2010 changes to recruitment sector regulation
revised Conduct Regulations – opt out retained and reduced
requirements for job boards
With many recruiters beginning to emerge from the impact of the
recession, the recruitment sector could be forgiven for responding
to proposals for regulatory changes with a collective sigh.
However, despite the sentiment in the sector, changes to the
Conduct of Employment Agencies and Employment Businesses
Regulations 2003, the Regulations which govern the conduct of the
private recruitment industry and set minimum standards for staffing
companies, are planned to come into force on 1 October 2010
following the completion of the Department for Business, Innovation
& Skills' (BIS) recent consultation on the regulation of the
sector.
summary of key changes
- retention of the opt out
- reduction of regulatory burdens for online recruiters and
agencies
- removal of requirement on agencies to agree terms with
candidates and clients
- clarity in advertisements
- no reintroduction of a licensing regime
- introduction of a "reasonableness" test for transfer fees and
extended periods of hire
retention of the opt out
Company contractors have had the ability to opt out of the
application of the 2003 Conduct Regulations since their
introduction in 2004. This means that recruiters do not have to
comply with the Regulations and the contractors lose the
protections (such as the right not to be restricted from providing
services via a competitor of the recruiter or to a competitor of
the recruiter's client) afforded by the Regulations.
In its consultation paper, BIS opened the debate on the
potential removal of this opt out because there appeared to be
evidence that vulnerable workers, particularly umbrella workers,
were suffering a detriment through opting out. Having spent years
educating clients and contractors about what opting out means and
developing elements of their business models which rely on the
operation of the opt out (for example, the use of the restrictions
described above and reduced administration), many recruiters feared
the impact of the removal of the opt out. However, the consultation
responses provided no significant evidence of the risk perceived by
BIS and consequently the opt out is to be retained. Recruiters will
be cheered by the retention of the opt out, but it is important to
remember some key issues:
- timing
- inform the client
- no control
Timing: notice of agreement to opt out of the
application of the Conduct Regulations must be given by the company
contractor and the individual consultant who will perform the
services before the recruitment company introduces or supplies them
to the client. Many recruiters find obtaining opt out notices at
the right time an administrative nightmare. However, failure to
obtain an opt out at the right time will make it invalid,
potentially exposing the recruitment company to breaches of the
Regulations (which are criminal offences). This might also prevent
the recruitment company from, for example, placing client-required
restrictions on the contractor or charging the client temp-to-perm
and temp-to-temp fees.
Inform the client: remember that you must also
inform the client of the opt out before you introduce or supply the
contractor and consultant to the client.
No control: if the contractor does not work
under the control of the client, the Regulations will not apply.
This will be the case, for example, for highly skilled contractors.
Most recruiters take a belt and braces approach and obtain opt outs
even when the client does not control the contractor. However,
particularly where an opt out may not be valid (because, for
example, it was not given early enough), it is worth ensuring that
opt out notices contain wording stating that the opt out does not
constitute an admission that the Conduct Regulations apply or that
the client controls the contractor.
This is a technical area and requires a
detailed understanding of the relevant law and procedures. If you
have any concerns about your current procedures for obtaining opt
outs or are considering putting such processes in place, we
recommend that you take appropriate legal advice.
reduction of regulatory burdens for online recruiters
and agencies
Many online recruiters and job boards
challenge whether they must comply with the Conduct
Regulations. However, BIS regards these online providers as
being within the scope of recruitment sector legislation. In
recognition of the nature of the role such providers play, BIS
proposes that online recruiters, job boards and 'traditional'
agencies that place candidates in permanent jobs with employers
will no longer be required to carry out candidate suitability
checks.
BIS's intention behind the proposed changes is
to remove duplication and the burden on agencies of carrying out
checks (such as entitlement to work in the UK) that employers are
often required (by law) to undertake, as well as allowing the
online sector to continue to grow and innovate.
Agencies that place employees in jobs where
they work with vulnerable people, and recruitment companies that
have contracts with temporary workers and contractors to perform
services for clients on temporary assignments (called employment
businesses in the Regulations) will still have to carry out
suitability checks.
