Selected cases reported on disputed employment status.
Here we list a selection of key cases on the rights of agency workers, providing a summary of the decision and implications for employers.
Coles v Ministry of Defence | Employment Appeal Tribunal | 31 Jul 2015
Issue: Internal vacancies
An agency worker at the Ministry of Defence (MOD) was given notice that his assignment would end. This was due to a substantial restructure, with hundreds of permanent employees at risk of re-deployment. The agency worker was informed of a subsequent vacancy, but was not encouraged to apply for his old role. It was clear that the at risk permanent employees would only be considered for vacancies. The agency worker claimed breach of the equal treatment provisions of the Agency Workers Regulations 2010 and the Temporary Agency Worker Directive, alleging that the MOD was giving preference to those in the redeployment pool over him and failing to consider him for interview.
The Employment Appeal Tribunal decided in favour of the MOD. The right to equal treatment for agency workers covered basic working conditions such as working hours and pay, but did not extend to the right to be equally considered for alternative roles. Employers are entitled to give priority to their permanent employees. The employer was therefore not discriminatory by giving preference to its at risk permanent employees over temporary staff.
The MOD had complied with its legal obligations by informing agency workers of the vacancy. The agency worker could apply for the role if he wished, but the virtual certainty of his application being rejected was irrelevant.
Implications for employers
- Agency workers have a right to be equally informed of vacant positions (under the Agency Worker Regulations 2010).
- It is normally not discriminatory for an employer to offer a job currently occupied by a temporary agency worker to its permanent employees.
- The right to be informed of vacancies does not give agency workers a right to compete with employees for permanent posts.
- Agency workers do have a right to equal treatment in relation to working time and pay.
Smith v Carillion (JM Ltd) | Court of Appeal | 18 Mar 2015
 EWCA Civ 209
Issue: Agency workers and employee status
The claimant was engaged to do construction work for Carillion Ltd (the end-users) through an employment agency. He alleged that he was blacklisted and received detrimental treatment from Carillion. He claimed detrimental treatment on grounds of trade union activities and activities as a health and safety representative under section 146 of the Trade Union and Labour Relations (Consolidation) Act 1992 and under section 44 of the Employment Rights Act 1996.
To pursue his claims the claimant had to establish that he was an employee. He said that an employment relationship should be implied because he was:
- interviewed before his appointment
- engaged on long-term assignments
- fully integrated into the managerial structure
- subject to a significant degree of control, and
- his ‘dismissal’ was decided by Carillion.
The Court of Appeal and Employment Appeal Tribunal agreed with the employment tribunal that no contract should be implied at all. There was no evidence that the contract between the agency and the end user was a ‘sham’, and an employment contract could be implied only if it was necessary (in accordance with the principle in James v London Borough of Greenwich (2008)).
Whether a contract should be inferred with an end-user depended on the test of ‘necessity’. An employment contract will not be inferred if the relationship between the parties can be explained without implying such a contract. The Court of Appeal held that it was not necessary to imply a contract between an agency worker and the end-user. Therefore the claimant could not bring his claims as he was not an employee or worker of the respondents.
In the Court of Appeal it was also argued that that blacklisting is a breach of Articles 8 (Right to respect for private and family life) and 11 (Right to freedom of assembly and association) of the ECHR. This Human Rights Act 1998 appeal was also dismissed, primarily because the acts complained of occurred before the Act came into force. The CA therefore refused to agree a ‘declaration of incompatibility’.
(The UK government intervened and admitted that the blacklisting of trade unionists is a breach of Articles 8 and 11 of the ECHR, but despite this admission argued that the Court should not issue a ‘declaration of incompatibility’)
Implications for employers
- In October 2014 the Government announced a broader review of worker status and it remains to be seen if this employment status review will extend the scope of protection.
- In the meantime this case is one of the most recent which reviews the principles concerning the employment status of workers which has been the subject of a series of decisions over the years. The question of the employment status is particularly complex when individuals are engaged through an agency to work for an end-user client.
- The worker often wants to establish employment rights and alleges that an implied employment contract has arisen between them and the end user.
