Court of Appeal rules on Dacas agency case
In a decision that has just been published on the Court service web site, the Court of Appeal has overturned an Employment Appeal Tribunal decision that held that a temporary worker supplied by an agency was an employee of the agency. While this is not surprising in itself some of the comments of the judges will make worrying reading for end clients and agents.
The case is that of BROOK STREET BUREAU (UK) LTD (Appellant) vs PATRICIA DACAS (Respondent) (Case No: A1/2003/0205 EATRF)
I previously reported the EAT decision on UKTECH in March 2003. See here for details:
EAT
Background
By way of a summary, the case concerned a cleaner Mrs Dacas, who had worked for six years through Brook Street, at a hostel run by Wandsworth Council. When she was dismissed for misconduct she claimed unfair dismissal.
At that stage she cited both the agency and the end client as the employer. This claim was rejected by the ET. She appealed to an EAT, but at this stage dropped her claim against the end client and only cited the agency.
The EAT, headed by Mr Justice Burton, of IR35 judicial review fame, found that she was an employee of the agency.
The agency, Brook Street, appealed to the Court of Appeal in the autumn of 2003. The Appeal Court has now ruled in the agency’s favour. All three Appeal court judges agree that Dacas could not be an employee of the agency. However, the decision is perhaps more interesting in terms of what the judges said about whether they would have found her to be an employee of the end client had that issue also been appealed.
Appeal Court Comments
Two of the judges, Lord Justice Mummery and Lord Justice Sedley were strongly of the view that Dacas should have argued for being an employee of the end client. In his lengthy decision Lord Mummery appears to be critical of the way in which employment status issues are dealt with by the law.
He noted that:
“There is no definition or further description of a "contract of service" in the legislation. The omission is deliberate. For better or for worse, Parliament decided to leave in the hands of the courts and tribunals the responsibility for defining the limits of a contract of service on a case by case approach” and:
” The courts have to address general, as well as technical, questions: who is Parliament legislating for? If not for an individual in the position of the applicant, why not? What is meant by "a contract of service" in this context?“ and:
” Although…….. this case is complicated by the circumstances in which the appeal has come before this court, its facts neatly pose a troublesome question of employment law concerning the status of a cleaner who obtained, through an employment agency, four years of regular paid work with one end-user. This court would be failing in its function if it did not address that wider question. One of the reasons for spending a long time on this judgment is that the wider question is now the most intractable, as well as the most basic, in the whole of employment law.”
Lord Justice Mummery’s Views
Mummery carries out a detailed review of recent employment law cases and talks at length about the need to examine not only the actual contracts but also whether there is an “implied contract” between the worker and the end client bearing in mind the triangular arrangement that exists when an agency is involved.
In a comment that echoes the situation in IR35 cases he notes that “In determining the true nature of the relationship (if any) between each of the respective parties, it is necessary to consider the total situation occupied by the parties……..Although there was no express contract between the applicant and the end-user in this case, that absence does not preclude the implication of a contract between them. That depends on the evidence, which includes, but may not be confined to, the contractual documents”
Mummery also comments on the differing conclusions reached by the ET and the EAT as follows:
“Their different conclusions on the contract of service point reflect the uncertain state of a difficult area of the law, which I have already mentioned.”
Lord Justice Mummery discusses the respective roles of the end client and the agency at some length and concluded:
“I approach the question posed by this kind of case on the basis that the outcome, which would accord with practical reality and common sense, would be that, if it is legally and factually permissible to do so, the applicant has a contract, which is not a contract of service, with the employment agency, and that the applicant works under an implied contract, which is a contract of service, with the end-user and is therefore an employee of the end-user with a right not to be unfairly dismissed. The objective fact and degree of control over the work done by Mrs Dacas at West Drive over the years is crucial. The Council in fact exercised the relevant control over her work and over her. As for mutuality of obligation, (a) the Council was under an obligation to pay for the work that she did for it and she received payment in respect of such work from Brook Street, and (b) Mrs Dacas, while at West Drive, was under an obligation to do what she was told and to attend punctually at stated times. As for dismissal, it was the Council which was entitled to take and in fact took the initiative in bringing to an end work done by her at West Drive. But for the Council’s action she would have continued to work there as previously”
However he concludes that:
” This court is not entitled to overturn the decision of the Employment Tribunal dismissing the claim by Mrs Dacas against the Council. She did not appeal against it. She is out of time for doing so. What I have already said about the position between Mrs Dacas and the Council can only be relevant to similar cases in the future.“
It is clear however that he would have been very much in favour of granting Mrs Dacas the status of an employee of the end client had that been the issue on appeal. As it was he concluded that the agency were not the employer noting:
“She was under no obligation to accept any work offered by Brook Street to her. It did not exercise any relevant day to day control over her or her work at West Drive. That control was exercised by the Council, which supplied her clothing and materials and for whom she did the work. The fact that Brook Street agreed to do some things that an employer would normally do (payment) does not make it the employer…………… The real control over the work done by Mrs Dacas at West Drive and over her in the workplace was not exercised by Brook Street. Although contractual labels are not, of course, conclusive, the Employment Tribunal did not err in law in taking account of the express provision in the Temporary Worker Agreement that the contracts between Brook Street and Mrs Dacas in respect of specific assignments were to be contracts for services.”
