16 May 2005

It is essential for businesses to understand who can be classified as an employee. Under the Employment Rights Act 1996 (ERA) a person who enters a contract of work, is to be classified as an ‘employee’ of that business and accordingly s/he is afforded better legal protection than that offered to a ‘worker’. An example to illustrate this point is the right of employees to claim unfair dismissal.

The question of rights has been a topical area for debate in recent months, bringing to light a crucial twofold question:

These issues have been highlighted in the recent case of Cable and Wireless plc v Muscat (February 2005), in which the question was whether Muscat remained an ‘employee’ of Cable and Wireless after becoming an ‘agency worker’. In this case the position of the parties had been ‘quadrangular’ with Muscat initially being an employee of EI Ltd, then setting up his own purpose built company by the name of E-Nuff, but continuing to work for EI Ltd. Upon the acquisition by Cable and Wireless Ltd of EI Ltd’s business, and under the Transfer of Undertakings (Protection of Employment) Regulations 1981, Muscat’s employment was also transferred to Cable and Wireless Ltd. However, where Cable and Wireless Ltd already had a contractual relationship with an employment business by the name of A plc, they insisted that Muscat’s services be provided via A plc. So even though Muscat’s services were provided via A plc the underlying question was whether he was an ‘employee’ of Cable and Wireless Ltd?

Initially what must be established is that there is a contract between the parties, whether this be written or implied to create the existence of such a relationship. There are also three tests that are often undertaken by courts and tribunals to determine whether or not such a relationship exists:

1.   Control

The level of *control the employer exercises over an employee is far greater than the control the employer has over a worker. Muscat was never substituted on the job, he was labelled an ‘employee’ in the Company’s organisational structure, his annual leave was arranged to suit the company and he was also provided with certain tools to carry out the work, hence there being a *balance of factors that pointed towards the fact that Muscat was an ‘employee’ and that such a relationship existed. Practically there seemed to be a *mutuality of obligations between the parties themselves rather than through A plc. However, Cable and Wireless appealed to the Employment Appeal Tribunal (EAT), who decided that the appeal be dismissed on the grounds that an implied employment contract existed between Muscat and cable and Wireless.

In the earlier case of Dacas v. Brook Street Bureau Ltd (2004), the Court of Appeal came to conclude that tribunals should bear in mind that where a ‘triangular’ relationship is created between the parties, an implied contract of employment may exist between the worker and the end user irrespective of what the contract may expressly state. In this case the fact that the worker’s contract had stated that she was not an employee of either the employment business or of the end user was irrelevant, the test of *control, *mutuality of obligation and *balance of factors indicated that a contract existed and that Dacas had inherited the status of an ‘employee’ for the end user.

The distinction between ‘employee’ and ‘worker’ is not always so clear-cut. It is not necessarily the case that by establishing the ‘three-part test’ an implied contract will exist. Where there are detailed provisions outlining the agreement between the worker and the employment business it will make it very difficult for the worker to establish that an implied contract existed between the parties. In the case of Bunce v. Postworth Skyblue (April 2005), the Court of Appeal concluded that Bunce was not an employee of either the agency or the end user. The contract specifically stated that there was no *mutuality of obligation to provide work and that there was not an obligation on the worker to accept it; this was a key factor in deciding what status the worker held. The fatal issue of day-to-day *control ultimately rested with the end user and not the agency. Still it was accepted that an ‘umbrella’ contract for work may exist over smaller set contracts, but if the ‘umbrella’ contract provides a significant amount of detail then it would be difficult to establish individual contracts between the parties.

Recent UK legislation offers enhanced employment protection for ‘workers’ nevertheless this area of employment law remains somewhat unclear. Firstly to what extent are the courts willing to go to implement an implied contract between two parties? Secondly, apart from the issues of control and mutuality of obligation what exactly is the balance of factors? And finally, how far will the courts go to implement their policy-driven decisions that currently stand incompatible with fundamental principles of contract law.

Even if agencies are able to provide some clarity to these issues by establishing certain ground rules on the aspect of control and the agreements between the parties, the law will nevertheless look at the practical reality rather than what the theory dictates. Some clarity would be greatly appreciated.