United Kingdom Agency Worker Law - Common Law

Common Law

The regulation of agency workers is affected by the interpretation by the courts of the word "employee" under s.230 of the Employment Rights Act 1996. If an individual is considered to be an "employee" then all the entitlements (such as a written statement of contract, reasonable notice before dismissal, time off for parenting, etc.) under the Employment Rights Act 1996 apply. But the courts have often held that agency workers fall outside of this definition, because they lack "mutuality of obligation" in their contracts.

The first important case was O'Kelly v Trusthouse Forte plc. Some waiters worked various dinner functions in the Grosvenor House Hotel. They tried to form a union. They were dismissed. They claimed that this was unfair, and to do that, they had to show they were "employees" within the meaning of the unfair dismissal legislation. The word "employee" had hitherto always been taken to mean someone who is obviously not in business on his own account (i.e. not "self employed"), but recognised as subordinate labour, economically dependent on the employer. However, Alexander Irvine QC argued that the waiters had no "mutuality of obligation" with the employer: they were not bound to accept work engagements when they were called up, and the employer was under no obligation to call them up. They could leave, or be fired, at will. Sir John Donaldson accepted this argument and deemed the waiters to fall outside of the scope of unfair dismissal legislation.

Not all judges took the same view. In Nethermere (St Neots) Ltd v Gardiner home-working ladies stitching flaps onto trousers were held to be employees within the meaning of the Act. The leading judge, Stephenson LJ, held that "mutuality of obligation" was nothing to do with the promise of future work, but simply the exchange of work for a wage, and control over one's job by the employer in the employment contract. Before the case reached the Court of Appeal, a young Tony Blair had been arguing the exact opposite in the Employment Appeals Tribunal, that O'Kelly's case should be followed. Agency workers were presumed to fall outside the scope of protective employment legislation. In 1997, when Tony Blair led New Labour to election victory, the approach to employment policy he brought was one of upholding labour market flexibility. The position of agency workers was reaffirmed when Derry Irvine was appointed Lord Chancellor, and he sat in on, and gave the leading judgement in, Carmichael v National Power plc. He reasserted his view of "mutuality of obligation". It is notable that the Constitutional Reform Act 2005 removed the power of the Lord Chancellor to decide on cases in this manner; it now being an incursion on the separation of powers within government.

Current authority could be said to still be ambivalent. On the one hand, the recent case of Dacas v Brook Street Bureau (UK) Ltd IRLR 358 held that an agency worker would be the "employee" of the end-employer. But then a slightly differently constituted Court of Appeal in James v Greenwich LBC EWCA Civ 35 has held that a contract of employment only exists with the agency itself. A feature of this ongoing debate is that, despite the fact that court cases for the last five years have always found an agency worker to be an "employee" of at least someone, generally speaking, neither end-employers nor employment agencies regard themselves as the employer who is bound by the Employment Rights Act 1996.

In UK law a contractor can be found caught by the tax initiative IR35, that is to say there is a virtual ("deemed") employment because that would be the case had the contract between worker and hirer been direct and the worker is then subject to extra taxes to compensate the government in that regard, yet he still has no apparent employment entitlements. This is partly because the Tax Commissioners and the Employment Tribunals, and Tax and Employment Law, respectively allow for different treatments.