Agency Workers Directive - how can agency workers be supplied
on a low risk and cost effective basis from 2011?
The Department of Business, Innovation and Skills (BIS)
yesterday published draft regulations (the Regulations) designed to
implement the Agency Workers Directive (AWD) in the UK from October
2011.
The delay in implementation is good news. But the main point is
that it clearly will still be possible from 2011 to use most types
of agency workers without material legal risk or extra cost.
The bad news is that not all of these Regulations are well
drafted, and there will be difficulties for those involved in the
supply of and/or use of agency workers at the lower end of the pay
scale.
This briefing looks at some of the good, and not so good, news
for suppliers and users of agency workers, and sets out how the
agency workers can be used in the future on a low risk and cost
efficient basis.
good news: timetable and possible future watering down
The Government has decided to delay the implementation of these
Regulations until 1 October 2011. Following a first round
consultation on general principles which took place earlier this
year and closed on 31 July 2009, a second consultation period has
started, due to end on 11 December. The timetable after the closure
of this second consultation is not clear but it is unlikely that
the final form of the Regulations will be put before Parliament
until early next year.
This timetable raises the strong possibility that any new
(Conservative) Government elected before October 2011 would amend
the Regulations before they come into force to remove some of the
harsher (arguably 'gold-plated') provisions in the first draft
issued yesterday.
In any event, given the delayed timetable it is unclear how far
this first draft represents the Government's anticipated near-final
form of the legislation, as was initially expected, or whether
there is now genuine scope for revision. We suspect that more
amendment may be possible than was originally thought.
what types of worker are intended to fall within the scope of
the Regulations? what about umbrella workers and limited company
contractors?
BIS state that they intend that umbrella workers should be
included but the 'genuinely self-employed', limited company
contractors and people working on managed service contracts (ie
contracts where the supplier supplies a scoped service rather than
staff), are not intended to be included.
The draft Regulations do appear to try to include umbrella
workers within their scope. The mechanism adopted by BIS states
that any 'chaining' relationship under which the supply is made to
the end user (via an umbrella or another intermediary) is
irrelevant: the worker will still be within scope. The only
exception will be where the 'Swedish derogation' applies (see
below).
The exclusion of the genuinely self-employed and limited company
contractors is not set out in very clear terms. BIS appear to
achieve this by specifying that for an agency worker to be within
scope (ie protected by the Regulations) he or she must "work for
and be under the direction of" a hirer – the truly self-employed or
the IR35 compliant PSC contractor will not satisfy this requirement
because they will generally determine how to do the work themselves
(without 'direction').
our suggestions
Umbrella companies will seek to use the Swedish derogation for
higher paid staff, and other workarounds for others (see
below).
The Regulations increase the attractiveness of Personal Service
Company contractors working genuinely outside IR35 and other
self-employed models. It remains to be seen how HMRC will view a
measure which might be seen to encourage these sorts of models.
The issue of consultancy staff does, however, still remain. From
what we can see the drafting proposed does not exclude consultants
who are employed by business services organisations which would not
normally be considered a 'temporary work agency' (but which, in our
view, would fall within the ambit of the Regulations as drafted).
It remains to be seen how IBM or PwC or PA Consulting (or Blake
Lapthorn!) would react to a claim from a consultant or secondee
working in an investment bank that he or she is not receiving equal
treatment to his or her highly paid equivalents.
qualifying period
Given that a 12-week qualifying period, after which the right to
equal treatment will arise, was the central element of the TUC/CBI
deal, it is no surprise that this has been carried into the draft
Regulations.
The Regulations set out that any week during the whole or part
of which an agency worker is engaged on an assignment is counted as
a calendar week, irrespective of whether the agency worker is
working part-time or full-time ie the qualifying period is not 12
weeks of working time but simply 12 calendar weeks.
Another longstanding issue surrounded how the 12-week period
would start and stop and what sort of break would need to be taken
from a given role before the clock could be restarted.
The draft Regulations confirm that there should be a minimum of
a six-week break between assignments in order for the 12-week clock
to be restarted. This break period is also an absolute amount and
is not pro-rated on the basis of the length of the assignment.
There is also provision for a pause in the qualifying period where
the break is as a result of authorised holiday or sickness absence
and a longstop date of 28 weeks after which the clock will be
automatically reset will apply where such a pause turns out to be a
long-term absence.
