Undergraduate First Class Law Essay Example with Footnotes

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Why has “the triangular relationship” become so significant for Labour Law, and what particular problems have arisen in relation to regulation of this form of employment relation in the United Kingdom?

The European Union now operates in a knowledge-based economy which is founded on the precept of innovation and human capital. In order to ensure that the transition towards this economy is successful it is vital to promote more flexible forms of work and reform the regulatory, contractual and legal environment so as to reconcile flexibility and job security and create “more and better jobs”[1]. The emergence of diverse forms of non-standard work has generated controversy regarding the legal nature of the employment relationship in the United Kingdom. There is now a genuine difficulty in seeking to fit new and dynamic work arrangements within the traditional framework of the employment relationship. The “three-way relationship” between a user undertaking, an employee and an agency, usually arises when a temporary agency worker is employed by the temporary work agency, and then hired out to perform work assignments at the user firm by means of a commercial contract. The ‘dual employer’ relationship can mean that an agency worker is employed neither by the end use nor the agency. This can thus deny the agency worker any statutory protection and on a larger scale make the temporary work sector less attractive to agency workers. Reform is however under way at a European level to grant temporary workers more protection in the hope of meeting the demands of increased flexibility.

Agency work is a product of a less stable economy and of alternating market demands, which expose companies to varying consumer needs and therefore skills required[2]. The spread of information and communication systems, increasing occurrence of demand shifts, and the shortening of the investment horizon has seen businesses organising themselves in a more flexible manner. The share of those having different work arrangements from the standard contractual model including the self-employed has increased since 2001 from over 36% to almost 40% of the EU-25 workforce in 2005[3]. This development in labour markets has thus resulted in an introduction in a diverse range of employment contracts, agency work being one of them. Since the 1990s reform of national employment protection legislation has focused on reduced regulation to facilitate contractual diversity. Reforms increased flexibility “on the margins”; with lesser protection against dismissal to promote entry of new employees.

The second phase of the European Union’s Social Policy Agenda for years 2006 to 2010 strives for “full employment...and a high level of protection and improvement of the quality of the environment”[4]. The enforcement of the fundamental right to equal treatment constitutes a significant step forward and has given impulse to the evolution of labour law.

European labour markets are now presented with the challenge of combining flexibility with the need to maximise security. The requirement for flexibility has resulted in increasingly diverse contractual forms of employment which can differ significantly from the ‘standard contractual model’ in terms of the degree of employment and income security. As a result a two-tier labour market might emerge divided between permanently employed “insiders” and “outsiders”[5]. The latter area is currently in a no man’s land where basic employment or social protection rights may be significantly diminished; thus leaving future employment prospects uncertain. Switching to alternative forms of employment has the danger of seeing a lack of progress to adapt the standard employment contract to facilitate greater flexibility to workers and businesses. The Task force urged Member States to assess and where appropriate alter the degree of flexibility in standard contracts in areas such as periods of notice and definition of unfair dismissal. This therefore calls for the need for the adaptation of employment legislation to promote flexibility combined with employment security and reduce labour market segmentation.

The Green Paper on ‘Modernising labour law to meet the challenges of the 21st century’ considers the role of labour in advancing a “flexicurity” agenda in support of a fairer and more inclusive labour market which will contribute to making Europe more competitive. The agenda seeks to engage Member State governments in an open debate about the ways in which labour law can assist in promoting flexibility combined with employment security thereby ultimately furthering Lisbon’s Strategy’s objective of increased employment.[6]

It is important to continually remind ourselves that the “Lisbon Strategy” calls upon Europe to create “more and better jobs”[7]. Temporary work is instrumental in meeting both of these requirements since it enables the overall number of jobs to be increased as it is suited for the increased demands for flexibility in current economy[8]. Yet, it will not provide permanent source of jobs if it is not attractive for workers or in other words if it does not offer quality jobs despite the temporary nature of employment. To that respect, a directive on working conditions for temporary workers was proposed in 2002. The proposed directive has the objectives of “improve[ing] the quality of temporary work” and “establish[ing] a suitable framework for the use of temporary work”[9]. The main provision of the draft directive has been very effectively summarised by Mr McFadden MP as consisting of “equal treatment in terms of pay and those other things that go along with pay between agency workers and permanent employees”[10]. The impact assessment on the draft directive proposes that by guaranteeing minimum rights for temporary workers and laying down core standards will make the sector more attractive and enhance its reputation. It will improve security of temporary workers. Simultaneously, greater attractiveness of agency work will give more choice to user firms and allow them to meet their needs of increased flexibility.[11] Ms Whewell, Director in the Employment Relations Directorate of BERR (Business, Enterprise and Regulatory Reform) reminds us “to get the balance right between offering proper protection to agency workers but not putting their jobs at risk either”[12]. On the whole, this proposal will lay the foundations for the further expansion of the sector and improve the functioning of the labour market. Directive 2008/104/EC on temporary agency work was passed in 2008 and is due to come into force in 2011[13].

