Developments in rights for agency workers: Temporary Workers Directive and other issues

1
Developments in rights for agency workers
Temporary Workers Directive and other issues

• Kevin Barrow
• Partner
• Blake Lapthorn Recruitment Sector Group
• kevin.barrow_at_bllaw.co.uk
• Recruitment Consultant Conference
• 1 April 2009

2
Agenda

• Importance of employment status wider
  implications of recent cases
• Statutory and common law background employment
  status tests
• Employment rights case law 2003-7
• Temporary (Agency) Workers Directive
• Practical steps to mitigate risk of claims under
  TWD and employment law

3
Agenda

• Importance of employment status wider
  implications of new cases
• Statutory and common law background employment
  status tests
• Employment rights case law 2003-7
• Temporary (Agency) Workers Directive
• Practical steps to mitigate risk of claims under
  TWD and employment law

4
Why focus on employment law?

• A large part of the rationale for using temps and
  contract workers is dependent on temps and
  contract workers not being employees for
• employment law purposes ? turn on/turn off
  resource without claims
• accounting purposes ? reduced headcount helps
  share price
• tax purposes ? can be tax efficient, and no tax
  liability for end user
• Law makers in the UK (and in US and EU) are
  focusing on how the temp and contract worker
  market should be further regulated to
• protect workers (and end users)
• collect tax and prevent tax evasion
• prevent other breaches of the law
  (e.g.immigration/ HS/CRB/security)

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Wider implications of recent case law?

• Individual employment claims (obviously)
• UD
• Redundancy
• Minimum notice
• Access to benefits pensions?
• Minimum wage
• Increases likelihood of discrimination claims
• Class actions?
• Wages Act type claims following rate cuts?
• Rolled-up holiday pay
• Consultation
• Discrimination pension fund membership etc.
• Microsoft permatemps settlement in US 97M

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Wider implications of recent case law?

• If individuals are employees then end user may be
  liable for PAYE and NICs
• on a grossed up basis
• retrospectively over 7 years
• in respect of ALL contract workers claims for
  millions in Germany, Belgium, Switzerland, UK
  (e.g. CIS)
• If! tax goes up in UK there will be an increase
  in tax driven contracting HMRC will actively
  attack
• Immigration law
• Headcount misstatement Sarbanes Oxley?

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Wider implications of recent case law?

• Staffing companies being asked to indemnify end
  users in respect of employment claims,
  immigration risk and tax risk
• End users have increasing worries about using
  temps and contract workers?
• Costs of doing business (for businesses which
  require flexible workforces) increase
• Costs of rolling out one-off projects requiring
  specialist workers is increased?
• Increase trend towards offshoring?

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Agenda

• Importance of employment status wider
  implications of new cases
• Statutory and common law background employment
  status tests
• Employment rights case law 2003-7
• Temporary (Agency) Workers Directive
• Practical steps to mitigate risk of claims under
  TWD and employment law

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Background employment status tests

• Statutory definition in ERA 1996 s 230
• An employee is an individual who has entered
  into, or works under, a contract of employment (
  contract of service, oral or written)
• What is a contract of service?

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Background employment status tests

• Case law tests about contract of service (eg
  Ready Mixed Concrete)
• Did the individual undertake to provide his own
  skill and work for a master in return for
  remuneration ( criterion of mutuality of
  obligation and personal service)?
• Sufficient degree of control to enable the
  individual to be called a servant?
• Are the other provisions of contract consistent
  with it being a contract of service?
• Integrated into workforce?
• Individual in business on own account?

