Employee Status and Applying Common Law

Employee status is a perennially contentious feature of employment law. The workforce is ever more complex and, although employees are progressively granted rights and protection, employers have required a flexible and inexpensive means of using workers. While employers are considered to have ‘inherent power of command’ they are mindful of engaging individuals under contracts of employment, which gives rise to further administrative responsibilities. [1] At the same time, legislators have wrangled over the scope of the term ‘employee’ by applying tests that are not always suitable to determine the practical realities of the situation. On several occasions this has resulted in outwardly unfair decisions particularly where agency workers are concerned. Such situations will be examined here. The imminent arrival however of the Agency Workers Regulations (AWR) 2010 will aim to rectify the perversity of these rulings. Although this area is in need of reform, the economic difficulties experienced by employers should be considered.

As an outline, this essay will scrutinise the inconsistency of decisions and difficulties in applying common law tests surrounding the status of agency workers. It will be shown therefore that the boundary between a ‘contract for services’ and a ‘contract of employment’ is obscure.  Furthermore, it is notable that academics and practitioners remain in a difficult position when advising as “No broad statement of principle emerges and the question of whether an implied contract exists with the end-user is regarded as very much one for the fact-finding tribunal to determine”. [2] This difference in the two contract forms is of particular importance in the context of unfair dismissal and redundancy. An examination will be made of whether rulings would be decided differently under the AWR 2010. This essay will conclude by determining the need for a radical reform in view of the case law referred to.

The early confusion and ‘irreducible minimum of obligations’ and control

In McMeechan v Secretary of State for Employment [3] the agency worker was engaged by the end-user as a catering assistant. When the agency that posted the worker entered into insolvency, the worker was removed from his role with the end-user. In the circumstances the worker claimed a redundancy payment from the agency on the basis that he was an employee. The Court of Appeal held that a case should be determined on their facts alone. Importantly the Court said that the relationship is therefore dependant upon the ‘mutuality of obligations’ whereby the employer offers work, which the employee subsequently accepts. [4] Importantly, ‘mutuality’ does not equate to ‘casual, as required’, and it is considered to be an ‘irreducible minimum’ for a contract of employment. [5] This test lays the foundation for case-law analysis in this area, yet its application has been the subject of much debate. [6]

In McMeechan Waite LJ said that ‘the fact that the parties are not to be obliged in future to offer – or to accept – another engagement with the same or a different client must be neither here nor there’. As the claimant agency worker was engaged with the insolvent agency on a temporary 4-day arrangement, a contract for services existed. The claim for a redundancy payment failed.

The subsequent test case for agency workers came in Montgomery v Johnson Underwood Ltd. [7] Here, the claimant and end-user negotiated significant terms of engagement including pay and working hours. When the end-user sought to remove the claimant for the time she spent on personal phone calls, they instructed the agency to disengage her. The agency worker averred unfair dismissal as an employee of the agency having worked for more than two years. While the ET and Employment Appeal Tribunal (EAT) held that she was an employee of the agency, the Court of Appeal held that a lack of mutuality of obligations and sufficient ‘degree of control’ rendered a different outcome. The ‘control’ element has its origins in early twentieth century case law, [8] and became redundant owing to the increased sophistication of the workplace. Although the Court of Appeal understood the approach of the ET and EAT in seeking to protect a vulnerable agency worker with employee rights, this was a matter for Parliament to consider and enact through legislation.

For that moment employers and agencies alike understood ‘the orthodox view was that agency workers were employed by neither the agency nor the end-user’. [9] It was also notable that the vulnerability of agency workers was more prominent in blue collar/manual labour roles with a high level of rotation. [10] Agency workers are still engaged in these sectors such as manufacturing and transport, however the financial services industry has also exploited the advantages of a more flexible workforce. [11]

Indistinguishable agency workers

However, agency workers have a budding presence in more scientific roles. This leads us to our next case that considers whether the agency worker is indistinguishable from other employees. This denotes the ‘integration test’ used to determine whether a worker is ‘integral’ to the operation, or simply an accessory to it. [12] This is particularly important for an agency worker, as it may then be possible for an implied contract of employment to arise. This situation came to the fore shortly after the decision in Montgomery. In Motorola Ltd v Davidson [13] the agency worker was able to request holiday with Motorola, use company equipment and voice grievances through their procedures. The claimant was disengaged and brought an unfair dismissal claim. The ET found a contract of employment existed, which was subsequently upheld by the EAT.

Although the reasoning for this decision was accepted, the courts were quick to differentiate general commercial arrangement with employee-employer relationships. In Hewlett Packard Ltd v O’Murphy [14] an agency worker acted through his own company but was appointed to role with an and end-user through an agency. The EAT overturned the tribunal ruling and asserted that in the absence of a contract between O’Murphy and the end-user employer, a contract of services existed only.