The problem facing triangular relationships in the United Kingdom is that the rights and obligations normally found in employment relationships are, however, distributed differently in the contractual documents, thereby creating an initial impression of functional dislocation.[14] This tripartite nature of the arrangement may have the effect that the worker fails to qualify as having a contract of employment or even as having a personal work or employment contract of any kind.

Professor’s Freedland’s ‘functional dislocation’ is putting increasing pressure on the tribunal system from agency workers looking for greater protection. The case law is currently either contradictory or unclear and all parties to individual actions were unclear of the position. The quantity of complaints has risen enormously in recent years. This can be attributed to the following factors. The length of qualifying period for protection has been reduced to 1 year making it possible for more temporary workers to qualify for protection; maximum award compensation for unfair dismissal has been substantially increased making it more worthwhile for claims to be brought and providing employers with an additional reason for resisting claims. It is also likely that the uncertainty of the law has contributed to the quantity of cases. In the costs free regime of the employment tribunal, speculative claims (being cases with at least some prospect of success) can go forward to a full hearing without sanction in the event of failure.

The question whether a claimant in an unfair dismissal case is or is not an employee within the meaning of the 1996 Act is increasingly litigated before employment tribunals in unfair dismissal cases[15]. Initially, agency workers had sought to convince courts that they were employees of either the employment business itself or the end user directly. However, due to the absence of the ‘control’ element in tripartite relationship structure workers failed to establish a direct contract of employment with either the agency or the end-user. Lack of ‘control’ is evident in cases of Montgomery v Johnson Underwood[16], and Bunce v Postworth[17]. These cases have presented two significant barriers to an employment relationship between agency and worker. Agency standard form contracts are often drafted with the principal objective of denying employment status to workers, primarily by negating the presence of mutuality of obligation. As such, the courts have generally respected the doctrine of freedom of contract and could not go against the wishes of the parties.

Instead, agency workers have sought to establish the existence of a contract of employment with the end user. A contract of service may be implied; through the deduction of inference from conduct of the parties and from the circumstances surrounding the parties and the work done[18]. Thus, while the end-user is the real and immediate recipient of the work done by the applicant, the employment agency is made responsible for paying remuneration to the applicant and for arranging other benefits usually associated with employment. If there were no interposed employment agency there would not be any doubt that Mrs Dacas worked under a contract of service with the Council. The outcome of the Dacas[19] case was that Mrs Dacas was employed by nobody. Justice Munby helpfully laid down the relevant requirements for there to be a contract of employment. Firstly, there must be mutuality of obligation as between the employer and the employee and secondly, there must exist “control” of the employee by the employer. It follows that if the obligation to remunerate the worker is imposed on one person whilst control of the worker is vested in another, there cannot be a contract of employment with either.[20]

In the landmark ruling of James[21] The EAT upheld the ET's finding that no contract of employment existed. Elias P provided guidance in agency specific context. In all cases, the starting point is to consider whether the worker is employed under a contract of employment as defined by s 230 of the Employment Rights Act 1996. In the typical agency relationship, the traditional tests of employment status mentioned in the case of Dacas, will normally be applied. However EAT explained that even though ET focused on absence of mutuality of obligations, it could have simply said that there was “no necessity to imply a contract of employment in this case”[22].