- The leading case of James v London Borough of Greenwich emphasised that an employment contract between an agency worker and the end user will only be implied if it is necessary.
- For example, necessity may arise if there is no express contract between the agency and the end user or if there is evidence of a sham, such as using a purported agency, client relationship to avoid tax liabilities.
- Where there is a contract which adequately describes the true relationship between the parties, then that contractual position will not lightly be cast aside.
- Staff on long-term agency arrangements who seek to establish employment status with the end user will not succeed if the written agreement between the parties adequately explains the relationship.
- Employers should keep contractual relationships with agency workers and self-employed contractors under review.
- Employers should ensure that any contracts used reflect their intentions in respect of employment status and are clearly expressed to limit the likelihood of an employee relationship arising.
Moran v Ideal Cleaning Services Ltd | Employment Appeal Tribunal | 3 Dec 2013
Issue: The meaning of ‘temporary’
A cleaning company employed a number of cleaners who it then placed with a client on a long-standing arrangement. One of the employees had worked for the same client company for 25 years. Following the Agency Workers Regulations 2010, the cleaners employed by the agency working for the client claimed entitlement to equal treatment with the permanent workers of that client company.
It was held by both a employment tribunal and the Employment Appeal Tribunal (EAT) that the employees fell outside the Regulations. They were not qualifying agency workers because the Regulations and the Agency Workers’ Directive, which triggered them, apply only to workers who work temporarily for the end-user. In this case the agency workers were not temporary. It was not the length of the assignment which meant that that they did not qualify, but the fact that the employees cleaned for the client on an indefinite basis.
Implications for employers
- The Regulations provide workers who have worked for a 12-week qualifying period with the ability to claim equal treatment with permanent staff.
- This important decision (unless appealed) potentially reduces the impact of the Regulations in the UK.
- It now appears that workers who are placed with the end-user on an indefinite rather than temporary basis are not in fact covered by the Regulations.
- In the UK agency workers are often placed for indefinite periods with specific clients. If these arrangements are open-ended they may fall outside the Regulations as they are not temporary.
- The EAT said that temporary contracts do not have to be short to be covered by the Regulations, but they should not be open-ended.
- The workers engaged in this case were however on very long-term placements and it is not known whether the Regulations would be dis-applied for shorter length placements, even though the EAT said that the duration was not the crucial factor.
- Employers engaging agency workers and agencies will be pleased with this decision as, if they place workers on an indefinite, open ended basis, then they do not have to provide parity of terms with permanent staff and are less likely to face challenges over agency worker pay and conditions.
- However if an agency worker is placed as cover, perhaps until some specific project is completed or until a fixed period expires (for example until another employee returns from maternity leave or a sabbatical), the arrangement would not be open-ended and the Regulations would still apply.
- Employers using agency staff must consider their arrangements with the agency. If there is a genuine paper-trail which proves the placement is indefinite the employer will be less vulnerable to claims under the Regulations.
- This case remains the best guidance on the Regulations unless it is appealed. Amending legislation is unlikely.
- However, further cases in the European Court of Justice (ECJ) are likely, as the wording of the Directive could easily be interpreted to mean that UK agency workers on open-ended assignments are protected by the Regulations contrary to the decision of the EAT in this case.
- It is perfectly possible that another case reaching the the ECJ on open-ended agency working could find that the agency workers do have rights under the Directive after all.
- It is logical that if agency workers on open-ended assignments were intended to be excluded from the Directive and the UK Regulations, then this would have been expressly stated.
- As this case was extreme on the facts, future cases may be decided differently, so employers and agencies should probably be cautious until other cases emerge.
- Some employers will be prepared to risk relying on this case and decide only to equalise terms for agency workers on ‘closed ended’ placements. Other employers will be less confident that the Regulations really are to be interpreted as restricted.
- Employers should also consider carefully worded indemnities from the agencies supplying them with staff if these are available.