The clock is also reset if the worker commences a new assignment
which is substantively different from the one they had been working
on prior to the expiry of the qualifying period. There was some
concern that rather than allowing the worker to accrue equal
treatment rights, certain temporary work agencies and end users
would roll the worker into a nominally new (but effectively the
same) role restarting the clock and depriving the worker of his or
her rights.
The issue of what is to be considered as a substantively
different role is addressed in the second consultation document but
the detail will (we are promised) be provided in guidance
notes.
our suggestions
BIS has attempted to address the issue of end users rotating
multiple workers between assignments to prevent the rights being
triggered. To prevent the success of this potential get around BIS
have laid down conditions to be met to prevent the 12-week clock
from counting. Guidance is yet to be produced on the meaning of a
'substantively' different assignment from the last, when changing
roles for the same end user and restarting the 12-week clock. The
guidance will be telling as to how any possible rotation strategies
may work. We think that for lower paid staff they will be a common
workaround.
A future Conservative government may be tempted to reduce the
six-week break rule which arguably gold-plates the original
Directive.
what rights will an agency worker have to equal pay etc?
The Regulations give an agency worker the right to the same pay
as a comparable perm. As anticipated, pay is defined as basic pay
and any contractual entitlements that are directly linked to the
work undertaken by the agency worker whilst on assignment, ie
holiday pay, payment of overtime, shift allowance and unsociable
hours premiums and piece-work bonuses. The agency worker will be
entitled to equal treatment in respect of duration of working time,
length of night work, rest periods and rest break and to be paid at
the appropriate rate for overtime.
The Regulations provide agency workers with additional holiday
entitlement (equivalent to that enjoyed by comparators) over and
above what is already provided for in The Working Time Regulations,
as expected.
As previously suggested by BIS, also outside the scope are
financial participation schemes, occupational sick pay,
occupational pensions and occupational sick pay. Also outside the
Regulations are contractual notice pay, contractual redundancy pay
and other similar benefits such as a car allowance and health
insurance.
our suggestions
It is not clear exactly what kind of bonuses and other payments
an agency worker has a right to. The Regulations refer to
remuneration 'referable to the employment'. Exactly what this will
be deemed to cover is not yet clear other than the fact that it
does not include bonuses awarded as part of an appraisal pay system
aimed at long term management, motivation and retention of staff.
End users may become more inclined to reward comparator employees
with bonuses only within a 'long term' framework to avoid potential
claims from any agency workers working in a similar role.
The questions over paid holiday entitlement have been clarified
by BIS - there has been no change regarding holiday entitlement
over and above The Working Time Directive provision. In accordance
with this, the Regulations do allow for the option to take a
payment in lieu of additional holiday above the statutory
minimum.
rights to training: access to Government provision or end users
compelled to train?
The Regulations appear not include requirements regarding access
to training but instead, the explanatory notes maintain that the
Government will 'encourage end users to work with the public skills
system to invest in training agency workers'.
our comments
There has been no regulatory provision for end users to provide
agency workers a right to equal in-house training programmes and to
pay agency workers whilst they are on pre-assignment training. This
will come as good news to many employment businesses and end users,
as the obligations they face with regard to provision of training
for temporary workers are far less onerous than they could have
been.
access to facilities
Provision has been made for agency workers to be treated no less
favourably in relation to access to canteen or other similar
facilities, access to child care facilities and the provision of
transport services
our comments
Helpfully for end users and agencies, BIS has exercised
restraint in this area of the Regulations. In line with the Agency
Workers Directive, BIS has opted to keep agency worker rights to
facilities to the minimum.
difficult issue: ante natal and maternity rights
End users will need to make adjustments to protect an agency
worker who is pregnant or a new mother from identified risks. If
making adjustments is not reasonable, or will not remove the risk,
the agency will be compelled to offer alternative work, or if this
is not possible, pay the agency worker for any period of the
assignment when she cannot work due to a health and safety
risk.
our comments
The obligation to pay the worker for the duration of the
assignment if they are unable to perform the work due a health and
safety risk linked to maternity issues is likely to be very
onerous. Otherwise these provisions are unlikely to come as a
surprise but will undoubtedly have the effect of discouraging the
placement of pregnant women even though this practice would be
discriminatory.
