Brook Street v Dacas [2004] IRLR 358 (CA)

The decision in Brook Street v Dacas [2004] IRLR 358 (CA) has been described as 'Turning conventional thinking about the status of agency workers on its head'. Discuss. (quote taken from Employment Law Bulletin May 2004 pp2-4)

This assignment will consider the recent case of Dacas and consider whether or not this case “has turned employment law on its head”.  It will consider first the law that went before this case in relation to who will be considered an employee for the purposes of the ERA 1996, it will consider this in some detail.  Then will follow a detailed anylasis of the Dacas case and the implications of this case.  It will be concluded that whilst this case could potentially have far reaching implications it is likely that subsequent decisions will seek to limit its applications.  The confusion surrounding who and who will not be considered an employee will therefore remain.

It is useful before considering in detail the implications of this case to remind ourselves of the law prior to this decision, relating to who will and will not be an employee.  Under ERA 1996, an “employee” is defined as an “individual who has entered into or works under….a contract of employment”, and a “contract of employment” is defined, in turn, to mean “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing. ”

The definition of employee is however by no means a simple concept and cannot be determined simply by the existence of a contract or by the label that the parties place on their respective positions.   In O’Kelly v Trusthouse Forte PLC  the Court of Appeal decided by a majority that the application of the legal criteria for identifying a contract of employment was a “question of mixed law and fact” to which several correct answers are possible.

In Carmichael v National Power PLC  the majority opinion of Lord Irvine and Lairg LC was that the construction of an employment contract could only be a question of pure law if the parties had intended the written documents passing between them to be the exclusive source of their agreement.  In the view of Lord Hoffman, who gave a concurring opinion, whether the parties had such an intention in a given case was itself a question of fact.  In the construction of employment contracts, it would normally be open to a tribunal to take into account the behaviour of the parties entering into the relationship of employment as well as their subsequent understanding of what the contract required them to do.  Cases of completely written contracts of employment would therefore be untypical. 

In McMeechen v Secretary of State for Employment  Mummery LJ noted that if the “reality” is one of employee status, the parties cannot override this by “choosing” to adopt self-employment in order to avoid the impact of tax and protective legislation or for any other purpose: a “statement that …[a worker] supplies [services] as a self employment worker is not conclusive of his statues, since it has been said many times that whether someone is an employee is a matter of analysing all the rights and obligations created by the contract. It is for the court and not for the parties to determine whether a contractual nexus can be inferred from the regular practice of work being carried out in return for payment, or whether the worker’s status is that of a “volunteer” and hence outside the protection of labour law.

In the case of Ferguson v John Dawson and Partners (Contractors) Ltd  Megaw LJ said that “a declaration by the parties, even if it were incorporated in the contract, that the workman was to be, or was to be deemed to be, self-employed, an independent contractor, ought to be wholly disregarded - not merely treated as not being conclusive- if the remained of the contractual terms, governing the realities of the relationship, showed the relationship of employer and employee.”

However in Calder v H Kitson Vickers & Sons (Engineers) Ltd  Ralph Gibson LJ said that “a man is without question free under the law to contract to carry out certain work for another without entering into a contract of service.  Public policy has nothing to say either way.”

In Renninson v Minister of Social Security   Bridge J saw through a scheme to describe weekly paid secretarial workers as self-employed for tax and national insurance purposes, holding that they were employees and liable to pay Class 1 national insurance contributions.  Similarly, in Young & Woods LTD v West  the Court of Appeal held that the applicant was entitled to claim unfair dismissal on the grounds that “in reality” he had a contract of employment, and that an attempt to present him as self-employed was a sham.  The other test to see whether or not a contract of employment exists is to consider control.  In the case of Yewens v Noakes  it was held that: “a servant is a person who is subject to the command of his master as to the manner in which he shall do his work”. 

In the case of Ready Mixed Concrete (South East) Ltd v Minister for Pensions and National Insurance  it was held that control included the power of deciding the thing to be done, the means to be employed in doing it, the time when and the place where it shall be done.  All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant.”  Similarly, in McMeechan v Secretary of State for Employment  an agreement under which an agency worker agreed “to fulfil the normal common law duties which an employee would owe to an employer so far as they are applicable”, including duties of fidelity, confidentiality and obedience to instructions, was for that reason held more likely to give rise to a contract of employment between himself and the agency.  Control has also recently been invoked to support a finding that the user of an agency worker’s labour may assume the status of his employer .  These cases demonstrate that while the control which exists under modern labour market conditions may be less personal and more bureaucratic in nature than that identified in the nineteenth century judges it is arguably no less important as a feature which separates the employment relationship from other forms of the provision of labour.

