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Status of Agency Workers

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The Court of Appeal has overturned the EAT's decision in Dacas v Brook Street Bureau (for which, see my bulletin of 26/3/03, below). By a majority, they give a clear steer that the end-user in an 'temp' worker scenario is, for unfair dismissal purposes, the employer.

Mrs Dacas was a cleaner working for Wandsworth Council. She was not employed directly by the Council; rather, she was engaged through the Brook Street Bureau as a 'temp'. She worked for Wandsworth for four years - more than long enough to give her employment rights if she were an employee.

The employment tribunal held that she was not an employee of Wandsworth (because there was no direct contract between them, and thus no contract of employment). Nor was she an employee of Brook Street because, although a contract existed, it lacked day-to-day control over her activities and therefore could not be said to be her 'employer'. Accordingly her claims for unfair dismissal failed against both potential employers.

She appealed against the finding that she was not employed by Brook Street Bureau (but did not appeal the finding against Wandsworth). The Employment Appeal Tribunal upheld her appeal, on the grounds that paying wages, having the right to terminate and having the right to exercise disciplinary functions was sufficient 'control' to say that Brook Street Bureau was her employer. This was a controversial decision at the time (see my comments below in the 26/3/03 bulletin).

The Court of Appeal has overturned the EAT's decision, holding that Brook Street was not the employer within the meaning of the Employment Rights Act 1996.

Giving the leading judgment, Mummery LJ makes it plain that this judgment is intended to set the benchmark for future cases concerning agency workers (paras. 6-7). He stated that the mere fact the contract recorded that Mrs Dacas was not the employee of either Brook Street or Wandsworth could not be determinative, and that (echoing Franks v Reuters) tribunals should always investigate whether an implied contract of employment has arisen between the employee and the end-user (ie Wandsworth). In a crucial passage, which seems to go further that Franks v Reuters by suggesting that the end-user might be the employer as the norm, rather than as an exception, he states:

"...the fact and degree of control over the work done by Mrs Dacas at West Drive 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, while at West Drive, 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 at West Drive. But for the Council’s action she would have continued to work there as previously. It is true that the obligations and the power to dismiss were not contained in an express contract between Mrs Dacas and the Council. The fact that the obligations were contained in express contracts made between Mrs Dacas and Brook Street and between Brook Street and the Council does not prevent them from being read across the triangular arrangements into an implied contract and taking effect as implied mutual obligations as between Mrs Dacas and the Council." (para 53)

However, the Court of Appeal could not substitute a finding that Wandsworth was the employer for the technical reason that Mrs Dacas had only appealed the finding vis a vis Brook Street Bureau, not vis a vis Wandsworth.

Sedley LJ commented "The conclusion of the Employment Tribunal that Mrs Dacas was employed by nobody is simply not credible. There has to be something wrong with it." (para 71). In other words, he was saying that employment tribunals must find that someone is the employer in these agency situations - and went on to say that it would be the end-user. Importantly, he said that one year's employment (ie enough time to accrue unfair dismissal rights) was sufficient to mean an implied contract of employment had arisen (para. 77) - contrast this with the five years service which the Court of Appeal said could give rise to an implied contract in Franks v Reuters. This leaves the position uncertain for cases where there is no qualifying period of employment (eg whistleblowing).

Munby J., whilst agreeing with the other two judges that Brook Street Bureau was not the employer, disagreed with the majority's decision that Wandsworth would be the employer. He considered the lack of mutuality of obligation between the parties fatal, and thought the pre- Franks law, namely that an agency worker is employed by neither agency nor end-user, should stand.

for relevant emplaw commentary, go to
Employment Agencies / a general note
(professional versions only)

Agency Workers can be 'Employees'
26th March 2003

The Employment Appeal Tribunal's decision in Dacas v Brook Street Bureau (unreported, EAT/492/02, 11th December 2002) has been placed on the EAT website.

Mrs Dacas had been working as a temp cleaner, via the Brook Street Bureau, for Wandsworth Council for 6 years. Her contract was terminated summarily. The tribunal found that she was employed by neither Brook Street nor Wandsworth. Whilst she accepted the conclusion as against Wandsworth, Mrs Dacas appealed against the finding that she was not an employee of Brook Street.

Burton J.’s decision turned heavily on the precise findings by the tribunal. The tribunal had found that there was “considerable control” exercised over Mrs Dacas by Brook Street, in the sense that it paid her wages, was entitled to discipline her / terminate her services. It held, however, that day-to-day control was exercised over her not by Brook Steet but by Wandsworth.

It went on to hold that, because of a clear statement in the contract that Mrs Dacas was not an employee of the agency, the agreement between the parties prevented her being an employee. Whilst it is not entirely clear from the EAT decision, it seems that the tribunal also relied on the lack of day-to-day control by Brook Street as pointing against an employment relationship.

The EAT overturned the tribunal’s decision. It held that because of the words in the tribunal’s decision that the agency exercised “considerable control”, then the Ready Mixed Concrete test (see above) was met. Since there was plainly mutuality of obligation, and since it was impossible to say that Mrs Dacas was in business on her own account, the only conclusion that could be drawn was that she was an employee of Brook Street. Although the contract provided that she was not an employee, it was settled law that a label would only be determinative when the other pointers were inconclusive. Here, according to the EAT, the other pointers clearly showed that Mrs Dacsas was an employee of the agency.

The result of this decision is in stark contrast to all the previous cases on agency workers. Dacas v Brook Street does not purport to overrule them and – indeed – does not expressly consider the recent authorities such as Hanbury & Brook Street v EDS and Hewlett Packard v O’Murphy. Whilst the EAT may have been straining to achieve a fair result, its legal reasoning is open to further analysis. In particular:

1. the EAT does not appear to have considered whether the need for control is actually a need for control over day to day activities (which did not exist in Dacas);

2. whilst the EAT asserts that the Ready Mixed Concrete test is met, it does not appear to have considered stage 3 of that test, i.e. whether there are provisions of the contract inconsistent with it being a contract of service.

Despite my comments, the ramifications of this decision are significant. Previously, tribunals have been prohibited by authority from finding that an agency worker is an employee (of anybody). Now the path is open for them to find that the worker is the employee of the temp agency, irrespective of any denials to that effect in the contract between worker and agency. This may have considerable impact on potential liabilities for agencies - they may find themselves liable for any actual (or even constructive) dismissals by their client companies, over which they have no control. In the absence of appropriate indemnities in their contracts with their client companies, temp agencies could find themselves unknowingly liable for very significant sums of money.