Most legal experts are agreed that Mr P Muscat's victory over Cable & Wireless (C&W) could have significant implications for recruitment agencies - even though the set of circumstances is relatively unusual.

C&W had argued that Muscat, an executive paid £65,000 a year, could not bring an unfair dismissal case because he supplied his services through a limited company and also through the agency Abraxas.

C&W had a contract with Abraxas for the provision of personnel. Abraxas entered into a contract with service company E-Nuff, which paid Muscat. There was a 'quadrangular' relationship between C&W, Abraxas, E-Nuff and Muscat.

On 31 December 2002, Muscat's contract was terminated by C&W and he claimed unfair dismissal.

The Court of Appeal has upheld the decision of the Employment Appeal that Muscat was a C&W employee. This was despite Muscat being paid gross with no deductions for PAYE or National Insurance.

“Any end user or hirer of agency staff will now wish to be certain that they will not be put in the same position as C&W,” said Adrian Marlowe, managing director of law firm Lawspeed.

“Agencies can therefore expect end users to question the entire concept of agency supply, which end users have historically believed has protected them against employment claims.

“Agencies may well be increasingly asked to indemnify their clients against costs and awards arising from such claims even though it is clear that such claims usually arise as a result of the client's own actions in treating the worker as an employee.”

Bridget Wood, partner at Tarlo Lyons, agreed that the ruling in the case was important. However, she added: “It must be remembered that this case very much turned on facts which will not be relevant to many situations in which contractors are used.”

Muscat had previously worked for C&W as an employee, but Marlowe argues this is not relevant.

The judgement drew heavily on the case of Dacas v Brook Street two years ago.