In Beloff v Pressdram Ltd  a highly paid journalist was unable to argue that, given her high status, she could not be regarded as having a contract of employment, even though she worked full time for the newspaper and was treated as an employee for tax and national insurance purposes.  According to Ungoed-Thomas J, “the greater the skill required for the employee’s work, the less significant is control in determining whether the employee is under a contract of service.

Although see the case of Hall v Lormier , where the respondent was a skilled television technician who worked for around 20 separate companies on a series of short-term engagements.  He was held to be self-employed and therefore chargeable to income tax under Schedule D.  According to Nolan LJ:

….the question, whether the individual is in business on his own account, though often helpful, may be of little assistance in the case of one carrying on a profession or vocation.  A self-employed author working from home or an actor or a singer may earn his livings without any normal trappings of business.   The most outstanding feature to my mind is that Mr Lorimer customarily worked for 20 or more production companies and that the vast majority of his assignments…. Lasted only for a ingle day”

In Lane v Shire Roofing Co (Oxford) Ltd the Claimant was a building worker who was hired by the defendant employer to carry out a re-roofing job for which he was to be paid according to a daily rate.  The defendant “considered it prudent and advantageous to hire for individual jobs”.  While carrying out the work, the Claimant fell and was injured.  It was held that he was an employee for the purposes of the job, and so was owed the common law duty of care with regard to his health and safety.  According to Henry LJ, applying the test of economic reality, the “business” involved in the work was that of the defendant and not the claimant’s. 

In the cases of Airfix Footwer Ltd v Cope  and Nethermere (St Neots) Ltd v Taverna and Gardiner  the court dealt with the position of homeworkers.  In Nethermere Dillion LJ found it “unreal to suppose that the work in fact done by the applications for the company over the not inconsiderable periods…. Was done merely as a result of the pressures of market forces on the applicants and the company and under no contract at all” and Stephenson LJ could not see “why well-founded expectations of continuing homework should not be hardened or refined into enforceable contracts by regular giving and taking over periods of a year or more, and why outworkers should not thereby become employees under contracts of service, like those doing similar work in a factory.

By contrast, in Clark v Oxfordshire Health Authority  the Court of Appeal held that there was no evidence of a global contract of employment in the case of a nurse who, under an arrangement with the health authority, was offered work as and when the need arose, but who otherwise had no regular working hours. 

In the case of Express & Echo Publications Ltd v Tanton  the court considered a particular term of a contract.  The term in question, under which the employee has the right to nominate another person to supply the labour services in question, on the face of it clearly indicated a lack of mutuality of obligation.  However, in suggesting that the presence of such a term was, in itself, incompatible with employee status, the Court of Appeal failed to have regard to the standard-form character of the terms in question.

According to Lord Wright in Montreal Locomotive Works, “in many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties .”Mackenna J in Ready Mixed Concrete (South East) Ltd v Minster for Pensions and National Insurance said that:

“A contract of service exists [when] three conditions are fulfilled.  (i) The Servant agrees that, in consideration for a wage or other remuneration, he will provide his own work and skill in the performance of some services of his master (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master (iii) The other provisions of the contract are consistent with it being a contract of service”

In O’Kelly v Trusthouse Forte  the employment tribunal produced a list of no fewer than 18 different relevant factors, some of which were considered consistent with the existence of a contract of employment.  These included the lack of any financial investment by the applicants in the company’s business; the payment by the company of holiday pay and an incentive bonus paid on past service; the presence of control by the employer; and the fact that they were paid weekly in arrears with tax and national insurance deducted at source.

According to Lord Justice Peter Gibson, the first task of a court or tribunal is to identify the contract terms.  If it appears that a term is present which is incompatible with employee status, there is no need to go further consider and consider the range of factors discussed above.  This approach would elevate of the role of the formal contract term in determining issues of status, at the expense of the more full rounded view of the bargain entered into by the parties which is implicit in the test of economic dependence. 

Of real importance to this discussion is the case of Franks v Reuters Ltd.  The relationship under consideration was that between the agency worker and the user organisation. The worker was supplied to the user organisation through an employment agency. He worked for the user organisation, in various positions, over a period of five years. The agency continued to pay him throughout the five-year period. When his contract was terminated, he claimed for unfair dismissal, redundancy pay and breach of contract against both the agency and the user organisation.

