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Temp or Perm?


The term “The Shamrock Organisation” was coined by the management guru (and son of an Irish Pastor) Charles Handy. ( ) This is a form of organisational structure with three bases on which people can be employed and on which organisations can be linked to each other. The three bases or groups are professional managers; contracted specialists such as advertising, computing, or catering personnel; and a flexible labour force discharging part-time, temporary, or seasonal roles. Since Handy outlined the more flexible, responsive alternative to the traditional hierarchical organisational structure the “Shamrock Organisation” has become the norm. In 2002 the Temp Agency Manpower became the biggest single employer in the USA with over 2 M employees.

Over the last decade, the use of temporary agency work has increased markedly. Outsourcing of public services to the private and voluntary sectors has almost doubled to close to £80bn in little more than a decade and makes up a far larger part of the economy than previously thought.” (Financial Times 09.07.08) A third of all public services – far more than previously thought – are now delivered by the private and voluntary sectors, according to this report commissioned by the government. Estimates by the European Confederation of Private Employment Agencies for the UK suggest that in 2005 there were some 6,000 officially designated employment agencies operating through 14,400 branches and sourcing 1.2 million workers a day (5% of the national workforce). And these figures themselves are likely to be an under-estimate of the number of agencies and the size of their GDP. In general it is only the larger, well-established agencies that join the employment agency federations. Small agencies are much less likely to take up membership of bodies like the Recruitment and Employment Confederation (REC), but their presence is increasingly evident in the High Streets of most UK towns. Their growth can also be evidenced by the available VAT data, which shows that over 17,000 bodies operating as employment agencies are VAT registered, suggesting that the number of agencies and consequently the numbers of agency workers is much higher than the official figures demonstrate. This growth in agency work in the UK has depended on a variety of dynamics, ranging from the nature of national regulation to changes in the labour process and industrial structure. In December 2007 the Employment Minister, Pat McFadden was unable to say how many agency workers there are in the UK. The ONS does not record Temporary and Agency workers and many more workers are thought to be working on an “agency” basis in the black economy.

According to the DTI, the UK has the third highest use of temporary agency labour in Europe, just behind France and The Netherlands, but has the highest number in absolute terms. There is mounting concern amongst UK Trade Unions that the trend is part of an increasing casualisation of the UK Labour Force and is being used both to replace permanent employees and that employees are using agency staff to negate their responsibilities to comply with established terms and conditions as workers are squeezed as part of a “race to the bottom.” The truth is probably more complex with many agency workers being “Knowledge Workers” who have taken a conscious decision to control their own careers because their services have a scarcity value. The opposite argument is that most agency workers don’t have a choice and would much prefer to be in more secure employment to allow them to plan their lives and finances better.

The UK is committed to agency working as a key element of a flexible labour force and economy but for individual employers it is no panacea. Often, it can be used to disguise poor management and planning, be wasteful and uneconomic and expose an organisation to significant Reputational and business risk. Managers and decision makers need to be properly informed as the enthusiastic amateurism which has often characterised the use of temporary resource in the past will come unstuck as legal and compliance changes increase the consequences of bad decision making and poor management. Here is some guidance on the issues;


What is an agency worker?

• An agency worker is somebody supplied by an intermediary (Employment Agency) to perform services on behalf of the user company.

What is a worker?

• A worker is an employee and someone who works under a contract where they are required to provide a personal service.

Holiday Pay and Holidays

• All workers are entitled to holiday pay.
• Agency is responsible for paying holidays for agency workers , Ainsworth & Others v Inland Revenue (2005)
• Holidays should be agreed with the agency and not the end user.

Disciplinary and Grievance

• Statutory disciplinary and grievance procedures only apply to employees but
• A worker has the right to be accompanied and
• A Worker has protection against discrimination

This is an anomaly but could, in certain cases, lead to discrimination claims. Note that a failure to follow procedures will result in an uplift (i.e.; An agency worker acquiring the rights of an employee) if it is proved that there is an implied contract of employment.

