Agency Workers Regulations - are we ready?

Date: 25/10/11

The Agency Workers Regulations 2010 (the Regulations), which came into force on 1 October 2010 implement the Temporary Agency Workers Directive. Both have been controversial and divided opinion and it is not difficult to understand why. On the one hand there is concern for the potential exploitation of vulnerable agency workers. On the other is the significant additional red tape and cost imposed by the Regulations. The cost of implementing the Directive was assessed in January 2010 by the Department for Business, Innovation and Skills (BIS) as being in excess of £1.5bn for the private sector and nearly £350m for the public sector. If recent reports in the press are correct, it would appear that those divisions may extend to the current coalition, with David Cameron considering whether any of the provisions of the Regulations not required by the Directive (so called ‘gold plating’) can be stripped out as part of the government’s ‘red tape challenge’.

Despite a relatively long period between the publication of the Regulations and their implementation, it appears that a significant number of businesses are struggling to get to grips with their new obligations. The Recruitment and Employment Confederation published the results of a survey in September 2011 which showed that 23% of employers were still completely unaware of the Regulations and a further 44% were still undecided as to what changes they may need to make in their businesses to ensure compliance with their new obligations.

For many businesses temporary workers are the perfect and sometimes only solution to address peaks and troughs in workflow. Other organisations have based their business model on a two-tier workforce that relies on paying agency workers less than permanent employees. Whatever the reason for engaging agency workers, it is crucial to ensure that those who utilise temporary labour understand how the new law works to avoid falling foul of it.

The Regulations apply to both those organisations that supply agency workers to their clients (agencies) and those businesses that hire agency workers (hirers). This article is aimed at hirers rather than agencies.

Key Principles

The main effect of the Regulations is that after a 12-week qualification period in the same job with the same hirer, an agency worker will be entitled to the same pay and other basic working conditions as a comparable staff member of the hirer (which would include employees and workers).

From day one of their assignment, agency workers also become entitled to access the collective facilities and amenities at the hirer’s site and information about permanent job vacancies in the hirer’s business.

Day-One Rights

Day-one rights do not extend to all benefits that a hirer might provide to its staff, but only to collective facilities offered to comparable staff of the hirer and would include a canteen, workplace crèche or car parking. If there is a queue that staff of the hirer must join to gain access to these facilities, the agency worker would join that queue. The Regulations do not afford the agency worker preferential treatment.

Agency workers are entitled to be provided with information about any relevant job vacancies in the hirer’s business. If job vacancies are only available on an intranet to which agency workers do not have access then those vacancies should be published in an accessible format (e.g. a notice board).

Guidance produced by BIS clarifies that the right to access information about vacancies does not apply in the context of a redundancy or restructuring situation where posts are being ring fenced for redeployment purposes by the hirer in order to prevent dismissals from its permanent workforce.

The hirer will be solely responsible for the provision of these day-one entitlements as an agency will have no control over these matters.

12-Week Rights

The basic terms and conditions of employment that agencies and hirers need to ensure are matched for agency workers are:

Key elements of pay;
Duration of working time;
Night work;
Rest periods;
Rest breaks;
Annual leave.

In addition, pregnant agency workers who have completed the 12-week qualifying period (see below) will be entitled to paid time off for antenatal appointments.

While equal treatment is not expected in respect of all of the terms and conditions that a person would receive had they been recruited directly by the hirer (see below), the guidance suggests that it does extend to terms and conditions normally set out in standard employment contracts, pay scales, the company handbook and any relevant collective agreement.

Pay

Pay includes basic pay, overtime payments, shift/unsocial hours allowances and holiday pay. Notably bonus or commission payments directly attributable to the amount or quality of the work done by an individual are included.

However, pay excludes occupational sick pay, occupational pensions, enhanced maternity, paternity or adoption pay, redundancy pay, notice pay and bonuses that are not directly linked to the individual’s contribution, provided the bonus payments are not made with such regularity to the hirer’s staff that they have become a contractual entitlement through custom and practice.

Where the payment of a bonus is linked to the (annual) appraisals of permanent staff, the hirer will need to consider how these appraisals may need to be modified to ensure agency workers are properly assessed for any bonus to which they are entitled.

The 12-Week Qualifying Period

Hirers can take some comfort from the fact that the Regulations are not retrospective and therefore they do not need to take account of time already carried out on an assignment by agency workers prior to 1 October 2011.

The qualifying period is achieved by an agency worker working in the same job for the same hirer for a period of 12 weeks whether through one agency or different agencies. However different types of absences can either make the qualifying clock reset to zero, pause or continue to tick.

The clock will reset to zero where there is a break between assignments with the same hirer of more than six weeks. It might also be reset if the agency worker stays at the same hirer but starts working on a new assignment in a substantively different role. A change of hirer will not have the effect of resetting the clock unless it is a different legal entity. Hirers with multiple sites should therefore take care; moving an agency worker between different sites will not reset the qualifying clock unless the roles on each of the assignments are sufficiently different from one another.

The qualifying clock will be paused if, for any reason, there is a break of no more than six calendar weeks and the agency worker returns to the same role at the same hirer. The clock will also be paused for a break of up to 28 weeks if the agency worker is sick or injured or if they take leave to which they are entitled, including annual leave. It will also be paused if there is a break of up to 28 calendar weeks for jury service. A regular or planned shut down of the hirer’s business or closure by reason of a strike, lock out or other industrial action will also pause the clock.

The clock will always continue to tick when the agency worker is absent for certain reasons related to pregnancy, childbirth or maternity for a period of up to 26 weeks after childbirth or for any break due to the agency worker taking maternity leave, adoption leave or paternity leave.

Scope

The Regulations typically apply to those who work for a variety of hirers on different assignments but are paid by an agency who will deduct the tax and National Insurance contributions.

