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The Agency Workers Regulations - One Year On

25 October 2012

The Agency Workers Regulations came into force on 1 October 2011. The aim, in a nutshell, was to enhance the rights of temporary workers, in respect of access to collective facilities and amenities, access to job vacancies and basic working and employment terms and conditions.

In the run up to implementation of the Regulations, there was a great deal of concern and confusion.

A lot of effort went into mitigating the consequences, for hirers and agencies alike. With the benefit of a year's hindsight, have the Regulations turned out to be such a big deal?

A year in the life of the Regulations

A number of surveys and reports assessing the commercial impact of the Regulations have been conducted. To summarise the trends so far, the Regulations appear to have resulted in:

  • reduced overall headcounts
  • reduced use of agency workers by all but a very small minority of hirers
  • some hirers ceasing to hire temporary workers altogether
  • some hirers switching the former temporary workers to permanent employment contracts, and
  • increased costs for hirers using temporary workers.

The extent to which agencies have been affected commercially as a result of the Regulations is not clear.

Of those hirers that have reduced, or given up on, use of temporary workers, many have turned to the following as alternatives:

  • use of fixed term employment contracts
  • increased overtime from existing employees
  • limiting the duration of temporary assignments to less than 12 weeks - sometimes, no doubt, at the risk of falling foul of anti-avoidance provisions, and
  • hiring self-employed workers. Some agencies have reportedly gone so far as to refuse to deal with workers who do not operate through limited companies. Caution is required here. Only the genuinely self-employed will be exempt. Paperwork alone will not suffice.

There is anecdotal evidence of many temporary workers losing their jobs on 30 September 2011 - the eve of the Regulations coming into force. Not quite what was intended.

The "Swedish Derogation" partial exemption has been popular, despite this requiring the agency to take on full employer responsibility for temporary workers. Very large hirers in particular are using their purchasing power to insist on suppliers operating the Swedish Derogation. There have, however, been misunderstandings as to the residual obligations under the Regulations that remain even where the Swedish Derogation is operated.

Most of those who work with the Regulations agree that compliance requires a heavy administrative burden. Hirers, agencies and umbrella companies need to work together if the Regulations are to be complied with. Often this does not happen, with hirers in particular failing to provide the necessary information regarding the terms and conditions of their permanent workforce.

Of course, this is a hassle and (in the absence of suitably drafted contracts) can be detrimental to confidentiality and competition, but that is no defence. The hirer risks liability in respect of failure to comply with the 12 week rights if it is obstructive in providing the information.

The Regulations did not escape the attention of Mr Beecroft in his infamous report. On 23 November 2011 the BIS announced that it would review the Regulations in 18 months' time, looking for opportunities to simplify it. In May 2012 the CBI accused the Regulations of hitting job creation instead of protecting agency staff. It also called for the repeal of the European directive behind the Regulations.

In September 2012, in its analysis of measures delivered in comparison with the Beecroft report, the BIS stated that there was "no real evidence yet of problems stemming from the Regulations - though there has been some consolidation in the sector".

So far as technical interpretation of the Regulations is concerned, no further guidance has been issued since the Regulations came into force. At the time of writing, we are yet to see any reported decisions of the Employment Tribunals. That is not to say no claims have been commenced, rather, it is a process that takes time, and decisions are not systematically reported.

Claims under the Regulations will often involve several Respondents, as liability for some of these claims is apportionable between hirer, agency, and any umbrella companies or other entities in a chain of supply between worker and end-user. This inevitably means they will be complicated claims for Tribunals to process.

Until the Tribunals assist, here are just some of those areas of uncertainty:

  • Calculating pay with elements of bonus and commission - especially where the bonus relates partly, but not wholly, to personal performance
  • Where there are comparable permanent employees earning varying rates of pay, which is the correct rate for a temporary worker?
  • Is there more to the day 1 right to access to information to job vacancies than meets the eye - would Tribunals adopt a purposive approach, so that, for example, an employer that provides the information, but then refuses to consider applications from temporary workers falls foul?
  • Is it really OK for a Swedish Derogation-compliant employment contract to specify minimum hours only a little in excess of one hour?
  • Are attempts to re-apportion liability between hirer and agency by using indemnities in commercial contracts valid? By analogy with the TUPE Regulations, the better view is 'yes'.
  • Are supply teachers exempt by reason of their "professional" status? Most commentators at present suggest not.

What to expect in the coming months

Based on previous announcements, the BIS review would be due in May 2013 - yet the quote above does not appear indicative of intent to make drastic reforms. The CBI, however, would like to see the government simplifying the definition of 'pay', and removing the complexity of the operation of the 12-week qualifying period.

The first Employment Tribunal decisions should also begin to appear - but bear in mind that these will be first instance decisions, and appeals may follow. Definitive answers to some of the tricky questions could still be a long way off.

In the meantime, some of the common mistakes can be avoided by following the 'dos and don'ts' below:

  • Remember that pensions auto-enrolment applies to temporary workers too.
  • If using the Swedish Derogation, double check that your contracts are compliant.
  • Be prepared for short-notice compliance inspection visits - consider both your working practices and your documentation.
  • Keep your ear to the ground for developments and clarification of the Regulations.
  • Remain ready to spot, and deal promptly with, statutory Information Requests. Only 28 days are allowed for responding, and the request will often be the first indication that a claim is in the pipeline.
  • Agencies - persevere in requesting the information you need from hirers.
  • Hirers - give the information you need to give - but incorporate protection of your confidential information into your contracts.
  • Don't assume limiting assignments to less than 12 weeks is a legitimate way to circumvent the Regulations.
  • Don't assume that a temporary worker providing services through a limited company or personal service company falls outside the scope of the Regulations.

Many businesses have expressed frustration that there are, as yet, no clear answers to some everyday aspects of the Regulations. It is not much help to be told that we will have to wait for decisions of the Tribunals.

For the time being, hirers and agencies will need to decide whether to adopt the more cautious, yet more onerous, approach to compliance, or work according to the less onerous interpretations of the Regulations and risk being the subject of one of the first claims!

For more information please contact Anne-Marie Balfour, Senior Associate

T: +44 (0)20 7427 6588