The decisions of Hewlett Pack and Motorola added clarity to the position of agency workers. At the same time however, the ruling of Esso Petroleum Co v Jarvis [15] held that agency workers engaged for 9 and 11 years were not employees. The EAT accepted the claimants’ argument ‘that they regarded themselves as being an integral part of the Esso team’, and that they were ‘controlled’ by the company. A contractual relationship existed between the claimants’ and agency only, and the EAT reversed the tribunal’s finding. The unfairness of this ruling is likely to be remedied under the AWR 2010, and will be considered in due course. [16]

The logical argument of Motorola came into the open in the Court of Appeal decision of Franks v Reuters Ltd. [17] Here the agency worker was engaged for a period of 6 years at Reuters. Upon the disengagement of the worker, a claim of unfair dismissal ensued and the worker sought recovery of a redundancy payment. Over the lengthy engagement period, a contract of employment had been implied (distinguished the decision in Esso). An implied contract was deemed to have been created overriding the original agency agreement. Following this decision ETs were advised ‘to examine the total ‘factual matrix’ in order to discover a contractual basis for behaviour between the worker and client’. [18]

Further clarification was provided in Dacas v Brook Street Bureau. [19] The claimant was posted by an agency to a local council as a cleaner between 1996 and 2000 pursuant to two contractual arrangements. The arrangement of payments, discipline and grievances were dealt with by the agency, however the practical matters were handled by the end-user. Importantly, the agency was not under a duty to provide work, thereby defeating the mutuality of obligations requirement.

The Court of Appeal therefore held that those arrangements did not amount to a contract of employment. Through obiter however, the Court said that the Council had day-to-day management and ‘control’ of the worker, and that had the claimant pursued her case against the Council, she would be deemed an employee. In spite of the arrangements in place to govern the administration and nature of the work, this did not amount to a contract of employment. Reynolds QC acknowledged the problem:

…in any case where an agency worker is introduced to the end user pursuant to contractual arrangements which purport to govern exhaustively the parties’ respective rights and obligations, there is simply no scope for ‘deducing’ a contract of employment between worker and end user by way of necessary inference…

Based on this outcome, ETs must therefore have regard to the practical arrangements of the relationship between the 3 parties. Contractual arrangements therefore that attempt to determine the various rights and obligations of the parties may be overridden by in any event by lawmakers. It was held in Cable & Wireless plc v Muscat [20] by Smith LJ that ‘the continuing existence of the employment contract in order to give business reality to the relationship and arrangements between’ the parties. Here, convoluted arrangements resulted in the claimant working under a supposed ‘contract for services’, which was not deemed to be the case as the previous company Muscat worked for was taken over by Cable & Wireless. The claimant was successful in bringing his claim of unfair dismissal.

Battle of the terms

The agency worker may have express terms with both the agency and end-user. It is then for the court to consider the conduct of the parties to determine which contract suitably applies. This was the case and point in Cairns v Visteon. [21]

Here the agency worker was engaged for 4 years, but was released from the end-user for supposedly falsifying timesheets. While the agency disproved the allegations, neither the end-user nor agency re-engaged her. Although the agency provided a redundancy payment, the worker averred that she had been unfairly dismissed by the agency. Sedley JL provided that the worker was not an ‘employee’ under the test of mutuality of obligations.

The integration test was then examined in National Grid Electricity Transmission Plc v Wood. [22] Here, the operations manager was a ‘wholly integrated member of staff’, in spite of being posted to the role by an agency.  A contract of employment was implied between the claimant and end-user.  The former contract between the claimant and agency was not representative of the relationship at the time of the dispute.  There was an irreducible minimum whereby the claimant fulfilled his role personally and a substitute could not be appointed.  The claimant was also able to negotiate the fundamental terms of contract including his pay and notice period.

The starting point nevertheless should be the express terms. However, in James v Greenwich LBC, [23] the Court of Appeal considered an arrangement where parties fail to enter a contractual despite a longstanding arrangement. A tribunal has difficulties enough when a contract exists, but the absence of a contract merely compounds the matter and places further risks on a claim by an agency worker. As highlighted ‘It remains the case that many agency workers have no contract of employment at all and the Court of Appeal in James has done little to ameliorate their position’. [24]   It is the case though that if the worker has a say in the primary terms of an arrangement with an end-user, a contract may be implied. James failed in her claim of unfair dismissal, which appeared grossly unfair, and would no doubt have been different under the AWR 2010.