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Agenda

• Importance of employment status wider
  implications of new cases
• Statutory and common law background employment
  status tests
• Employment rights case law 2003-7
• Temporary (Agency) Workers Directive
• Practical steps to mitigate risk of claims under
  TWD and employment law

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Employment rights case law

• Pre 2003 case law position
• Montgomery (Ct A) staffing company is not the
  employer (approved in Bunce v Postworth (Ct A
  2005))
• OMurphy v Hewlett Packard (EAT) Esso V Jarvis
  Stephenson v Delphi
• Temps and contract workers are not employees of
  end-user either, so long as there is no direct
  contract between end-user and worker (OM)
• (Confidentiality undertakings OK) (OM)
• (Not necessary to imply direct contract) (SvD)
• End users no need to worry?
• Right not to be discriminated against
  unlawfully

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Employment rights case law

• Current case law position
• 1 Tribunals must consider whether an implied
  contract exists between the worker and the end
  user Franks v Reuters Ct A April 2003
• Low paid victim - staffing company insolvent -
  someone to sue
• Own goal terminology in contract - R described
  as employer
• 5 years moved around from job to job (driver
  than help desk) and integrated into Reuters
  workforce
• Did not actually say Mr Franks was an employee,
  but that it was possible he might have been
  depending on the facts

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Employment rights case law

• Current case law position
• 2 For certain types of worker it will now be the
  norm for employment rights to exist Dacas v
  Brook Street Ct A March 2004
• Low paid PAYE temp (cleaner) supplied via Brook
  St
• Standard staffing co contract docs no MOO
• Controlled by end user
• Contract rolled over for 4 years - no project
  aspect
• NB length of service conclusive?
• NB obiter dicta i.e. by the way comment
• NB not unanimous decision strong dissenting
  judgment
• Ct A called for legislation to clarify

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Employment rights case law

• Current case law position
• 3 Dacas should be followed Cable and Wireless v
  Muscat EAT February 2005 and Court of Appeal
  March 2006
• Telecoms engineer for 20 months
• Initially supplied via personal services company
  direct to end user, then via a staffing company
  (as additional contractual intermediary)
• Fairly standard staffing co contract docs no
  MOO, right to substitute, non exclusive
• Decision
• Dacas principle can apply to contract workers
  routed through personal services companies (i.e.
  not just PAYE workers)
• Conscious decision by the Ct A to extend the
  circumstances where a contract of employment may
  be implied, and should be followed

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Employment rights case law

• Current case law position
• Unusual aspects of Cable and Wireless case
• Friday to Monday contractor sole reason was to
  reduce headcount
• (Former) employer paid for the incorporation
  costs of Mr Muscats personal services company
• Initial contractual document emphasised personal
  nature of services
• Mr Muscat included in CW dept structure, with
  employee number and included in dept headcount
• CW directed on a day to day basis, holiday and
  expenses cleared with CW direct
• CW provided equipment (laptop and phone) and CW
  paid phone bill as before
• Staffing co merely provided an invoicing service

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Employment rights case law

• Current case law position
• Other distinctive features of the CW case
• Court assumed that there were no benefits for the
  worker in becoming self-employed benefits of
  employment rights were regarded as of much
  greater worth than the tax and other benefits of
  self-employment
• Court assumed that there was massively unequal
  bargaining power
• Some key arguments do not appear to have been
  raised in the proceedings

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Employment rights case law

• Current case law position
• 4 James v Greenwich Council (EAT 2006, Court of
  Appeal 2008) Dacas does not apply to all cases
• PAYE worker at Greenwich via an employment
  business for 5 years
• Fully integrated
• BUT
• Employment business could and did send
  substitutes when James was ill
• Contracts did reflect the reality of the
  situation no need to imply a contract of
  employment between James and Greenwich she chose
  to contract through the employment business
• Length of engagement not necessarily conclusive

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Employment rights case law

• Current case law position conclusion
• Each case will be decided on
• its facts mutuality
• whether the arrangements were forced on the
  temp/contractor
• the extent to which the individual could be
  substituted and was substituted
• how sorry the Tribunal feels for the individual
  (but note Consistent v Kalwak (May 2008) Court
  of Appeal tells tribunals to look at the facts
  before assuming an employment relationship needs
  to be implied)
• Uncertainty of case law contributed to UK
  (conditional) support for TWD