Overall this is good news for online providers for whom
compliance with the requirement to undertake such checks is
virtually impossible. However, the 'traditional' agencies will
probably continue to carry out these checks because this is what
clients expect from their service.
removal of requirement on agencies to agree terms with
candidates and clients
Currently the Regulations require recruitment companies that
place candidates in permanent jobs with clients (called agencies in
the Regulations) to agree terms with candidates before seeking
roles for them and before introducing candidates to clients. These
requirements will be removed in 2010. However, employment
businesses will still have to agree terms with candidates before
looking for temporary assignments for them and with clients before
introducing temporary workers to them.
clarity in advertisements
From October 2010, recruitment companies will no longer have to
state in advertisements whether the services they are advertising
are those of an "agency" or an "employment business". Instead the
recruitment company will have to state whether a position is
"permanent" or "temporary". Candidates (and recruiters) are far
more likely to understand these terms.
no reintroduction of a licensing regime
BIS considers that reintroducing a licensing regime would be an
unnecessary additional regulatory burden for the recruitment
industry. BIS intends to focus instead on prioritising effective
enforcement of the Regulations.
Recruitment companies and individuals that fail to comply with
the recruitment sector legislation are committing criminal offences
and the penalties can be high, including being prohibited from
running a recruitment business for up to 10 years. Our experience
is that BIS's enforcement body, the Employment Agency Standards
Inspectorate (EASI), often takes a pragmatic view on minor
procedural breaches and will give an infringing recruitment company
the opportunity to become compliant within a certain time period
before taking any further action.
The EASI must, by law, investigate all complaints made against
recruitment companies and sometimes the EASI selects recruitment
companies at random for a compliance audit. Let us know if you need
advice on an investigation or would like us to audit your business
to ensure compliance were you ever to come under the EASI's
radar.
introduction of a "reasonableness" test for transfer fees and
extended periods of hire
Regulation 10 regulates how recruitment companies charge
"transfer fees", including temp-to-perm and temp-to-temp fees, and
the client's alternative to payment of these two types of fees of
an "extended hire period". In a separate consultation on the
implementation in the UK of the Agency Workers
Directive link to further information on implementation
of the Directive and link
to how can agency workers be supplied on a low risk and and
cost effective basis from 2011 BIS concluded that these
fees and the alternative of an extended period of hire of the
relevant worker or contractor should both be required to be
"reasonable".
These fees and periods are usually agreed between the
recruitment company and the client. They reflect industry practice
and generally cover the loss of the ability to earn a margin that
the recruitment company will suffer as a result of the worker or
contractor providing services directly to the client or via another
recruitment company. One would thus expect the fees and extended
hire periods to be deemed reasonable.
We would not normally recommend that you amend your terms and
conditions ahead of the introduction of final legislation. However,
it can do no harm to tighten relevant provisions in client
contracts now. This would include, for example, adding an
acknowledgement from the client that the transfer fees and hire
periods are reasonable. This type of provision will, ahead of any
amendment to Regulation 10, assist in ensuring that these clauses
comply with the general law on unlawful restraint of trade which
requires provisions of this nature to go no further than is
necessary to protect the recruitment company's legitimate business
interests and must therefore be reasonable in order to be
enforceable.
conclusion
Many providers of online job boards will be disappointed that
BIS is maintaining its view that job boards are regulated by the
recruitment sector legislation. However, the burden of compliance
for job boards has been significantly reduced. BIS recognises that
the online world is constantly evolving and intends to continue to
monitor the situation and maintain a dialogue with online
providers.
Overall the proposed amendments to the Regulations are good news
for recruitment companies, particularly the retention of the opt
out and reduced burdens for permanent recruiters.
If you would like more information on the proposed changes to
the Regulations and their likely impact on your business, please do
not hesitate to contact us.
Blake Lapthorn appoints new head of Recruitment sector
group
Blake Lapthorn is pleased to announce the appointment of Bridget
Wood as the new head of its Recruitment sector group. To view more
information on this news click on this link.
See this link for more information on the services provided by
our Recruitment sector group: Blake Lapthorn recruitment sector.