Conclusion in light of the AWR 2010

The AWR 2010 will come into force on 1 October 2011. It has the aim of clarifying the common law uncertainty while protecting around 1.25 million workers in the UK. Agency workers will be afforded similar rights as employees in respect of working conditions and pay having fulfilled a 12-week qualifying period. As was stated in the opening of this essay, there will be an increased administrative and financial burden placed on the employer, which may result in a reluctance to use this category of worker. Employers will also be further exposed to the likelihood of litigation. This concern has not been ignored and there is every chance that the AWR 2010 will enter into force in a diluted form as ‘our new Prime Minister had lodged an Early Day Motion during the last session of Parliament which proposed revocation of the Agency Workers Regulations 2010’ given the increased strains on employers. [25]

There may also be merit in this opposition on the grounds that the common law has failed to clarify how the triangular relationship should work in practice. As has been seen in this essay, the tests used to determine employment status are dated and in need of reform. As one commentator suggests, ‘by the Court of Appeal’s own admission, the British legal system has so far failed to clarify the complexities of triangular work relationships, effectively determining an absence of job protection for agency workers’. [26]   It is therefore necessary to initiate a logical framework for agency workers before prescribed rights are afforded to them.

The unsettled nature of the agency worker is obvious. This essay has examined the inconsistency of decisions. Motorola, Franks and Muscat notably altered early rulings that had an ostensible air of unfairness such as McMeechan, Montgomery and Esso. The current position in the light of Cairns, Woods and James remains unclear. The AWR 2010 will optimistically encourage the courts to hark back to a more sensible and fair approach. Applying common law tests of mutuality and control, which have origins in the twentieth century, poses a risk to agency workers. Proper legislation is therefore required to afford protection, yet given the current economic climate; it is doubtful whether the AWR 2010 will go far enough. Indeed, there is a desperate need for ‘clear policy objectives in order to ensure that some of the relationships currently on the periphery of the employment nexus continue to function fairly and efficiently’. [27] The by-product of the AWR 2010 may well be that employers seek to employ workers under a contract of employment for greater certainty. Yet, this is sanguine and unlikely given the costs associated with employment. The Government may well have enacted legislation that increases unemployment to the detriment of the social-welfare economy, and no doubt will be examined by many more commentators in the near future.

Bibliography

Articles

Brodie, D ‘Agency workers: common law stalemate’, Employment Law Bulletin, vol. 83 (2008) 4 – 6.

Countouris, N. & Horton, R. 2009. The Temporary Agency Work Directive: another broken promise? Industrial Law Journal, (38) pp. 329

Davies, C. 2004. Status Anxiety – new guidance from the Court of Appeal on agency workers, Employment Law Bulletin, pp. 3

Freedland, M, From the Contract of Employment to the Personal Work Nexus (2006) Industrial Law Journal (35) 1-35

Reynolds, F. 2006. The Status of Agency Workers: A Question of Legal Principle, Industrial Law Journal, (35) pp. 323

Rogers, L. 2010. Time to train: a new impetus for skills developments in the workplace, Industrial Journal, (39) pp. 317

Wynn, M. & Leighton, P. 2006. Will the real employer please stand up? agencies, client companies and the employment status of the temporary agency worker, Industrial Law Journal, (35) pp. 304

Wynn, M. 2008. Temporary agency working: tide turns on temps, Company Lawyer, pp. 275

Books

S. Deakin & G. Morris, ‘Labour Law’ (5th ed)(Hart Publishing, 2009)

M. Freedland, The Personal Employment Contract (Rev.ed. Oxford: Oxford University Press 2009)

I. Smith & G. Thomas, Employment Law (9th edn OUP, Oxford 2008)

Case Law

Cable & Wireless plc v Muscat [2006] ICR 975

Cairns v Visteon [2007] IRLR 175

Carmichael v National Power [1999] ICR 226

Cassidy v Ministry of Health [1951] 2 KB 343

Dacas v Brook Street Bureau [2004] IRLR 190

Esso Petroleum Co v Jarvis [2002] All ER (D) 112

Franks v Reuters Ltd [2003] IRLR 423

Hewlett Packard Ltd v O’Murphy [2002] IRLR 4

McMeechan v Secretary of State for Employment [1997] IRLR 353, CA

Montgomery v Johnson Underwood Ltd [2001] IRLR 269

Motorola Ltd v Davidson [2001] IRLR 4

Nethermere (St Neots) Ltd v Taverna & Gardiner [1984] ICR 612, CA

Performing Right Society Ltd v Mitchell and Booker Ltd [1924] 1KB 762

Ready Mixed Concrete (South East) Ltd v Minister of Pension and National Insurance [1968] 2 QB 497