Sickness Absence

• Employees are entitled to SSP
• Workers are not entitled to SSP
• Agency workers are entitled to SSP but this is paid by the agency

Redundancy and TUPE (Transfer of Undertaking, Protection of Earnings)

• Only employees have the right to be consulted under TUPE and collective redundancy obligations.
• Only employees are entitled to redundancy pay
• Implied contracts could affect the number of employees to be consulted (see implied contracts).

• Not required to ‘make reasonable adjustments’ for agency workers but they have a right to claim under DDA regulations.


• Protection covers “employment under a contract of service or of apprenticeship or a contract to do any work or labour”.

Applies to those in business on their own account provided they provide personal service. Note; It is unlawful for a principal to discriminate against a contract worker. (Abbey Life Assurance Co. Ltd v Tansell 2000).

Employment Status

“Worker’ or ‘employee”?

Consider if the following apply:

• The Control test
• The integration test
• The economic reality test
• Mutuality of obligation

Latest Case Law relating to Agency Workers

James v London Borough of Greenwich (2008)

The decision of the Court of Appeal in this case was reported on 5th February 2008. The leading judgment was delivered by Lord Justice Mummery, who is a former President of the Employment Appeal Tribunal [EAT]. Whilst many legal commentators were expecting that the Court in this case would arbitrate on the conflicting decisions in earlier cases, Lord Justice Mummery denied that any real conflict exists. In the James case, the Court They held that there was no express contract of employment between James and the Council and there were insufficient grounds for requiring the implication of a contract [an implied contract of employment]. So, no contract = no basis for a claim of unfair dismissal. Provided the Employment Tribunal applies the correct legal test, then that should be the end of the matter said the Court of Appeal.

Lord Justice Mummery added a postscript to his judgment, in which he emphasised that the job of the tribunals and courts is to interpret and deal with the law as it stands. There may well be social and economic arguments in favour of changing the law in relation to the rights of agency workers – but it is for Parliament to effect such change, not the Courts.

How to avoid creating implied contracts

• Aligning HR procedures to deal with grievances, dismissals, misconduct, redundancy, sickness and holiday
• Discussing the treatment of temporary workers in the workplace: The dos and don’ts in exercising best practice
• Understanding the main differences concerning contract workers and the self-employed
• Using indemnity clauses in the employment contract and examining prevention strategies and risk mitigation

• Implications of TUPE and the new service provision rule: In some cases Agency Workers can be transferred. One of the main changes introduced by TUPE 2006 was to widen the definition of a “relevant transfer” to specifically include service provision changes, ie. The relationship between contractors and clients who hire their services. A “service provision change” can take three principal forms:
1. Where a service previously undertaken by the client is awarded to a contractor (a process known as ‘contracting out’ or ‘outsourcing’) ( )
2. Where a contract is assigned to a new contractor on a re-tendering (as per the case of Hunt v Storm ( ))
3. Where a contract ends with the service being performed ‘in-house’ by the former client (‘contracting in’ or ‘insourcing’)

For a service provision change to take place there must also be an “organised grouping of employees whose ‘principal purpose’ is carrying on the services for the client”.

Issues of continuity of employment.

What are the implications of the Court of Appeal decision in Cornwall County Council v Prater? (2006)

Prater was asking for a statement of her terms and it was considered that there was no mutuality of obligation as they didn’t have to offer her work and she didn’t have to accept it. However, the Court of Appeal found that she was a worker as she had to do the work the County Council gave her and they paid her for it.

There are also pending Legislative developments: The implications of the EU Agency Workers Directive and the Temporary Workers Bill for the UK but there is still no agreement on the contents of this proposed bill.

Avoiding Implied Contracts of Employment – What are the DO’S?

• Distinguish between employees and contractors and agency staff on your email system
• Have a clear contract in place with the agency or worker
• Make sue the terms of the contract are followed
• Be careful when transferring employees on to contracts for services
• Consider a policy on length of engagement
• Ensure holidays, termination of engagement and other admin relating to an agency worker is dealt with by the agency.

Avoiding Implied Contracts of Employment – What are the DON’TS?

