Court of Appeal confirms that contract triumphs over status

In James v London Borough of Greenwich [2008] EWCA Civ 35, the Court of Appeal upheld a tribunal decision that an agency worker was not employed by the end-user to whom she had been supplied by an agency for over 7 years. The mere passage of time is insufficient for a contract of employment to be implied. As the only express contractual relationship in this case was with the agency it was not necessary to imply a contract directly between the worker and the end user to give business reality to the relationship.

Lord Justice Sedley’s judgment in Dacas v Brook Street Bureau [2004] IRLR 358 appeared to signal a significant shift at that time in the legal position of temporary agency workers and those who used them. He stated that in determining whether an agency worker was an employee of the end user, while there is nothing special about the length of time for which the individual has been working, once arrangements had been in place for a year or more, an inexorable inference arose that the individual was an employee – in other words, the mere passage of time could mean it is necessary to imply that a contract of employment existed to give business reality to the relationship.

Latching on to the ‘triumph of status over contract’ provided for by the Dacas case, a number of agency workers successfully argued in tribunal that they were employees of end users as the working arrangements had lasted for a considerable period of time. However, a tribunal at London South in considering the case of James v London Borough of Greenwich declined to follow the Dacas principle.

Mrs James’s services had been supplied continuously to the Council through an employment agency for over seven years. Ms James signed a “Temporary Worker Agreement” with the agency which expressly provided that she would carry out her work as a self-employed ‘temporary worker’ and that her work would not give rise to a contract between herself and the end-user of her services. After being absent due to ill health for two months she was told by the Council upon her return that she was no longer needed as the agency had provided an adequate replacement.

Ms James claimed unfair dismissal against the Council. The employment tribunal found that there was no implied contract of employment between Ms James and the Council as there was no mutuality of obligation, i.e. for the Council to offer work and for Mrs James to accept it. All the working arrangements were dealt with by the agency. Mrs James appealed to the EAT arguing that she had only worked for the Council, she acted under the Council’s direction, she was treated in all respects as a full time member of staff, she was on the permanent rota and as this had been the case for over one year, then, on the Dacas principle, there should be an inexorable inference of a contract of employment.

The EAT dismissed the appeal. While the tribunal had found that a contract was not implied due to an absence of mutuality of obligations, it would be entitled to find, as the EAT had, that there was no need to imply a contract in this case. The mere passage of time was not sufficient to require any such implication. The EAT then went on to set out set out detailed guidance for tribunals to follow in agency worker cases. Lawyers and employers watched with interest as Mrs James took her case to the Court of Appeal (CA). Would the CA agree with the EAT and confirm that the law of contract prevails over status?

The CA dismissed Mrs James appeal. It held that the question of whether an agency worker is an employee of an end-user is a question to be decided in accordance with the common law principles of implied contract, and that labels are not a substitute for legal analysis of the evidence. The tribunal must examine and assess the factual evidence before it. In the absence of an express written or oral contract of employment, a tribunal must decide whether it is necessary to imply a contract of employment between the parties. In approaching this task a tribunal should follow the guidance given by the EAT’s judgment on the necessary implication of a contract of employment. The CA also endorsed the EAT’s suggestion that the mere passage of time is insufficient for a contract of employment to be implied.

In this case, Ms James’s only express contractual agreement was with the agency. Accordingly, it was not necessary to imply the existence of another contract directly between Mrs James and the Council to give business reality to the relationship. What Mrs James did and what the Council did were fully explained by the express contracts they had entered into with the agency. The CA also noted that future appeals would have little prospect of success where the decision had been reached by applying the correct test of necessity as described in the EAT’s judgement. In summary the EAT stated that it is not appropriate to imply a contract:

• where the end user is not paying directly for the work done by the worker, but rather for the services supplied by the agency, and the end user cannot insist on the agency providing the particular worker at all;
• where the arrangements are genuine and when implemented accurately represent the actual current relationship between the parties;
• because the arrangement has continued for some considerable period of time as it will often be convenient for an agency to send the same worker to an end user who in turn prefers someone who knows how the business operates; such arrangements cannot justify an implication that a contract of employment has been formed purely because of the passage of time.

The CA’s judgment will come as a welcome relief for many employers but the case emphasises the need to ensure that contractual documents relating to tripartite agency arrangements are precise and reflect the intended working relationship. If this is the case, parties can expect to have their declared contractual positions respected – if not, it still may still be possible to imply a contract out of necessity, including circumstances amounting to a sham.