Case round up: Agency staff

Cable & Wireless v Muscat, Court of Appeal, 9 March 2006

Until a couple of years ago, it was thought very unlikely that agency workers could properly be classified as employees of the end-users of their services. This was because there will not usually be any express contract between an agency worker and the end-user.

However, in the case of Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358, the Court of Appeal (CA) said that it was important to consider the possibility of there being an implied employment contract between agency workers and end-users.

One of the appeal judges was convinced that most agency worker situations would give rise to an implied employment contract. Another, however, took the opposite view, while the third was not committed either way but seemed inclined toward the view that there would, ordinarily, be an employment contract with the end-user.

The case caused consternation among users of agency staff, because the judgment was viewed by some as all but requiring tribunals to find that individuals working in traditional agency relationships with a single end-user are employees of that end-user.

The risk of an end-user of agency staff being found to be an employer has now, however, been tempered somewhat by another decision of the CA: Cable & Wireless v Muscat.

Background

Mr Muscat was employed by Cable & Wireless and, although payments were made to his service company (E-Nuff), Cable & Wireless told Muscat that in future it wanted him to provide his services through an agency, Abraxas, which already had a contract to supply personnel to the global communications company.

A separate contract was then entered into between E-Nuff and Abraxas for the supply of Muscat’s services to Cable & Wireless, and Muscat continued working as before under the direction of Cable & Wireless. His only contact with Abraxas was in relation to the payment of his invoices.

Decision

In December 2002, Muscat’s contract was terminated. In light of the decision in Dacas, the tribunal considering his unfair dismissal claim was satisfied that there was an implied contract between Muscat and Cable & Wireless. Cable & Wireless appealed.

Appeal

The CA viewed Dacas as having said that tribunals should consider the possibility of the existence of an implied contract in the light of all the evidence about the relationships between the various parties. That includes any written agreements and oral statements as well as the conduct of the parties. What the guidance in Dacas does not do, the CA said, is to direct tribunals to reach any particular conclusion.

Significantly, it accepted that no contract could be implied unless it was deemed as necessary to give business reality to a transaction – a point that was not considered in any detail in Dacas. In essence, the test for necessity usually means that an implied contract cannot exist if the parties would or might have acted exactly as they did in the absence of a contract.

On the facts of the Muscat case, the CA held that there was an implied contract, because before Muscat entered into the arrangement with the agency he was already in an employment relationship with the end-user. That employment contract was not terminated when he entered into the contract with the agency – the only thing that changed was the arrangement for payment.

Comment

At first glance, this case may appear to re-emphasise the problems for end-users who want to avoid creating employment relationships with agency staff. The reality, however, is that by acknowledging that an implied contract can only exist in certain circumstances, the CA has thrown users of agency staff a lifeline.

The important point is that most agency workers will not be in an existing employment relationship with the end-user before converting to agency status.

Even if there is an existing relationship, the end-user organisation can distance itself from the facts as found in Muscat by clearly terminating that relationship. Where the relationship between the worker and end-user can be fully explained by reference to contracts between, respectively, the worker and the agency and the agency and its client, it will then be harder for an agency worker to claim there is an implied contract between the worker and the end-user.

End-users need to have watertight contracts in place. That way, there will be little chance of others filling the gaps by implying contractual relationships where none were intended.


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