• Give agency workers, workers or self-employed people a staff handbook, welcome pack or invite to induction events.
• Treat workers and self-employed personas as if they were employees.
• List workers as employees on group structures, Muscat v Cable & Wireless (2006)
• Give workers a contract of employment

Operational Changes to effect possible solutions

• Change the way in which the contractors operate (i.e. lump sum payments for a piece of work)
• Agree holidays with the agency
• Ensure that contractors do not manage employees
• Bring in a policy of review for length of contract term. Cannot rely on the one year rule anymore.

Move to employment status

• Offer employment contracts to contractors who are managing staff
• Ensure difference in treatment between time as a contractor and employee.
• Use an agency which employs the contractors
• Be aware of discrimination and Fair Employment practices – Open advertising of vacancies (internally and/ or externally), objective assessment and appointment on harmonised terms and conditions

Other options

• Source directly and contract directly with personal service companies
• Recruit temporary resources directly and put through an “agency payroll”.


Can fall into the following categories

• Contractor (worker)
• Contractor (self-employed) – DO NOT ENGAGE – HRMC (IR35) implications
• Contractor (limited company)

• Contractors can be workers but need a right of substitution, to “carry” the risk of work themselves, be appropriately insured and not be “controlled”.


What should an employer expect of the Agency?

• Knowing the importance of briefing their workers
• Do they understand the relationship?
• Do they ‘identify’ with the agency?
• Do they know that the agency will deal with grievances etc?

Reasons for using Agency workers
Numerical flexibility –

• Peaks and troughs in demand
• Projects of limited duration

Short-term ad hoc cover –

• Temporary replacements for permanent staff absence
• Pending recruitment of permanent staff


• Outsourcing
• Managed services


• End assignments
• Decide disciplinary issues
• Manage grievances
• Career management

Not for prolonged use – think about resource requirements!


• Refer any disciplinary problems to the agency
• Report any problems promptly
• Inform agency of changes to assignment duration
• Refer worker to agency if pay / benefits are queried
• Understand the relationship and the risks
• Remember the rights of the ‘contract worker’ (SDA, DDA, RRA etc)


• Interview candidates
• Negotiate pay or benefits
• End an individual’s assignment
• Administer disciplinary warnings
• Conduct career management discussions
• Formally agree requests for annual leave


Need to consider the following:


• Tackle long Term use of agency staff.
• Engaging with managers to develop an effective resourcing plan – should those on long term engagement be employees
• Link this to wider resource planning
• Check that contracts are robust


• Determine what the total resource capability is within the business
• Are sole traders being used and processed directly by your Management Accountants?
• Headcount will be inaccurate
• Check categorisation within your personnel management system – are the current ones correct


• If so – how do we transfer them – need to develop policy that addresses both HR and revenue implications – especially Fair Employment and Discrimination considerations.


• Work with finance function to develop the solution in terms of revenue implications.
• Make sure that procurement teams understand the impact of what they are dealing with, particularly HMRC compliance.
• Resourcing team to develop strategy for engagement of temporary / agency staff. Look at contracts for hire and length of assignment.
• Procurement team to refer issues to correct line Managers / Directors so that all risks are assessed.


Given the latest case law Employers could ‘carry’ the risk and do nothing but this is unadvisable on several counts:

1. They may not know the real headcount – Often these are wrongly categorised in HR system.
2. HR / Procurement systems often don’t properly track lengths of employment e.g. go back to “Zero” when contracts / assignments are renewed.
3. Managers are confused about the meaning of:
a. Sole traders
b. Contractors
c. Fixed term etc
4. There are various contracts in use for contractors – lack of consistency means an increased risk.
5. The use of Managed Service Companies and Umbrella Companies should be stopped – definitely high risk, especially if fulfilment is by non-residents.
6. Loss of Key Knowledge – What is your Knowledge Management Strategy?

And last, but not least, employers should have appropriate strategies in place that address both legislative requirements and support the needs of their business; rather than relying on the ever changing results from case law.

Original on Blogger:

David Caldwell

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