With seemingly never-ending rights for employees and
increasingly complex obligations for employers, many companies
favour agency workers and independent contractors over the
recruitment of staff. But in a ruling against Cable & Wireless
last month the Court of Appeal said that a contract of employment
can be implied in such arrangements.
The case concerned telecoms specialist Mr P Muscat. He had been
employed by a company called Exodus Internet. In 2001, Exodus was
preparing for a sale and wanted to reduce its staff count. It
dismissed Muscat, agreeing to rehire him as a contractor through
the vehicle of his personal service company, E-Nuff.
Cable & Wireless bought Exodus and told Muscat that he must
deal with the company through an agency. The agency contract with
E-Nuff stated that nothing in it should be construed as
constituting or establishing a relationship of employee and
employer between the parties.
Thereafter (at C&W's request) the agency terminated the
contract with E-Nuff and, in response, Muscat filed a claim of
unfair dismissal. He argued that he had actually been an employee
of C&W and as such had been unfairly dismissed.
Mr Muscat went to an employment tribunal hearing. In 2004,
another case on similar issues had been heard by the Court of
Appeal. It had to decide whether a cleaner, Patricia Dacas, was an
employee of an employment agency Brook Street Bureau. It ruled
against Mrs Dacas, saying an employment relationship can
potentially be implied between an agency supplied worker and an end
user and that, in deciding the true employment status of a worker,
employment tribunals should consider not just the written contract
governing the arrangement but also all the evidence as to the
factual reality of the arrangement.
Muscat's employment tribunal considered this guidance and ruled
that there was an implied contract of employment between him and
C&W despite the fact that there was a quadrangular relationship
among Muscat, his personal service company E-Nuff, the agency and
C&W.
The Court of Appeal upheld that ruling. It said that the
guidance in Mrs Dacas's case did not mean that employment tribunals
were bound to reach any particular conclusion in this type of
situation, only that employment tribunals should consider the
possibility than an implied contract of employment might exist.
C&W argued that to call Muscat an employee of C&W
amounted to a change in law by "judicial creativity". The Court of
Appeal disagreed. It said that in cases such as these there are a
number of different possibilities as regards the reality of the
employment situation: an employment relationship might be capable
of being implied between the individual worker and the end user or
even the agency.
Robyn McIlroy, an employment law specialist with Pinsent Masons,
the law firm behind OUT-LAW.COM, commented, "Rather unhelpfully,
the Court of Appeal was reluctant to give any further guidance." So
the question of whether a worker is in fact an employee will, as
ever, turn on the facts of each case.
McIlroy says the case sends a warning to any company that uses
agency workers or personal service companies to avoid employment
liabilities. "Having a written contract that expressly denies the
existence of an employment relationship is no longer enough in
itself," she says. "Consider now how to minimise the risk of
creation of an implied contract of employment."
Suggestions include keeping assignments short; preventing
workers from being integrated into the workforce; ensuring that
there is no obligation to provide work; and reducing day to day
control and direction of the worker.
"Perhaps one of the best ways to manage this kind of risk is to
negotiate comprehensive warranties and indemnities in the
contractual documentation, whether between the agency which
supplies the worker or the independent contractor directly," said
McIlroy. "When in doubt, spending some time and money seeking legal
advice on appropriate drafting and management of potential risks at
the beginning of the arrangement could save thousands of pounds in
the long run."