Bray v Monarch Personnel Refuelling UK Ltd | Employment Appeal Tribunal | 28 Sep 2012
(unreported, ET/1801581/2012 28 September 2012, ET)
Issue: Agency workers employed on zero hours contracts
This case concerned a group of tank drivers employed by an employment agency on a zero-hours contract which supplied them as agency workers to drive BP’s tankers. The drivers had worked continuously for BP on a series of regular assignments.
The employer paid BP drivers £1 an hour more than other drivers, although drivers recruited directly by BP were represented by an active union and were paid more than the agency workers.
The situation fallls within what is known as the Swedish derogation (an exception contained within regulation 10 of the Agency Workers Regulations). This means that agency workers do not have to be paid the same as comparable employees of the hirer provided that:
- they are employed directly by the agency;
- they use contracts that include an obligation to pay agency workers when they are not working on assignments for at least four weeks.
BP instructed the employer to employ drivers under Regulation 10, the Swedish derogation. As a result, after a meeting, the agency drivers were issued with new contracts of employment. A dispute arose about the various conditions that are needed for the Swedish Derogation to be effective. Had the agency workers agreed to a new contract, incorporating the Swedish Derogation, and waived their right to equal pay with the permanent drivers? Regulation 10(1)(a) says the contract of employment must be entered into before the beginning of the first assignment under that contract. The ET held that the agency workers had been given the new contract ahead of starting their first assignment and that an assignment meant the particular assignments the agency received from BP, not the entire period during which the agency workers had been hired out to BP.
Implications for employers
- Under the Agency Workers Regulations 2010 (AWR), agency workers are entitled to the same basic employment and working conditions as if recruited directly as permanent staff, following completion of a 12-week qualifying period.
- The Swedish derogation contained in Regulation 10 is an exemption which denies agency workers the right to equal treatment in relation to pay and holiday pay.
- However, the derogation gives agency workers a minimum payment when they are out of work between assignments and there is no suitable alternative work to do.
- The derogation applies to pay and holiday pay only and does not stop agency workers from being entitled to other provisions under the AWR, such as equal treatment over rest breaks, job vacancies and length of working time.
- An agency worker can be transferred from a 'standard' agency contract to a 'Swedish derogation' contract, even if the agency worker will be working in the same way for the same client of the agency.
- Employers can continue to enter into new terms with agency workers already on assignments with the same hirer, as long as the new terms are entered into before the start of the next assignment.
- The interpretation of assignment is very important in understanding the Swedish derogation. If assignment meant the entire period in which an agency worker is hired out to any hirer, it would be possible to enter into a Swedish derogation contract only at the start of the relationship with a new client of the agency.
- It is possible for agencies to create with an existing hirer a new contract falling within the Swedish derogation if new terms are entered into before the start of the first assignment under the new terms.
- Where a contract is already in place with an agency it will not be necessary to create an entirely new contract in order to put the Swedish derogation in place; existing contracts can be varied to include these terms.
- The decision is only an Employment Tribunal decision and may be subject to appeal.
Unison v London Borough of Barnet and another | Employment Tribunal | 4 Feb 2013
Issue: Agency workers and TUPE
This case involved a redundancy exercise across Barnet Council and the TUPE transfer of more than 100 employees from the Council to two new employers. One transfer was of housing staff and the other was of parking staff. This redundancy exercise also resulted in 16 redundancies.
During the formal consultations the union UNISON asked for agency worker information which the union subsequently claimed was insufficient, especially regarding agency workers, and prevented effective consultation. The Council had given information about the total number of agency staff, but had not given an adequate set of information about where those agency workers were working within the organisation. Nor did they give sufficient information about the type of work that was being carried out. UNISON claimed against the Council for failure to provide information regarding agency workers.
UNISON won and the employment tribunal found that the Council breached its consultation obligations under both collective redundancy legislation and the TUPE regulations. The tribunal said that the information was insufficient and this breach was especially serious in relation to the redundancy exercise. The employers might have been able to reduce the number of agency staff and that might have helped them save jobs and reduce the number of redundancies. The tribunal therefore made a protective award for 60 days’ pay for each of the 16 redundant employees.