The employment tribunal based its decision on a perceived absence of mutuality of obligation. It found that the agency was not obliged to provide work; and that the worker was not obliged to provide any. As far as the user organisation was concerned, the tribunal also found no mutuality of obligation, finding that either party could have terminated the assignment at any point. The worker was found not to be an employee, and his claims were dismissed. An appeal to the EAT failed.

However, the Court of Appeal found that the employment tribunal had taken too narrow a view of the factual matrix in reaching its conclusion. The Court said that the complexity and diversity of working relationships make it necessary for tribunals to consider the surrounding circumstances before determining questions of employment status. In this particular case, the tribunal had not appeared to consider the possibility of an implied contractual relationship being formed between the worker and the user organisation by virtue of their conduct and communications over the five-year period. While the Court conceded that length of time is not by itself a determinative factor, it said that where, as in this case, a worker had been with a company for several years and had been re-deployed by that company into different positions, these were relevant factors to take into account. The Court of Appeal found that the tribunal had erred in law by not considering whether there was an implied contractual relationship between the worker and the company before determining his status. It remitted the case to a differently constituted tribunal for reconsideration of the decision.As is demonstrated the law in relation to who will or will not be an employee is and always been extremely complicated, it was about however, to become much more confusing.

Mrs Dacas  was supplied by an employment agency (Brook Street Bureau (UK) Ltd) to work as a cleaner for Wandsworth Council. She had worked for the Council at a mental health hostel, through the agency and ostensibly on a "temporary" basis, for a period of six years. The Council exercised day-to-day control over her activities and supplied her with cleaning materials, equipment and an overall. Following an incident during which she swore at a visitor to the hostel, her employment was summarily terminated. She brought a claim of unfair dismissal against both the agency and the Council. The employment tribunal dismissed her application. It held that Mrs Dacas was not an employee of the Council because, in the tribunal's view, there was no contract between them and therefore no employment relationship. It also held that Mrs Dacas was not an employee of the agency because, although a contract did exist between Mrs Dacas and the agency, the agency did not exercise day-to-day control over her activities.

Mrs Dacas then appealed , but only against the tribunal's finding that she was not employed by the agency. Allowing her appeal, the EAT said that sufficient control was exercised by the agency to say that the agency was her employer.
In Mummery LJ’s view, recent case law on the status of agency workers demonstrates that there is both "confusion in the workplace and considerable uncertainty in the law."  His judgment stipulates that the questions of status cannot be determined by construction of the contractual documentation alone. Therefore, the mere fact that the Mrs Dacas' contract stated that she was not the employee of either the agency or the end-user could not be regarded as determinative.

Mummery L.J.'s guidance to employment tribunals in future case was:
"[i]n dealing with cases of this kind in the future, employment tribunals should not determine the status of the applicant without considering the possibility of an implied contract of service and making findings of fact relevant to that issue ".

Crucially, Mummery L.J. suggests that the end-user should be regarded as the agency worker's employer as the norm. This goes much further than last year's Court of Appeal decision in Franks v Reuters Ltd . It also as Christie points out   flies in the face of most of the previous case law on the status of agency workers. Mummery L.J.'s judgment explicitly steers tribunals towards regarding the end-user as the employer:

"In general, it would be surprising if, in a case like this, the end-user did not have powers of control or direction over such a person in such a working environment. The end-user is the ultimate paymaster. The arrangements were set up and operated on the basis that the end-user was paying the agency. What was the Council paying for, if not the work done by Mrs Dacas under its direction and for its benefit? "

Sedley L.J. agreed with Mummery L.J’s judgement and said that:

"[t]he conclusion of the Employment Tribunal that Mrs Dacas was employed by nobody is simply not credible. There has to be something wrong with it ".