They also apply where workers are supplied through an ‘umbrella’ company (an intermediary that employs the agency worker) where they are working under the supervision and direction of the hirer.

Contractors are not removed from the Regulations just because they operate through a limited company for tax reasons. It will always be a matter for an Employment Tribunal to assess but if the reality is that the individual is working under the supervision and direction of the hirer, then they are likely to fall within the scope of the Regulations.

Managed service contracts may also be excluded. These are arrangements where a company provides a specific service such as catering or cleaning to the hirer, where those staff working on the contract are engaged directly by and work under the supervision, direction and control of the service provider and not the hirer.

Equally, where an organisation is large enough to have its own in-house temporary staffing bank, the workers it supplies are unlikely to be caught by the Regulations.

Genuinely self-employed contractors who have no fixed working pattern and can determine how and when they perform their services are also unlikely to be within the scope of the Regulations.

The Swedish Derogation

Much has been made of the ‘Swedish Derogation’. Agency workers engaged under Swedish Derogation contracts are not entitled to equal pay after the 12-week qualifying period provided certain conditions are met. Agency workers have to be employed on a permanent basis by the agency (or an umbrella company supplying via an agency) and there are specific provisions that have to be included in the contract of employment. The exemption only relates to pay and not matters such as holiday and rest breaks.

Agency workers operating under this arrangement are compensated for foregoing their right to equal pay through a ‘pay between assignments’ benefit. They are entitled to pay between assignments of at least 50% of their highest basic pay during the previous 13 weeks on assignment or at the national minimum wage rate, whichever the higher.

Anti-Avoidance Provisions

Hirers may think that an easy way to avoid the Regulations is to release an agency worker after 11 weeks and then ensure that there is a six-week break prior to any re-engagement. However, provisions have been built into the Regulations that if an agency worker is taken on for a third time following two 12-week assignments with six-week breaks or moved around group companies, an Employment Tribunal could determine that this was designed to circumvent the legislation and treat the worker as qualifying for protection.

The importance of communication

Pre-existing legislation already governs details that must pass between a hirer and an agency before an agency worker is placed.

In order to avoid liability under the Regulations a hirer will also need to provide the agency with details of the basic terms and conditions of employment to which an agency worker would be entitled after the 12-week qualifying period.

This is a key point for hirers and agencies. It is the agency that is generally responsible for paying the agency worker the correct amount. However they can only do so if the hirer provides the information on the appropriate rate of pay. If the hirer does not then it may be liable for any shortfall in pay due to the agency worker.

Entitlement to information

Agency workers are now able to request specific information if they believe that their entitlements have been infringed.

In relation to day-one entitlements, a written response must be provided by the hirer within 28 days of a request, including all relevant information relating to the rights of a comparable worker or employee and the reasons for the treatment of the agency worker.

In relation to entitlements accrued after the 12-week qualifying period, a written response must be provided by the agency within 28 days, failing which the agency worker can write directly to the hirer requesting the information.

Liability and remedy

If an agency worker believes their rights have been infringed they can bring a claim against both the agency and the hirer in an Employment Tribunal.

In relation to day-one entitlements liability will rest with the hirer, which is clearly fair as access to facilities or vacancies is a matter for the hirer.

In relation to the 12-week qualifying entitlements, the agency is responsible. However an agency will have a defence to such a claim if it can show that it obtained or took ‘reasonable steps’ to obtain relevant information from the hirer about its basic working and employment conditions and treated the agency worker accordingly. If the hirer did not provide the relevant information it could be liable for any difference.

In terms of compensation, an agency worker will generally be able to claim any loss of earnings related to their entitlements under the Regulations, i.e. if they have been unlawfully denied the same level of pay as a comparator they will be able to claim the difference in salary. There is no maximum award but there is a minimum award of two weeks’ pay unless a tribunal finds that the worker behaved unreasonably, in which case it has the power to reduce the award if it is just and equitable to do so.

A tribunal may make an award of up to £5,000 in the event that a hirer or agency is found to have breached any of the anti-avoidance measures and the tribunal decides that the pattern of assignments indicates an intention to deprive a worker of their rights. This penalty can be levelled against either the hirer or the agency or split between the parties in a way that the tribunal considers just and equitable.

Top Tips for Hirers

1. Firstly, communicate with your agencies. The key to ensuring compliance with the Regulations is maintaining an open dialogue and regular information exchange with your agencies.

2. Consider the correct business model. It may make commercial sense for you and your agency to operate under the Swedish Derogation but this is not a one-size-fits-all model. Whether it would work for you (and your agencies) may depend on a host of factors that will need to be discussed between you.

3. Thirdly (at the risk of being tedious), in partnership with your agencies deploy resilient recruitment management processes to ensure compliance.

4. Where there is an obligation to pay agency workers the same as permanent staff after 12 weeks, you will need to provide comparator information to the agency or you may be liable for any underpayment to the agency worker. Adopt effective systems for collating information on company structures and pay and benefit packages. Ensuring that this information can be recorded and accessed as easily as possible will mean that you have this information at your fingertips to provide to agencies and can ensure that you do not fall foul of the Regulations.

5. Make enquiries of your agencies to ensure that they exceed a minimum financial strength requirement, that none of their directors or management have been disqualified from acting as a director and ensure that the company is up to date with its Companies House and HM Revenue & Customs filings.

6. Liaise with your agencies at the earliest opportunity to confirm which workers may be in or out of the scope of the Regulations as of 1 October 2011.

7. Review your commercial supply agreement, where does liability sit between the parties in the event that there is a claim under the Regulations?

Written by Jon Keeble, Emma Harvey, and Naomi Greenwood.

This article was first published in October's edition of In House Lawyer magazine. Please click on the PDF attached to review.

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