Permanent shift

Recent headlines suggest the banks are starting to recruit again. Following the Turner Review, the media have focussed on bonuses, but Lord Turner’s call for a shift towards longer-term risk and reward might be relevant to other employment practices. 

Is it time to consider whether the interests of the financial sector will be better served by making more use of permanent employees and less of temporary staffing solutions?

Temporary staff fall into three categories: independent contractors, agency workers, and workers on short fixed term contracts.   However, these recruitment patterns may not have kept pace with recent and pending changes in the law eroding the differences between temporary and permanent staff.

Changing legal landscape

A key driver for businesses to reconsider their policies on use of agency staff is the opportunity to get ahead of the game before the UK implements the European Temporary Agency Workers Directive.

Following November 2011 (the proposed implementation date), huge changes will be needed in businesses using agency staff as they must have equal terms and conditions to employees.  By replacing their agency staff with permanent employees, businesses will minimise the onerous and expensive burden of complying with these new measures.

Meanwhile, in James v Greenwich (2008), the Court of Appeal suggested it would be unusual for an agency worker to be an employee of the end-user business.   However, the risk of litigation remains significant as previous cases may not be sufficiently similar to eliminate uncertainty.

Since 2002, employees on fixed term contracts have had the right to be treated no less favourably than permanent employees, and their rights to claim unfair dismissal and redundancy payments can no longer be waived.  

As to independent contractors, despite the government’s attempt through IR35 to limit this category to the “genuinely self employed”, employment status still depends on the application of case law to contractual terms which, among other things, deny mutual obligations and purport to offer rights of substitution.

Recent cases on sham terms relating to employment status may make it easier for contractors to claim employee status, as the courts have moved away from saying a term will only be a sham if both sides set out to deceive a third party. 

Two recent decisions Protectacoat Firthglow Ltd v Szilagyi (2009) andAutoclenz v Belcher (2009) suggest the following approach:

 –First, the intention of the parties is paramount

 –Secondly, a term that does not reflect those intentions is a sham and entitles the court to look instead to the reality of the relationship.

These developments mean that both permanent and temporary staff might claim the rights of employees. There are a number of other arguments for reviewing recruitment policies.

The arguments for change

 – Flexibility? Agency workers may fulfil a valuable short-term role.  However, the supposed ability to dispense with Agency workers’ services may be more imagined than real.   Highly skilled individuals often negotiate long notice periods.  Where relations sour, and the worker has been with the business for several years, the risk of litigation is considerable.

 – Cost saving?Non-employee packages often have to compensate for lack of ‘employee’ benefits and agency fees have to be paid.   Agency staff are generally regarded as more expensive than permanent staff.

 – Less control. Employees are, at least in theory, under a greater degree of control, usually by a line management reporting system or ultimately the board.  In light of the pressure on the financial sector to promote effective risk management, ‘employee’ status should enable companies to exercise more scrutiny.

 – Discontent. The MacLeod Review (for BERR) on ‘Employment  Engagement’ concludes that increased employee engagement impacts positively on competitiveness and performance.  The TUC and other bodies have warned of a skills divide, creating a two tier work force with temporary and permanent staff.  Companies which resist employee status for their workers are risking worker discontent and its negative effects on business.

The advantages of a temporary workforce in the changing legal landscape are more imagined than real.

Changes in the bonus culture alone will not be enough to restore public confidence in financial institutions.  Moving away from a fluctuating and expendable workforce will contribute towards achieving a longer-term risk and reward strategy.  This will also help to enhance public confidence in financial institutions. 


Martina Murphy and Peter Linstead are barristers at Tanfield Chambers.