Sedley L.J. took the view that, in a typical agency relationship, it is incumbent on employment tribunals to find that someone is the employer. This turns the conventional thinking about the status of agency workers on its head . Sedley L.J. went even further in his judgement and said that , not only should tribunals make a finding that someone employs the agency worker, but that in the normal course of events, the finding should be that the employer is the end-user. In his view, one year's service is enough for a tribunal to conclude that an implied contract of employment has arisen:

"[T]here is nothing special about the length of time for which, as it happens, Mrs Dacas had been working for [the end-user]. Until a year had gone by, she had no protection in any case against unfair dismissal; but once arrangements like these had been in a place for a year or more, I would have thought that the same inexorable inference would have arisen "

Munby J. dissented. He felt that the lack of mutuality of obligation between Mrs Dacas and the Council was fatal to the argument that there could be a contract of employment between them. In his opinion, mutuality of obligation normally entails a duty on the part of the employing organisation both to remunerate the worker and to provide work. His view of the classic authorities on employment status  was that these cases support the assumptions upon which the recruitment industry has, until now, operated.
"If the obligation to remunerate the worker is imposed on the agency, there cannot be a contract of service between the worker and the end-user. And, if at the same time, control is vested in the end-user, then there equally cannot be a contract of service between the worker and the agency ".

In his opinion, the correct view was that Mrs Dacas was employed by neither the agency nor the end-user. Such a view is, he believes, supported by a consistent line of authority .

For technical reasons, the Court of Appeal could not substitute a finding that the Council was Mrs Dacas' employer. This was because Mrs Dacas' appeal to the EAT was restricted to the tribunal's finding that she was not employed by the agency. The Court of Appeal thought that this was "unfortunate" as it was unable to remit the case to the employment tribunal to determine whether there was an implied contract between Mrs Dacas and the Council. As Christie points out “If last year's Court of Appeal decision in Franks opened up the law on the status of agency workers, the decision in Dacas effectively blows it apart ”.

Wong  suggests that the best way to explain Dacas is as an application of the principle that the existence of an implied contract of service should always be considered by tribunals in such cases. This proposition is uncontroversial and was laid down last year by the Court of Appeal, as discussed above, in Frank v Reuters Ltd and another . The expressed views of the majority that Mrs Dacas was likely to be an employee of WBC, though obiter, cannot lightly be disregarded. It is suggested, however, these views should be balanced against other well established principles of contract law. These suggest that in most cases, the worker will have difficulty demonstrating an employment contract with the end-user. First, the burden of proving an implied contract arising from conduct lies on the worker, and the general position is that contracts are not lightly to be implied. Second, the contractual arrangements and documentation between the end-user and the agency and between the agency and the worker are admissible as evidence tending to show the lack of any intention by the end-user to enter into legal relations (and to assume mutuality of obligations) with the worker. It may be difficult for the worker to show that the parties' conduct overrides or contradicts their intentions as expressed in formal contractual documentation. The worker's task may be less onerous if there exists formal documentation between the end-user and himself, eg confidentiality agreements.

Dacas represents either a pragmatic attempt to bring clarity to a confusing area of law or an abandonment of legal principle in favour of a political objective, depending on one's point of view. By giving tribunals guidance to treat agency workers as "employees" of end-users, the Court of Appeal is effectively bringing agency workers into the mainstream of employment protection rights. It could even be argued that the Court of Appeal is doing through case law what the European Union has failed to do in its (so far) abortive attempts at passing an Agency Workers Directive. The Dacas decision effectively puts agency workers in much the same position as ordinary employees. This has potentially far-reaching implications, not just in terms of potential unfair dismissal claims, but also in relation to eligibility for maternity rights and redundancy payments, as well as employment protection in TUPE situations. In this light, some of the most basic assumptions about the legal rights of agency workers will now need to be re-assessed.  Accordingly, end users would be well advised to take measures in their organisation to reduce the risk of agency workers acquiring employee rights. Such measures should be aimed at minimising the degree of control and involvement the end user has over agency workers in all areas, including performance management, disciplinary and grievance issues, company benefits, and holiday and sickness absence .

This said the decision was applied in the case of  Astbury v Gist Ltd , the application in this case demonstrated that the Dacas decision has brought about no greater clarity in this area, and in fact the judgement suggests the position is now even more confused:

“A recurrent problem in the cases concerning triangular relationships has been that cases have been heard, and decisions taken, in circumstances which did not bind one of the three parties, and often where there was no evidence or argument from one of the three parties. In Dacas v Brook Street Bureau in the Court of Appeal the end-user was not bound by the result (though argument was heard on appeal from the end-user). In other cases it has been the employment agency which has not been bound by the result. This unsatisfactory state of affairs renders the process of taking a decision in a triangular case all the more difficult and perilous. In this case, Pertemps was not a party to the proceedings before the tribunal; it has been held to be Mr Asbury's employer but is not bound by the result.”