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Employment rights

• Note discrimination rights apply in any case
• Duty not to discriminate unlawfully owed to
  workers. This includes
• candidates
• temps and
• (probably) contractors.
• Increasing range of unlawful discrimination
• sexual orientation, religion, disability and
  established areas of sex and race
• Unlimited liability for discriminator
• Applicant is at little real risk as to costs -
  simple to claim

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Agenda

• Importance of employment status wider
  implications of new cases
• Statutory and common law background employment
  status tests
• Employment rights case law 2003-7
• Temporary (Agency) Workers Directive
• Practical steps to mitigate risk of claims under
  TWD and employment law

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Temporary Workers Directive

• Mixed policy messages 1998-2008
• UK over regulation reducing UK competitiveness
  (having a job is more important than having
  rights?).
• Success at Work white paper in 2007 enough
  protection already
• calls for legislation by Court of Appeal
• European social agenda debate - some EU members
  regard all temp working as unfairly exploitative
  of workers
• Vatican comments
• perception of unfairness suffered by specific
  sections of the community (rather than all
  workers), and union pressure at a time when
  Labour Party finances under pressure Protection
  of Vulnerable Workers initiative (Spring 2007),
  Andrew Miller bill, Gordon Brown proposed
  commission, BMW publicity
• Protection of Vulnerable Workers initiative
  (Spring 2007)

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Temporary Workers Directive

• Original draft of Temporary (Agency) Workers
  Directive proposed equal treatment of all
  workers (perms, temps, PAYE workers and
  contractors)
• working time
• paid holidays
• pay
• benefits (incl pension)
• employment protection
• training and amenities
• from day 1 of assignment
• Worker compared with a comparator at the
  end-user.

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Temporary Workers Directive

• June 2008 Deal between CBI and Unions
• only basic pay
• not occupational pension schemes, share schemes,
  bonuses, contractual sick/maternity pay
• only from 12th week of assignment
• temp, PAYE worker or contractor will be compared
  with a real comparator at the end-user
• Swedish derogation no agency worker rights if
  employed by staffing company (or umbrella?) and
  paid between assignments
• workplace agreements

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Temporary Workers Directive

• Other rights
• Access to amenities canteen and childcare
• Notification of vacancies
• Suitable measures to improve agency worker
  employability (?)
• Consultation and information thresholds for TUPE,
  collective redundancies, work councils

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Temporary Workers Directive

• Concerns about practicability of these
  requirements
• audit of comparators? Confusion reigns as to what
  the comparison exercise will involve regime may
  be unworkable especially in smaller work
  units/end users and where specialists are engaged
• what does comparable pay or basic pay mean?
• who is liable if the agency workers rights are
  breached? Staffing company will need pay data. DP
  issues? what is an agency worker? Contractors?
  Umbrella contractors?
• how long a break will break continuity?
• Swedish derogation minimum hours contracts?
  Expenses debate with HMRC?

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Temporary Workers Directive

• Timetable to implementation
• Dec 2008 adoption at EU level following debate in
  European Parliament
• BERR conducting initial discussions now
• Draft Regulations originally expected in January
  (now Easter)
• 2009 consultation about (1) principles and (2)
  detail of UK implementing legislation (debate
  about problem areas)
• late 2009 UK finalise implementing regulations
  (late Autumn?)
• coming into force probably Spring 2010

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Agenda

• Importance of employment status wider
  implications of new cases
• Statutory and common law background employment
  status tests
• Employment rights case law 2003-7
• Temporary (Agency) Workers Directive
• Practical steps to mitigate risk of claims under
  TWD and employment law

