Agents of change

Local authorities are amongst the biggest employers of agency workers but the economics of this arrangement could change substantially if new regulations come into force, says Adele Aspden.

Rarely has a single piece of legislation been as keenly debated as the regulations to implement the Agency Workers Directive in the UK.

Against a background of increasingly politicised and opposing views, draft regulations were recently published by the government. Subject to an eight-week period of consultation, these regulations will be finalised in the first half of 2010. However, they will not be implemented until 1 October 2011.

This timing runs counter to trade union calls for the government to “stop pussyfooting around” with implementation, but will bring welcome relief to employers. It also increases the possibility of further change, should the Conservative Party win the next election.

The objective of the draft regulations is to introduce equal treatment for agency workers, once a twelve-week qualifying period elapses. The exact scope and meaning of this equal treatment has been hotly contested with some employers doubting whether the government would strike an acceptable balance between protecting agency workers and avoiding unnecessary bureaucracy, complexity and cost. From their point of view, such additional burdens would be particularly unwelcome at a key point in the economic cycle.

The draft regulations - key issues

The draft regulations adopt the term "agency worker" throughout, so the same terminology is used below, along with "hirer" to mean the hiring company or end-user.

Who will the regulations cover?

Agency workers supplied by a temporary work agency to a hirer will be covered by the draft regulations, including those commonly referred to as "temps". The definitions used in the draft regulations are complex but are intended to exclude the self-employed, those working through their own limited liability company and those working on “managed service contracts”.

However, the draft regulations aim to stop circumvention of agency worker protection through “sham” arrangements outside the traditional agency-temp-hirer set up. As a result, the scope has been extended with the intention of including workers who are not genuinely in business on their own account, those contracted to an “umbrella company” or who operate a personal service company but are not genuinely self-employed and those agency workers supplied through intermediaries or ‘chain’ arrangements.

What rights will be extended to agency workers?

After a twelve-week qualifying period (see below), an agency worker will be entitled to the same basic working and employment conditions, including pay, as if he/she had been directly employed by the hirer on day one of the assignment.

Much attention has therefore focused upon how pay would be defined by the government. The draft regulations show the government adopting a middle course between only basic pay and all pay and benefits. The draft regulations have adopted the pre-existing statutory definition of “wages” (within section 27 Employment Rights Act 1996) and then cut it down by making it subject to a number of specific exceptions.

As such, “pay” includes any fee, bonus, commission, holiday pay or other emolument referable to the assignment (contractual or otherwise). This could include overtime, shift allowances and bonuses where they relate to personal and individual performance. “Pay” does not include:

- bonus payments payable through share option schemes or profit-share arrangements and those awarded in the context of a performance appraisal pay system aimed at “the long term management, motivation and retention of staff”. The point at which a bonus does or does not fall within this exception will be a difficult one for employers to apply in practice;
redundancy pay;

- contractual sick pay, pension (however, Pension Accounts, when introduced, will include agency workers) and maternity, paternity or adoption pay;
expenses, loans, guarantee payments and paid time off (for trade union duties and other paid time off rights).

In addition to pay, after twelve weeks the draft regulations entitle agency workers to the same enhanced working time rights given to permanent employees in the same job. This covers rest breaks, night work restrictions, working time limits, rest periods and annual leave. Unsurprisingly, it is contractual holiday entitlement that will present the greatest challenge and expense to employers although it seems that employers will be able to “pay in lieu” regarding holidays above the working time minimum.

Importantly, the only pay and working time rights to which an agency worker will become entitled after twelve weeks are those “ordinarily included in the contract of employment of employees” of the hirer, whether by collective agreement, applicable pay scale, established custom and practice or otherwise. What is “ordinary” may prove a difficult question for employers who do not necessarily apply standard terms of engagement.

Finally, all agency workers will be entitled from day one of the assignment to be treated no less favourably than a comparable worker in relation to:

- canteen, child care facilities and transport services (unless there is objective justification to deny such access); and

- information about job vacancies at the hirer.

Note that for the purposes of these provisions an actual “flesh and blood” comparator is required.

Equal treatment - compared to whom?

As stated above, the draft regulations provide that an agency worker will be entitled to the same pay and working time rights as they would have been entitled to if they had been recruited and employed directly by the hirer to do the same job.

The basic test is what would the agency worker himself or herself have received by way of basic working conditions if recruited direct to that particular job? This means the hirer/agency can take account of the agency worker’s own qualifications, skills, experience and expertise (or lack of them), as well as any ways in which the worker's particular job differs from jobs done by others.