As Johnson points out “it is unsatisfactory that two specialist employment tribunals and the Court of Appeal all disagree on the correct analysis of Dacas's employment status. It makes it very difficult for individuals such as Dacas to know if they have a claim ”. In addition, the reliance on contractual theory to decide whether individuals can claim unfair dismissal forces Employment Tribunals to become ever more legalistic and increases the possibility of appeal. After all, tribunals were established to decide issues quickly, efficiently and inexpensively.  In conclusion on the one hand it can be argued the decision in Dacas has the potential to turn employment law on its head and on the other hand it can be argued that if this decision is interpreted narrowly as suspected the decision will only serve to muddy the already cloudy waters which determine who and who is not an employee.

Bibliography

Cases
  • Airfix Footwer Ltd v Cope [1978] ICR 1210
  • Astbury v Gist Ltd UKEAT/04446/04/LA          
  • Beloff v Pressdram Ltd [1973] 1 ALL ER 241
  • Calder v H Kitson Vickers & Sons (Engineers) Ltd [1988] ICR 232
  • Carmichael v National Power PLC [2000] IRLR 43
  • Clark v Oxfordshire Health Authority [1998] IRLR 124
  • Costain Building & Civil Engineering Ltd v Smith [2000] I.C.R. 215
  • Construction Industry Training Board v Labour Force Ltd [1970] 3 All E.R. 220
  • Dacas v Brook Street Bureau (UK) Ltd [2004] EWCA Civ 217; [2004] I.C.R. 1437 (CA (Civ Div))
  • Dacas v Brook Street Bureau (UK) Ltd [2003] I.R.L.R
  • Express & Echo Publications Ltd v Tanton [1999] IRLR 367
  • Ferguson v John Dawson and Partners (Contractors) Ltd [1976] 1 WLR 1213
  • Franks v Reuters Ltd [1994] IRLR 171
  • Hall v Lormier [1994] IRLR 171
  • Lane v Shire Roofing Co (Oxford) Ltd [1995] IRLR 493
  • McMeechan v Secretary of State for Employment [1995] IRLR 461
  • Montgomery v Johnson Underwood Ltd [2001] E.W.C.A. Civ. 318;
  • Motorola Ltd v Davidson [2001] IRLR 4
  • Nethermere (St Neots) Ltd v Taverna and Gardiner
  • O’Kelly v Trusthouse Forte PLC [1983] ICR 728
  • Ready Mixed Concrete (South East) Ltd v Minister for Pensions and National Insurance [1968] 2 QB 497
  • Renninson v Minister of Social Security  (1970) 10 KIR 65
  • Yewens v Noakes (1880) 6 QBD 530
  • Young & Woods LTD v West [1980] IRLR 201

Statutes

  • ERA 1996
  • Journal Articles
  • Anderson J, (2005) “A Triangular Approach”, New Law Journal 155. 7166 (344)
  • Christie D, (2003) “The Matrix Revisited - Agency Workers and Employment Status” Employment Law Bulletin 56 (August) 7-8
  • Christie D, (2004) “Status Anxiety - New Guidance From the Court of Appeal on Agency Workers”, Employment Law Bulletin 60 (May) 2-4
  • Davidov G, (2005) “Who is a Worker?”, Industrial Law Journal 34 (57)
  • Davies R, (2004) “Contracting Out And the Retention of Employment Model in the National Health Service”, Industrial Law Journal 33 (95)
  • Edwards M, (2004) “Legal Update: Employment Law”, The Law Society Gazette 101.23(31)
  • Johnson T, (2005) “Contract Killers” , The Lawyer January 10
  • Jupp J, (2005) “Agency Work:  A Black Hole?”, New Law Journal 155 1447
  • Reynold F, (2005) “Negligent Agency Workers: Can They Be Vicariously Liable?”, Industrial Law Journal 34 (270)
  • Spooner S, (2004) “New Rights for Temporary Workers”, New Law Journal 154.7155 (1811)
  • Underwood K, (2004) “Agency Workers”, Employment Law and Litigation 9.5 (10)
  • Wong G, (2004) “Whose Employee am I anyway?”, New Law Journal 154.7125 (610)

Books

  • Bowers J & Honeyball S, (2002) “Bowers and Honeyball Textbook on Labour Law”, Oxford University Press
  • Dudington J, (2003) “Employment Law”, Pearson Higher Education
  • Lewis D & Sargeant M, (2005) “Employment Law” , Pearson Higher Education Press
  • Willey B, (2003) “Employment Law in Context”, Pearson Professional Education

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