Lord Justice Sedley’s views
In his decision Lord Justice Sedley appears to be equally convinced that the real employer in this triangular relationship was the end client. He notes:
“Mrs Dacas worked for upward of four years for Wandsworth as a cleaner in a mental health hostel. She had obtained the job through Brook Street, to whom Wandsworth had contracted out recruitment for this and many other jobs. Her wages were paid by Brook Street out of the payments made to them by Wandsworth for supplying her services. For the rest, her working terms and conditions, so far as they were in evidence, were indistinguishable from those of any local authority employee: she was expected to work as directed by Wandsworth's managerial staff, and she was finally dismissed for allegedly failing to do so. Yet, if the arguments for the two original respondents are correct, she enjoyed no statutory protection against unfair dismissal and redundancy and presumably lacked all other employment rights too”
In a comment that seems to stem more from emotion than legal reasoning he adds:
“The conclusion of the Employment Tribunal that Mrs Dacas was employed by nobody is simply not credible. There has to be something wrong with it”
He points out that other issues rest on the question of employment status. He asked what would have happened had negligence by Mrs Dacas resulted in a visitor to the hostel injuring themselves? In his view:
“If the facts established at trial were those I have postulated, it is a near-certainty that the county court or the High Court would find Wandsworth vicariously liable for Mrs Dacas' negligence”
He concludes:
“As Lord Justice Mummery has made clear, nothing we decide at this level can now fix Wandsworth with liability. But my principal reason for agreeing that Brook Street was not Mrs Dacas' employer is that, in my judgment, the evidence before the Employment Tribunal pointed to the conclusion that Wandsworth was. Had Wandsworth remained a party it would have been necessary to remit the claim against it for a correctly approached decision on its liability, not least because the possibility that she had no employer defies common sense”
Mr Justice Munby
Finally Mr Justice Munby set out his views. He concurred with his colleagues’ views that the agency were not the employer. However, in a rare example of a judge rubbishing the views of his peers he takes strong exception to the opinions of the other two regarding their views that, had the appeal been on the issue of the end client being the employer, then they would have found that to be the case.
He notes that there is a very important issue underlying this case, namely:
“The case raises a point of fundamental importance not merely to large numbers of workers but also to the whole of an industry in which Brook Street is merely one, albeit a very prominent, player. Lord Justice Mummery’s judgment (and even more so Lord Justice Sedley’s judgment) seem to me to put in question the most basic assumptions upon which the whole of that industry has hitherto conducted its business”…………..
The approach of the industry is founded on assumptions that, reduced to their simplest form, can be summarised as follows:
i. There can be no contract of employment – no contract of service – unless there is (a) mutuality of obligation as between the employer and the employee and (b) "control" of the employee by the employer.
ii. There can be no mutuality of obligation in the absence of an obligation on the part of the employer to pay a wage or other remuneration.
iii. Therefore there can be no contract of service unless there is (a) an obligation on the part of the employer to remunerate the employee and (b) "control" of the employee by the employer.
iv. 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.
…….. What is relied on is the fact that the two critical elements – the obligation to remunerate and the right to control – are located in different parties. It is the differential distribution between the agency and the end-user of rights and obligations that would normally all be vested in the employer which is crucial and which has hitherto been relied on by the industry as necessarily producing the happy outcome – happy, that is, both for the agency and the end-user, though not, of course, for the worker – that the worker has no contract of service either with the agency or with the end-user.
Having set out these concerns he examines the case law again and reaches the conclusion:
“Thus the authorities, in my judgment, support the assumptions upon which the industry has hitherto proceeded. 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.“
Mr Justice Munby looked in some depth at the issue of mutuality of obligation between the end client and Dacas. In his view it was not simply a case that Dacas did work at the client’s premises and the client paid her albeit via the agency. In his view the agency carried out a number of tasks when they supplied Dacas and others to the end client. In his view:
“what the Council was paying for was not the work done by Mrs Dacas and her fellow workers but the services supplied to it by Brook Street in accordance with the Specification and the other contractual documents. The monies paid by the Council to Brook Street were not payments of wages, nor were they calculated by reference to the wages payable by Brook Street to Mrs Dacas and her fellow workers. There was no mutuality. “
Conclusions
This case reinforces the fact that issues like mutuality of obligation and questions of contractual relationships in employment matters can be a very complex area. Hence the variations in the views of several lawyers, all of them eminent in their field.
Once again we have to remember that employment law cases are different from IR35 cases because IR35 specifically requires one to construct a hypothetical contract between the worker and the end client while employment law appears to specifically preclude one from doing that – although Justice Mummery and Justice Sedley appear to be keen to enter into that arena.
The case raises more interesting issues regarding mutuality of obligation and it will be interesting to see if Mr Justice Munby’s analysis can transfer into IR35 cases. If it does then it seems to be a strong factor towards there being no mutuality between a worker and the end client when payment by the client to the agent is for a wider range of services than just those of the worker.
Meanwhile agents and the end clients will be alarmed by some of the comments made by Justices Mummery and Sedley and will be hoping that Justice Munby's rather more dispassionate view better reflects the legal position.
PS I am grateful to Kate Cottrell of Bauer & Cottrell for bringing this judgement to my notice today.
Kevin Miller, MA FCA