12 February 2007

Many employers supplement their permanent workforce with temporary workers to cover peaks in demand and absences. Fixed term contracts and agency workers offer flexibility and freedom but, as this article explains, the statutory rights being afforded to such workers could be in danger of jeopardising this theory.

Less than 10 years ago, it was possible for employers to include a waiver clause to prevent a fixed term employee bringing a claim for unfair dismissal following the non-renewal of a contract, which was originally entered into for a period of 2 or more years. These became void in October 1999 and then, 3 years later, waiver clauses contracting out of the right to receive a statutory redundancy payment were also made unlawful. However, the most significant changes have been brought about by the Fixed Term Employees Regulations (FTR) which came into force in 2002 restricting the use of fixed term contracts and requiring employers to justify any differences in the terms given to fixed term employees.

Under the FTR an employee can bring a claim if they are treated less favourably than a permanent employee doing the same or broadly similar work, or if they suffer a detriment, because of their fixed term status. Since its introduction, one of the consequences for employers has been to offer the same levels of pay and benefits to fixed term employees, unless less favourable treatment can be justified.

Justification will be met if the employer can show that the treatment was necessary to achieve a legitimate business objective. For example, where the cost of providing a particular benefit is disproportionate to what the employee would gain given the duration of the contract. Alternatively employers can justify any differences by showing that the overall value of the employee’s terms and conditions is at least equal to the value of the permanent employee's total package, i.e. that the employee has been compensated in other areas.

Employers are also now required to follow the statutory dismissal procedure if a contract is not to be renewed and would result in the termination of a fixed term employee. This involves setting out the reasons for the non-renewal in writing, holding a meeting with the employee to discuss the situation and offering them a right of appeal. Failure to follow this procedure will result in a finding of automatic unfair dismissal, although the employee will still need to have accrued a year’s service to be eligible to bring a claim for compensation.

The accumulation of these changes makes the use of fixed term contracts in business far less attractive than it once was. Engaging agency workers may seem a better option but this too isn’t without a fair share of red tape!

In the case of agency worker, the end user, otherwise known as the "principal", can still be held liable for any acts of discrimination or harassment on the grounds of sex, sexual orientation, race, religion, age or disability. Furthermore, a principal has the same duty as an employer to make reasonable adjustments to its premises, or any provision, criterion or practice, which puts a disabled agency worker at a substantial disadvantage.

Recent legislation has also tended to protect a wider category to encompass workers as well as employees. As such the statutory rights of agency workers now include:

• A minimum statutory wage, currently £5.35 for adult workers
• Paid annual leave of 4 weeks a year (pro rata)
• Entitlement to rest breaks and a 48 hour maximum working week, unless opted out of the Working Time Regulations

Crucially, the right to claim unfair dismissal and entitlement to statutory redundancy payment still only apply to "employees". Usually the agency worker is an employee of the agency. However, there have now been a number of cases where agency workers have sought to establish employment status against the end user. The usual test to determine whether a worker is an employee are:

• Is there an obligation to provide personal service in return for wages or other remuneration?
• Is there a sufficient degree of control exercised over the worker?
• Is there mutuality of obligation?( i.e. is the employer under a duty to provide work and is the worker obliged to take it)

Of particular concern were the Court of Appeal’s comments in Dacas v Brook Street Bureau (2004) where the view was that a contract of employment could be implied between the agency worker and the end user, particularly where arrangements had been in place for a year or more. However, in James v Greenwich Council (2006) the EAT held that the agency worker supplied to the Council for five years was not an employee of the Council. The EAT disagreed with the comments from Dacas and said that the passing of time alone could not result in the inference of a contract of employment and only in exceptional circumstances could one be implied.

Also, this year, it had been anticipated that the European Temporary Workers Directive would have become law. However, as agreement for the proposals could not be reached the Directive is now being re-written for consideration some time in the future. Meanwhile, here in the UK, the issue has been taken up by a Private Member’s Bill, the Temporary and Agency Workers (Prevention of Less Favourable Treatment) Bill, due to have its second reading in March 2007. The Bill aims to prohibit discrimination against agency workers, unless objectively justified, and an end user will have a responsible to notify agency workers of any vacancies.

Future developments in this area are undoubted. Hopefully a balance can be reached to protect both the rights of those undertaking temporary work and the needs of employer to have flexibility in order to be competitive.