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Practical Steps

• Dont panic! Temping and contracting is here to
  stay
• But do take steps to help mitigate risk, or
• you will suffer claims under TWD
• you will suffer indemnity claims
• end users may reduce usage evidence of flight to
  quality
• And start thinking about how you will operate
  after TWD is implemented contracts starting now
  may still be in place then, and many end users
  will need a lot of time to get used to the
  changes

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Practical Steps employment risk

• Look closely at processes
• Do not Friday to Monday and do not help
  workers set up on a self-employed basis
  genuinely self-employed people arrange their own
  affairs
• End users should not treat temps and contractors
  as chattels
• do not require them to be contractors of a
  particular type?
• be very careful with migration of a contract book
  from an outgoing supplier to a cheaper new
  supplier or Managed Service Provider. You must
  have risk mitigation in place
• be careful about directs

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Practical Steps employment risk

• Look closely at processes
• Treat temps/contractors distinctively avoid
  integration and do not train (n.b. trends re USA,
  Care Workers and Rail Sector)
• Do not control project basis of working/stage
  payments/allow use of discretion/check insurances
  of worker?
• Allow substitutes? James, Green, Callaghan cases
  in 2005-8
• Manage exits to avoid grievances
• Absence reporting must be via staffing company

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Practical Steps employment risk

• Monitor length of contracts? But careful about
  arbitrary cut off dates designed to prevent
  employment rights accruing
• indirect discrimination? What if the temp
  workforce has proportionately more of one sex
  than the comparable perm workforce?
• most worrying obligations accrue before 1st
  anniversary cut off date e.g. PAYE/NICS and
  immigration
• cut off date may be an admission that the end
  user realises that the individuals are really its
  employees (for PAYE/NICs/immigration etc
  purposes)
• Avoid discrimination manage diversity in all
  parts of workforce

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Practical Steps employment risk

• Increased use of
• MSPs and professional staffing advisers who can
  run risk management for the end user?
• Employed contractors? (only where staffing
  company is confident of finding repeated
  assignments?)
• HR department should not manage. Look to staffing
  companies (rather than HR dept) to provide key
  services
• Diversity management
• Vetting and screening
• Immigration status
• Training
• Risk management

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Practical Steps employment risk

• Indemnities from suppliers?
• Can the supplier insure?
• If they cannot will the suppliers balance sheet
  be strong enough to bear the risk?
• Should an end user do business with a company
  which enters into commitments which it cannot
  perform?
• Are these indemnities enforceable?

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Practical Steps operating models post TWD

• Swedish derogation
• employed contractors employed by staffing
  company or umbrella
• paid between assignments?
• staffing co factors employment costs into margin?
• (tax efficiency tax free travel expenses?)
• (helps reduce employment risk for end user)

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Practical Steps operating models post TWD

• Limited company contractors?
• opt outs?
• Project working
• paid for delivering pre scoped deliverable
• substitution rights not personal service
• (helps employment risk)
• 11 week appointments
• what will break continuity? anti-avoidance
  mechanisms requiring 6 weeks?
• end user concerns about churn?

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Practical Steps operating models post TWD

• Appoint agency workers as trainees for comparator
  purposes
• French model
• Workplace agreements
• override TWD rights

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Summary

• Latest UK case law means temps and contractors
  are not employees in most cases, especially
• more skilled
• more substitutable
• But care needs to be taken over how lower paid
  temps and contractors are engaged and used
• TWD will not be too much trouble if operating
  models are updated and risks are professionally
  managed

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Summary

• Employment rights risk and TWD challenge may lead
  to
• trend towards employed model for many types of
  workers in many sectors?
• trend towards shorter term engagements and
  churn?
• use of limited company contractors /project
  agreements (specialist higher paid contractors
  are likely to be unaffected, especially if not
  controlled)?

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Developments in rights for agency workers
Temporary Workers Directive and other issues

• Kevin Barrow
• Partner
• Blake Lapthorn Recruitment Sector Group
• kevin.barrow_at_bllaw.co.uk
• Recruitment Consultant Conference
• 1 April 2009