In practice, this will often mean comparing the position of the agency worker with that of the hirer’s own employees doing the same or broadly similar work. Indeed the draft regulations themselves make it clear that the agency worker will be deemed to be receiving equal treatment if he or she is engaged on the same relevant terms and conditions as a 'comparable employee'.

The twelve-week qualifying period

While agency workers will be entitled to access the hirer’s employment and collective facilities and receive notice of job vacancies from day one, the right to equal treatment in relevant terms and conditions will only be triggered when the worker has accrued twelve calendar weeks’ service with the hirer in the same role. Any week during which the worker is engaged on an assignment will count, regardless of the number of days or hours worked in any particular week.

Ordinarily, the twelve weeks' service must be continuous. However, to limit the opportunities for employers to circumvent the regulations, breaks between assignments in the same job will not always bring qualifying service to an end. A break will usually stop the clock running but if the agency worker starts a new assignment in the same job within six weeks, then the clock will restart where it left off.

If the gap between assignments is more than six weeks then the twelve-week qualifying period will ordinarily start again from scratch. There are, however, exceptions for annual leave, sickness absence, absences related to maternity and various other types of statutory leave: in some cases these absences will 'pause' the clock, in others the clock will continue to tick.

Similarly, hirers will not be able to reset the qualifying period by making superficial changes to the worker's role and arguing that the agency worker has started a new assignment in a different job. Only new assignments comprising substantively different work or duties will trigger a new qualifying period. The government plans to issue separate guidance on the meaning of 'substantive'.

Who will be liable?

The draft regulations propose making agencies primarily responsible in the event of non-compliance. However, they would have a defence where they acted reasonably and have taken “reasonable steps” to obtain from the hirer the information required to ensure equal treatment of an agency worker upon completion of the qualifying twelve weeks. Liability would switch to the hirer where it is responsible for the infringement or liability may be apportioned between agency and hirer. In practice, claims are likely to be made against both hirer and agency for tactical reasons.

Liability in relation to access to employment and collective facilities will be the sole responsibility of the hirer as the agency has no part to play in their provision.

The use of collective and workforce agreements

The Agency Workers Directive provides for agreements between worker and employer representatives to establish employment conditions for agency workers and this facility has been taken forward by the draft regulations, despite a lukewarm response under the last consultation. These could be collective agreements or workforce agreements (as used to vary working time rules by some employers) and provide for some flexibility, as long as a sufficient level of protection is maintained overall. Liability for the terms of the agreement would rest with the hirer.

Remedies

In the event an agency worker considers he/she is receiving less favourable treatment in relation to basic working and employment conditions (including access to employment and collective facilities), the draft regulations provide for a claim for equal treatment through the Employment Tribunal. The agency worker may also complain that he/she has been subjected to a detriment for asserting their rights under the regulations. In addition, there is provision for a complaint in relation to breach of the regulations in relation to collective and workforce agreements.

If upheld, the tribunal may order compensation, make a declaration setting out the agency worker’s rights and/or recommend that the hirer takes certain action to remove the adverse affect on the agency worker.

Comment

The draft regulations do not provide for employment status for agency workers nor do they give redundancy pay rights. In recent years the courts and tribunals have shown a tendency to shy away from giving employment status to typical agency temps and this legislation does not change that position.

Agency workers already benefit from workplace discrimination protection and from statutory minimum rights such as holidays and breaks under the working time legislation and statutory sick pay. The key change will be that after twelve weeks, an agency worker will be entitled to equal pay with the hirer’s direct employees, plus some important benefits. This twelve-week rule will dramatically change the economics of using agency workers on a long-term basis.

As such, hirers of agency workers will need to examine their people needs. Some organisations may conclude it is preferable not to use agency staff after twelve weeks. Other employers may reduce reliance on agency workers by direct recruitment of temps or by requiring current employees to absorb any extra work. Some employers will look at workarounds such as managed service contracts or seeking to establish individuals as self-employed.

Organisations should consider the implications of the draft regulations urgently and respond to the Department for Business, Innovation and Skills either directly or though industry organisations. Despite the delayed implementation, the regulations should also prompt employers to carry out a workforce planning review now. Waiting until the legislation takes effect is likely to be too late as budgets and organisational plans need to be in place and actioned before then.

Adele Aspden is an associate at Eversheds