How can firms avoid implied contracts?

While a recent Court of Appeal decision confirms that tribunals will rarely imply employment contracts between temporary workers and end users, recruiters need to take steps to ensure their clients aren’t caught out

The Temporary (Agency) Workers Directive has been on the table since 2002. The UK has continually opposed its implementation. However, there is wide agreement that the French presidency of the EU in the second half of 2008 is likely to lead to the adoption of the directive.

Closer to home a Private Members Bill (the Temporary and Agency Workers (Equal Treatment) Bill) has been introduced to Parliament and is currently at committee stage. There is widespread consensus that without government backing it will not become law in the UK.

Prime Minister Gordon Brown currently favours the establishment of an independent pay commission to investigate pay and conditions of agency workers. The commission would also aim to resolve any contested issues between parties such as the TUC and the CBI relating to agency workers.

If adopted in its current form the Temporary (Agency) Workers Directive would give agency workers the right to the same terms of working time, pay, access to training and job opportunities and so on as permanent employees, after the agency worker on an end user client assignment has been engaged for just six weeks.

At the moment, recruiters can feel confident in advising their clients that an agency worker on an end user client assignment is unlikely to have full employment rights provided they follow the Employment Appeal Tribunal guidance (confirmed by the Court of Appeal on 5 February 2008) in the decision of James vs Greenwich council [2008].

The Court held that it was not appropriate to imply a contract if the end user cannot insist on a particular worker or the arrangements genuinely and accurately represent that relationship. The Court also highlighted that the period of time an employee had worked at an organisation was also not a relevant factor.

James vs Greenwich council confirms that employment tribunals will only imply employment contracts between agency workers (or any other type of temporary worker such as contractor, freelancer or subcontractor and the end user) in exceptional cases. But in order to protect their clients from this risk, staffing companies still need to take the following steps to ensure that an implied contract does not arise:

• staffing companies need to work with clients to ensure that arrangements with end users minimise elements of personal service and end user control when temporary and contract workers are used. For example, in the James case, James was replaced by another temporary worker as soon as she called in sick as there was no obligation on the end user to supply her with work;

• ensure that project bases of working (and payment) are adopted so far as possible;

• recruiters should ensure that all dealings with temporary and contract workers are conducted through themselves and not through the end user so that there can be no argument claiming that in reality the temp's contractual relationship is with the end user rather than the staffing company;

• recruiters should ensure end users do not take responsibility for temps and contractors by applying grievance procedures or by attempts to negotiate new terms.

• recruiters should keep under active review the extent to which temps and contractors supplied or used have become 'integrated' into the end user workforce. This often involves well intentioned but inadvisable perks like 'loyalty bonuses' creeping in over time;

• if in any doubt about whether best practice is being adopted, in this area recruiters should seek expert advice to avoid the possibility of any legal pitfalls.

• remember that applying a one year (or sooner) arbitrary cut-off date for temps and contractors will not solve the problem. Yes, your clients may head off unfair dismissal and redundancy risk but they may face far greater tax, National Insurance Contributions, discrimination and other liabilities;

• in cases where it seems difficult to argue that workers can be substituted and/or are not integrated and/or have discretion and/or take risks as to whether or not they will be paid if they do not perform, then consider offering the client a quasi-employment model for staff, including 'umbrella' arrangements, bench staff arrangements and 'employed contractor' arrangements.


Frances Lewis is a partner at Blake Lapthorn Tarlo Lyons, solicitors

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