when they receive information about a worker that indicates that the worker might be unsuitable for the position
• a requirement for agencies and employment businesses to obtain information on any health and safety risks known to the hirer and the steps taken to prevent or control those risks
• a requirement for agencies and employment businesses to obtain references on work-seekers who are to work with vulnerable persons
• a prohibition on agencies seeking to find work for actors, models and other entertainers from charging an up-front fee before finding work for them
• the application of the scope of Regulations to work-seekers who contract their services through their own limited company, unless they opt out by giving a notice to the employment agency.

It will no longer be a requirement for

• agencies and employment businesses to disclose their status on business stationery
• agencies and employment businesses to provide the DTI with their current terms of business
• agencies to ascertain if young persons have received vocational guidance before they find them work
• agencies and employment businesses to obtain written statements from the services of a lawyer on the list of the British Consul before supplying or hiring a work-seeker to an overseas employer or to use the services of an overseas agent.

The new Regulations come into force from 6 April 2004, except for those that relate to work-seekers who are limited companies, where the effective date is 6 July 2004. (Source: www.hmso.gov.uk/si/si2003/20033319.htm)
... back to 2 January 2004

Agency workers and employment status


The Court of Appeal, on 10 April 2003, allowed an appeal against the decision of an Employment Appeal Tribunal (EAT) in the case of Raymond Franks v. Reuters Ltd and First Resort Employment Ltd. The EAT had confirmed the decision of the earlier employment tribunal, that Mr. Franks was not an employee of Reuters as he was supplied as a temporary worker under a contract between Reuters and First Resort, an employment agency.

Mr. Franks worked for Reuters between 1993 and 1999. During that time, Reuters paid a fee to First Resort for his services and First Resort paid him wages for the number of hours he worked. He received holiday pay but not sick pay. When his services were dispensed with in 1999, he entered a complaint of unfair dismissal against Reuters and claimed redundancy pay and damages for breach of contract. The original employment tribunal ruled that Mr. Franks was not an employee of either Reuters or First Resort, and this was upheld by the EAT on appeal.

The Court of Appeal confirmed that a principal factor in deciding whether an individual is an employee in the context of employment law is "mutuality of obligation". As Mr. Franks was supplied by an employment agency, he was entitled to stop working for Reuters at any time, and Reuters were able to bring his work to an end at any time. However, the Court of Appeal decided that, in deciding whether or not there was "mutuality of obligation", the original tribunal had not properly addressed the issue of whether, on the evidence, a contract of employment could be implied from the circumstances of his work for Reuters.

In this particular case, the Court of Appeal considered two areas where the nature of Mr. Franks work could indicate employment. One was the various documents that indicated the internal rules under which he worked, the other was the length of time he worked for Reuters. On this latter point, Lord Justice Thorpe stated:

"Whilst I would agree that a person cannot become an employee simply by reason of the length of time for which he does work for the same person, the tribunal appear to have treated the evidence of length of service as irrelevant to the employment issue. In my judgment, it is not irrelevant evidence in the context of an individual who sought a temporary placement through an employment agency, but was then allowed to stay working in the same place for the same client for over five years, during which period he was re-deployed. Dealings between parties over a period of years, as distinct from the weeks or months typical of temporary or casual work, are capable of generating an implied contractual relationship."

The Court of Appeal allowed the appeal and remitted the case for a re-hearing by a fresh tribunal in order to determine whether Mr. Franks, in the light of all of the evidence, was an employee to a fresh employment tribunal.

The normal approach to employment status issues is that, if a worker is supplied by an agency that is a limited company, under a contract between that agency and the client, the worker is not an employee and the client does not have to consider any employment status issues. This Court of Appeal decision indicates that there are situations where an agency worker could be considered to be an employee if the contract has continued for a number of years and the nature of the work indicates that some "mutuality of obligation" has developed.
(Source: www.courtservice.gov.uk/judgmentsfiles/j1694/franks_v_reuters.htm)
... back to 2 May 2003

Consultation on agency workers

As explained in issue 2 of Payroll Briefing, the European Commission has proposed a directive on "working conditions for temporary workers". Temporary workers in this context are what are normally called "agency workers" in the UK.

The key features of the proposals are as follows:

• An agency worker assigned to work under the control of a client company should not be given less favourable basic employment conditions than a similar permanent worker in that client company, unless this is objectively justified.
• The basic employment conditions set out in the directive are: the duration of working time, rest periods, night work, paid holidays and public holidays; pay; work done by pregnant women and nursing mothers, children and young people; and action taken to combat discrimination on the grounds of sex, race or ethnic origin, religion or beliefs, disabilities, age or sexual orientation.
• Member states can chose not to apply this equal treatment requirement (1) where temporary agency workers are employed on permanent contracts (i.e. where they are paid by the agency between assignments), (2) where their terms and conditions are governed by collective agreements, or (3) where their assignments can be accomplished in six weeks or less.
• Member states should periodically review restrictions on the use of temporary agency workers and take specified measures to make it easier for them to find permanent jobs.
• Client companies should give agency workers access to 'social services' provided to permanent workers, and inform them of permanent vacancies.
• Clauses intended to prevent a client company employing an agency worker at the end of an assignment should be null and void.

In a number of respects, agency workers in the UK are in a different position to those in other European states. In many states, the three-way relationship between the agency, the client and the worker, is tightly regulated but, in the UK, the regulatory framework is very flexible. Most states treat agency workers as employees of the agency. In the UK, however, the situation is confusing; some workers are treated as being self-employed, others are given employment status by the agency, whereas the courts have commonly treated agency workers as having a special contract because they are neither employees of the agency nor of the client.

The Government wishes to understand the impact that the proposals will have on temporary agency work in the UK and has published a consultation document setting out the issues and asking for comments from interested parties. In particular, the Government is seeking:

• views on and evidence of the impact of the proposals on the UK labour market as a whole,
• evidence of the likely impact of the proposals on employment rates, opportunities for work seekers and the working conditions of agency workers,
• views on and evidence of their impact on current UK practice, including examples or case studies if possible,
• any evidence of problems with temporary agency work in the UK, and
• views on whether there are any alternatives to regulation that would satisfactorily meet the objectives of the directive or any other perceived problems with temporary agency work.

The consultation paper and supporting documents are available at www.dti.gov.uk/er/agency/consult.htm . Comments must be received by 18 October 2002. Any resulting legislation in the UK on agency workers is several years away. Even if the proposal is accepted as a directive, the UK would have usually at least two years to introduce the necessary legislation beyond the transposition date.
Payroll Briefing 5 - 28 August 2002

Agency Workers

The Government intends to introduce new rules covering the operation of employment agencies and providing protection for persons using their services. It is not yet clear when the new Regulations, already published in draft format, will come into force. More recently, the European Commission has announced its proposals to introduce a Directive on agency work. As this will take several years to be approved and brought into UK legislation, it is not expected to affect the Regulations currently awaiting introduction.

The Directive will have as its purpose the prevention of less favourable treatment to agency workers in terms of their employment conditions when compared with the permanent workers in the client companies to whom the agency workers are supplied. It is not expected to apply to workers who are placed for less than six weeks, or to agency workers that are covered by collective agreements.

Nine member States already have provisions requiring equal treatment between agency workers and similar workers in client companies. The Government is concerned that the Directive would impose significant administrative burdens on agencies in order to match the differing terms and conditions that apply in their client companies and would mean that the agency workers' employment conditions would change significantly between assignments.

Further information at www.dti.gov.uk/er/agency/directive.htm .
Payroll Briefing 2 - 20 June 2002