In relation to the TUPE consultation the breach was less serious, but the duty should still be complied with. The non-compliance was more than a technical failure and the tribunal awarded compensation of 40 days’ pay for employees affected by the first transfer and 50 days’ pay for those affected by the second transfer.
Implications for employers
- Employers must remember agency workers when collective consultation takes place, as failure to provide agency workers information will not be regarded as a mere technical breach and can result in a protective award.
- Under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), employers must inform and consult employees about collective redundancy dismissals.
- Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), both transferor and transferee employers must inform and consult trade union or employee representatives in relation to their own employees who might be affected by a TUPE transfer, or related measures.
- Employers must comply with the Agency Workers Regulations 2010, which oblige employers to provide information on agency workers during TUPE and collective redundancy consultation, including the number of agency workers, the areas of the business where agency workers are used and the type of work being carried out.
- This case shows how much information must be given in relation to agency staff. In this context, an adequate set of information includes where the agency workers work within a complicated structure in the organisation and the type of work that was being carried out by them.
- Employers must keep adequate records tracking agency staff, including what work is being carried out. This information should be disclosed during TUPE or collective redundancy consultation processes.
Muschett v HM Prison Service | Court of Appeal | 2 Feb 2010
 IRLR 451
Issue: duty of personal service
The claimant was an agency worker who was assigned to work in a prison laundry on a temporary agency basis. After a few months the assignment was terminated by the prison. The claimant brought unfair dismissal, sex, race and religious discrimination claims against the prison and the agency. The employment tribunal dismissed the claims, finding that the claimant had no direct contract with the prison, was paid by the agency and that all parties could terminate the assignment at any time without notice. There was a contract for services between the claimant and the agency. The claimant was not an employee of the prison as there was no mutuality of obligation between them and therefore no contract of employment and no unfair dismissal claim. He was also not an employee of the agency, so a discrimination claim as a ‘contract worker’ would fail. The employment tribunal went on to find that the claimant was not protected by section 7 of the Race Relations Act 1976, as this requires an agency worker to have a contract with the end-user (the prison) to provide services to them personally.
The Court of Appeal, in upholding the Employment Appeal Tribunal’s decision, agreed that the claimant would not succeed against the prison or the agency. The claimant was also not in employment for the purposes of discrimination law. The only way that an agency worker could be protected from discrimination from an end-user was to show that it was ‘necessary’ for the Court to imply a contract for services with that end user. Where, as in this case, the contract between the claimant and the agency was clear, the courts are unlikely to do so.
Implications for employers
- It has been an established for some time that when considering the triangular relationships between agency, worker and end-user, the tribunals and courts will rarely imply an employment contract between the worker and end-user (see James v Greenwich Borough Council).
- Some agency workers will be able to bring discrimination claims on the basis of their legal relationship with the employment agency.
- Employers must keep an eye on the use of all agency workers if they wish to avoid those workers enjoying the benefits of employee status.
- Employers who use agency workers should always address workers status in a clear contract with the agency and ensure that effective contracts are in place between the agency and the worker.
- Employers are less likely to find themselves the employers of all of their agency workers as the recent decisions show a reluctance to imply a contract between an agency worker and an end-user unless it is necessary to do so.
- A contract of employment will still be implied against employers if it is necessary to do so and the arrangements under which the employee is working are only explicable by there being such a contract.
- A contract of employment will not always arise with agency workers, but the risks ought to be assessed and managed.
- A tribunal will assess the whole of the evidence including any contractual documents between the worker and the agency, between the agency and the end user and the conduct of the parties to determine if the relationship has become an employment one.
- All organisations using agency workers on a long term basis are at risk of acquiring responsibilities towards them as with other employees.
- An employer will only be vulnerable to a finding that there is a contract of employment if other essential ingredients for a contract of employment are present between the worker and the end user, including the obligation to personally provide work and the obligation to perform it (mutual obligation).
Please note: While every care has been taken in compiling these notes, CIPD cannot be held responsible for any errors or omissions. These notes are not intended to be a substitute for specific legal advice.