However, even if the tests are met, it is not legitimate to imply a contract simply because it is possible or desirable or because the contract looks like a contract of employment. The question of implication is one of orthodox contract law. The correct approach is that set out in The Aramis[23] , in which the court confirmed that the test of necessity would not be met if the conduct of the parties was upon is ‘no more than consistent with an intention to contract than with an intention not to contract’[24]. In agency context the only exceptions for the implication of a contract of employment would be to expose a sham arrangement or where the express contract does not properly reflect the actual arrangements, and it is necessary to imply a contract in order to provide a proper explanation. Mummery LJ (who of course formed part of the appeal panel in Dacas[25] ) held that Dacas[26] was not authority for the suggestion that a contract of employment would automatically be implied after a certain period. In the case of James[27] it is not necessary to imply: “the relationships between the parties are explicable by genuine express contracts between the worker and the agency and the end-user and the agency”[28].

Further, in approving the summary of principles set out by the EAT, the Court of Appeal has added considerably to the burden upon future claimants. In the decision of Modahl v British Athletics Federation[29] , the Court stipulated that the burden in meeting the necessity test falls on the claimant. It is for the party asserting a contract to show the necessity for implying it. In normal agency worker arrangements, concluded on bona fide standard terms, it will be an exceptional case in which the worker will be able to show such necessity. Where the express arrangements intentionally and effectively exclude the possibility of an employment relationship, the courts will respect the parties' agreement. The Court of Appeal has attempted to achieve this in James[30] by a conservative decision which reasserts the primacy of ordinary principles of contract law and leaves any further policy-making to Parliament.

Not for the first time, the Court in James[31] was quick to point to the shortcomings of a protective contractual model fashioned from the common law. Mummery LJ briefly stated that the government should take the initiative in reforming the law in terms of worker protection[32].

In relation to workers and trade unions, the Court commented that resources might best be directed at lobbying Parliament, rather than funding cases, saying:

“The increasing amounts of money, time and effort spent on litigating this issue in tribunals and on appeals might in some cases be invested more productively in making representations to and through bodies which can pursue the debate on policy or even reform the law”.[33] In 2007 House of Commons debate on temporary agency work, Kelvin Hopkins MP, points out Government’s reluctance to grant agency workers more rights as it “talk[ed] out a private member’s bill...[as it was] waiting for European legislation”. The Government could have at least had legislation that would be subject to improvement by European legislation, but “not just to stop it, full-stop” and then wait years for legislation that may not even come.[34] This view is further consolidated in the UK response to European Commission Green Paper on ‘Modernising labour law to meet the challenges of the 21st century’, where UK seems to be comfortable with current work arrangements for temporary workers. The UK response embodies a view that there are sufficient rights for agency workers but the problem is that “there is sometimes a lack of knowledge about actual rights”. The response paper then gives a proud record of its rights to agency workers. Instead UK adopts the view that flexibility and security are mutually reinforcing and stresses the importance of flexibility to both agency workers and employers, without showing much enthusiasm for an increased need of protection for agency workers.[35]

In conclusion, the importance of triangular structures has become more important to labour law in the brink of a knowledge-based economy where there has been a diversion from the standard contractual model. This is in the hope of facilitating greater flexibility demanded by businesses. However, such departure from traditional labour law has created a conflict between flexibility and employment since flexibility comes at a cost of reduced worker rights in the temporary and agency work sector. Therefore in order to maintain worker satisfaction and encourage them to stay in temporary work, equal treatment is under way at European level. In UK, the introduction of such flexible forms of work such as agency work has caused functional dislocation in the traditional employment model. This denies workers protection as they fail to qualify as an employee which denies them many employment rights. The UK courts are unable to change the situation whereas the UK Parliament is not overly keen on such a proposal, hence its apathy. The effects of the European Directive on agency workers remain to be seen on the UK.

BIBLIOGRAPHY

CASES

The Aramis [1989] 1 Lloyd's Rep 213

Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358.

Montgomery v Johnson Underwood Ltd, [2001] EWCA Civ 318.

James v London Borough of Greenwich [2008] IRLR 302.

JOURNALS

Nicola Countouris and Rachel Horton, ‘The Temporary Agency Work Directive: Another Broken Promise?’, (2009) Industrial Law Journal 329

Michael Wynn and Patricia Leighton, ‘Will the real employer please stand up? Agencies, client companies and the employment status of the temporary agency worker’, (2006) Industrial Law Journal 301

Employment Guidelines (2005-2008): Indicator for total employees in part-time and/or fixed-term contracts plus total self-employed as % of persons in employment based on EU Labour Force Survey, 2005, ESTAT.