For any number of reasons, many would-be employers prefer to hire workers on a temporary basis through agencies rather than employing staff directly. Such workers may, in turn, not be employed by the agency either but rather act as independent contractors, perhaps enjoying certain tax advantages and enhanced freedom whilst taking the benefit of the agency’s business connections.
This trend has been a boon for agencies, but problems can arise when these arrangements persist and change over time and the worker’s status becomes uncertain. Such uncertainty can give rise to employment law claims upon termination either against the agency or the client business (“end-user”), and workers might be deemed to be employed by the agency, the end-user, or perhaps even both jointly.
These tips provide practical and legal guidance for end-users on how to keep such arrangements on a non-employment basis and thus outside the scope of employment law. It should be noted from the outset, however, that the current state of the law is such that these “triangular disputes” turn heavily on their facts and that it is difficult to generalise about particular circumstances.
Know your geometry: The successful agency work relationship consists of two different contracts. The end-user has a contract with the agency to provide services; the agency enters a contract with its workers (or their service companies where they have incorporated) to provide services to the end-user. The courts have ruled that there can be no employment contract between the end-user and the worker where there is no “mutuality of obligation” and the relationship lacks the requisite level of control. Mutuality means in practice an obligation to provide work and pay for it and a corresponding obligation to perform it. Control exists where the worker is told how to carry out the task at hand. The triangle is not usually closed with a third contract of employment between the end-user and worker.
No obligation to provide work: Contracts between the agency and worker normally attempt to exclude mutuality by stating that there is no obligation for the agency to provide work or for the worker to take it. The end-user, on the other hand, may over a period of time, come to require and expect the worker to attend on certain dates or expect a certain period of notice, both of which are indicative of mutuality of obligation.
Payment patterns: A clear way of evidencing distance between the worker and the end-user (to help avoid claims that the worker is an employee of the end user) is to arrange affairs, as most agency contracts do, such that the end-user pays the agency whilst the agency pays the worker. Whilst this would mean that the worker has no contractual claim for payment of fees against the end-user (but only against the agency), it would still be open for a court to infer an employment relationship between the worker and the end-user depending on the facts of the case. Payment patterns are therefore evidentially important, but not conclusive, when considering employment status.
Concrete control: In many cases, a worker will be directed in his day-to-day activities by the end-user (i.e. he/she will be told what to do, will be appraised by the end-user and will have to comply with the practices/policies of the end user). Such control would be indicative of an employment relationship between the worker and end-user.
Odd-shaped bedfellows: The courts have accepted, in theory at least, that it is possible for there to be such a close connection between the agency and end-user that they may be jointly exercising the functions of an employer and an employment relationship will be imputed to both. As such, there are risks in an agency becoming “embedded” in the activities of the end-user.
New Year, new workers: The status of workers cannot be determined on the basis of the contractual documentation alone. The courts have warned that even with an agency arrangement in place, an implied employment contract may arise between the end-user and the worker simply out of a deemed mutual intention. It has been suggested that this is likely to be inferred once the worker has been with the end-user for a year or more, which is also the qualifying period for statutory employment rights. An end user may therefore want to consider diarising the date the worker came into its organisation, with a view to bringing in new workers shortly before the anniversary of them joining.
Facing rejection: Clearly in positions requiring training and continuity, it may be inconvenient to change workers frequently. The end-user should consider then whether it might want to grant employment rights formally or seek a new temporary worker. In certain sectors, end-users would prefer to have employees but must rely on locum workers to fill gaps. Careful records should be kept of rejections by workers of employment offers, as this will counter any later assertions that they might qualify for employment rights.
Blame the messenger: An end-user with substantial bargaining power might seek to protect itself in its contract with the agency from any costs it suffers as a result of employment rights being found in favour of the worker. After all, the very reason that end-users go to agencies is to benefit from flexible no-frills labour arrangements. This could take variety of forms: the agency might warrant that the worker will not become an employee (giving rise to a claim of breach of warranty if this is nevertheless the case) or otherwise to indemnify the end-user if this situation arises.
Insure, insure, insure: End users should look carefully at their insurance arrangements. One benefit of agency workers (and one reason that disputes about triangular relationships arise) is that an end-user is not “vicariously” liable for the actions of agency workers. However, if an implied employment contract has arisen, the employer may be liable for the employee’s actions without necessarily realising it. Clearly third party liability arrangements must be in place where appropriate. This can also have knock on effects for the agency where it is responsible for damages caused by the worker.