Staffing companies will seek to pass the burden to end users by
stating that the cost of paying a worker who cannot work should be
borne by the end user.
good news: mechanism to identify a comparable permanent
employer
There was much debate about the tricky issue of finding a
comparable permanent employee. If there was no obvious comparator
what pay etc would the agency worker be entitled to? Other equality
legislation has solved this problem by inventing the concept of the
'hypothetical comparator'. Users and suppliers of agency workers
thought this would be unworkable and introduce an element of
bureaucracy and uncertainty which would render the use of agency
workers uneconomic.
The good news is that the regulations do NOT include a
hypothetical comparator mechanism. The conditions that the agency
worker will have the right to, will be those 'ordinarily included
in the contracts of employment of any person who would have been
employed directly to perform the same role'.
This means end users will be able to argue that there is no
direct equivalent real comparator and so the pay rate etc. is
whatever the parties agree. The draft guidance specifically allows
this approach where there is no formal pay structure or 'going
rate' for the relevant job at the end user.
our comments
Beware, agency workers seeking to enforce rights under this
regulation can compel the agency to explain the basis on which
factors were considered when determining the basic working and
employment conditions.
For smaller businesses and where the agency worker is a
specialist the proposals in the Regulations seem to be helpful: in
a large number of instances it will be very difficult for the
worker to identify a comparator upon whom they can base their claim
for equal treatment.
how will the Swedish derogation (for employed agency workers)
work?
Under Article 5(2) the AWD allows national Governments to exempt
from the principle of equal treatment any temporary agency workers
who have a permanent contract of employment with a temporary work
agency and who are paid between assignments. This has been referred
to as the employed agency worker derogation or the Swedish
derogation.
Unsurprisingly, given the way the adoption of the derogation was
trailed in the first consultation document, BIS has chosen to
implement this exemption.
In clarifying BIS's view on this the second consultation
document refers to the employment relationship as needing to be
between the temporary work agency and the agency worker and "of an
on going, long term nature, with true mutuality of obligation" but
not including fixed term or zero hours contracts. The Regulations
set out a number of specific requirements including that the terms
and conditions be in writing and that these terms and conditions
document certain details (including the location of likely places
of work, which might be difficult for typical umbrella companies).
They also oblige the temporary work agency to perform certain tasks
during the period between assignments (such as seeking looking for
new assignments for the worker, which typical umbrella companies
may also find difficult).
Payment between assignments has now been clarified as being a
minimum of four weeks pay. The minimum amount is set out as 50% of
the workers pay during the relevant pay reference period. This
minimum amount is defined in terms of basic 'assignment' pay and
does not appear to include bonuses paid over the longer term of the
contract.
our comments
It appears that the employer's liability will be to pay four
weeks 'between assignments' over the life of the employment contract – not
during every period when the worker is not on assignment. Given
that this commitment seems to be viewed by BIS as indicating
mutuality of obligation it may now be the case that the sector
starts to see any obligation to pay between assignments in
over-arching employment contracts restricted to this absolute
maximum.
Our view is that, if implemented in the manner set out in the
draft Regulations, the definition of pay is likely to result in
many temporary work agencies adopting contracts designed to
restrict basic assignment pay to a low minimum level, with some
sort of longer term loyalty bonus or provision of benefits.
what about temp to perm fees?
There is a proposal to amend regulation 10 of the Conduct of
Employment Agencies and Employment Businesses (Conduct Regulations)
to limit any transfer fees charged by an employment business or any
extended period of hire as an alternative to a transfer fee to be
'reasonable'.
our comments
No additional guidance has been provided regarding the proposed
changes to be made to the Conduct Regulations. Clearly, the term
'reasonable' is not helpful when considering how an employment
business should structure its contracts. We would expect that this
change, if implemented in the manner proposed, will result in a
large degree of unnecessary litigation as what is 'reasonable' is
thrashed out.
who is liable for compliance?
As expected the agency will be liable for any breach of a right
in relation to equal treatment relating to equal pay or employment
conditions. The agency will have available the defence of having
taken 'reasonable steps' to obtain the necessary information from
the hirer and acted 'reasonably' in determining the agency workers
basic pay and employment conditions in the event of inaccurate or
incomplete information supplied by the end user.
our comments
How much information is required is not clear. The use of the
term 'reasonable' leaves this matter open to substantial
interpretation and our view is that, particularly since temporary
work agencies will often be supplying on end user standard terms,
the mechanisms which staffing companies will use to ensure they
have taken 'reasonable steps' will be crucial.
