Triangular relationships of agency staff contracts

A feature of modern employment law is the complexity of agency arrangements across British industry. The vast majority of employment protection rights only apply to an ’employee’ under an employment contract, and a handful of others to ‘workers’, both defined by Section 230 of the Employment Rights Act (ERA) 1996. This classification is not easily applicable to the agency-supplied worker, who is part of the triangular employment relationship identified by the Court of Appeal in Dacas v Brook Street Bureau [2004] ICR 1437.

Under such a triangular relationship, the worker may have a contract with the end-user (or client) or the agency, or the agency and the end-user, jointly exercising the functions of an employer.

It is no longer possible to focus almost entirely on the relationship between agency and worker to determine the rights of an agency-supplied worker (ie, whether it is one of employment or self-employment). The Court of Appeal in Dacas considered it incumbent on employment tribunals to consider the possibility, in each case, of an implied employment contract between the worker and the client end-user of their services.

This was the issue between the parties in the latest case on the subject, Astbury v Gist Limited, EAT/0446/04. Astbury was part of a triangular relationship involving himself (worker), Gist (end-user) and Pertemps (agency). Pertemps supplied his services as a ‘picker’ under an initial contract of a general nature for ‘temporary workers’ in September 2001, and later in November 2001 under a more specific ’30-hour week fixed assignment’.

He claimed for unlawful wage deductions under Part II of the ERA. It would have been sufficient to show he was a worker under the ERA, but he contended that he was an employee of Gist (probably because he had a claim for unfair dismissal outstanding against Gist, for which employment status was crucial).

In either case, he had to show some sort of contract with Gist, the end-user, to exercise employment rights against it. But the employment tribunal, while fully aware of the direction in Dacas that it should consider an implied contract with the end-user, ruled against him. He appealed.
The Employment Appeal Tribunal (EAT) upheld his appeal, laying down some important guidelines for employment tribunals hearing this kind of claim.

The primary point for them to bear in mind is that the question of a contractual obligation between the end-user and the worker depends on what actually went on between the worker and the end-user on the end-user’s premises.

What is required by Dacas for the implied contract between end-user and worker from the triangular relationship is, the judge said, “a pattern of regular mutual contact of a transactional nature”.

This will not be found in contractual documents; it will be found by examining what took place in practice between the parties. This was the issue in Astbury. The tribunal’s decision tells us little about how he did his work, how it was controlled, or the hours he actually worked (as opposed to what was initially written down). These findings are essential before such a conclusion can be reached.

Secondly, this case is similar to Dacas as not all parties to the triangular relationship went before the EAT. Pertemps was not present, yet its evidence and submissions and even liability could have be in debate. So, too, in Dacas. The litigation in that case was ultimately between the worker, Dacas, and the agency, Brook Street, but not the third party to the triangular relationship, the end-user client.

The EAT considered that in triangular cases, it is desirable to have all three parties at the hearing, and bound by the result. The case was therefore remitted for another hearing.

After Dacas, there is little doubt that the worker in a triangular agency supply relationship will be encouraged to argue an implied contract with the end-user. Astbury is the latest example. Now employment tribunals and parties have valuable guidance on how the existence of that implied contract is to be fairly determined.

Learning points for HR

  • If you use labour from an agency, this is known as a ‘triangular relationship’.
  • This may involve a contract between agency and worker, between worker and end-user (client) or a joint contract with end-user and agency as the worker’s employee. Ensure that written agreements/contracts make this clear.
  • Tribunals as a matter of law have to at least consider whether there is an implied contract between the worker and end-user.
  • Be careful: the parties may start working the relationship in a different way from that stated in the documents. This could change the legal analysis.
  • A tribunal will examine what is going on in day-to-day practice at the end-user’s premises. HR professionals need to keep an eye on how line management is letting the relationship operate in case this changes the parties’ expectations and creates unexpected legal liabilities.

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