With the Agency Worker Regulations (AWR) coming into force in October 2011, new laws have clarified what loopholes are availible to the employer.

A new law has been released to clarify the Swedish Derogation (SD) loophole, seen in the Agency Worker Regulation (AWR) 2010. The proposed model had agencies and employers alike wondering how viable this option was, and, moreover, who would be liable in the event of a breach of the Regulations.

What are the AWR Rights?

The AWR 2010, which comes in to force October 1 2011, provides agency workers the same basic working conditions as a full time employee of the same employer. The basic working conditions afforded to the agency worker are:

• Day 1 Rights – from the first day of employment the agency worker should have access to all the facillities, such as canteen, childcare etc.

• After 12 weeks service – this does not have to be 12 weeks service without a break and once complete, the agency worker has the right to the same pay, annual leave rest breaks etc. Pregnant employees can also take time off for antenatal care.

What happens in non-compliance?

If the agency worker is not satisfied that they is receiving the correct working conditions then they can apply to the employer or agency for more information and there are strict timelines for the organisation to respond. If the agency worker is not satisfied then they can bring a Tribunal against the employers and/or the agency, depending on the concern. For example, if canteen services were not provided then the employer would be liable. If equal pay was not provided then either or both the employer and agency would be liable depending on how the information was requested and passed on.

The penalty for non-compliance is financial compensation for the agency worker. In the case of equal pay this is clearly calculated. Where a facility has not been provided then a Tribunal will award a sum of monies to compensate the loss. There is no maximum amount of compensation, however the minimum award is two weeks wages. So, any strategy to avoid the regulations needs to be strong so not to incur additional costs.

What is the Swedish Derogation?

This term relates to the opt-out clause negotiated by the Swedish delegation when the Agency Workers Directive was debated at EU level. To put it simply, it means that the AWR rights to equal pay etc of an agency worker no longer exist when agency workers are employed on a permanent basis by their umbrella company or temporary work agency and receive pay in-between assignments. This has clear advantages to employers of agency workers.

There are conditions to this, though – with the first one being that the agency worker needs to be genuinely employed by the umbrella company or agency with a permanent contract of employment in place and that the contract was entered into before the beginning of the worker’s first assignment.

Other considerations include:

• For agencies or umbrella companies, they will obviously have an obligation to pay agency workers during non-working periods, as well as;
• Ensuring that reasonable steps are taken to seek suitable employment for the worker;
• Making sure that any available work is offered to the worker;
• Paying the worker a minimum amount for an aggregated period of not less than four calendar weeks (subject to National Minimum Wage);
• The ‘minimum amount’ must be at least 50% of the worker’s basic pay while on assignment. However, it cannot be less than the national minimum wage (in the UK, £5.93 an hour for workers aged 22 and upwards).

How do the recent changes aid the use Swedish Derogation?

1. The definition of 'agency worker'

This has been changed from requiring the agency worker to have a contract with the agency which is either an employment contract or "any other contract to perform work and services personally for the agency" to "any other contract with the agency to perform work or services personally".

The change clarifies that the worker does not need to be working for the agency itself. Hence, this has removed fears that setting up the SD model and sending employers out to work for agency clients would breach the AWR.

2. Adjusting the statutory defence for the Agency

The AWR 2010 stated that the agency was liable to ‘obtain..., information from the hirer about basic working… conditions’. In requesting such information, the Agency fulfilled the criteria to gain a defence against breach of the Regulations. Whilst, agencies were, without doubt, pleased to see that a defence was being provided, there was still some concern on the level to which they were expected to demand this information.

The new law provides more detail on the information that the agency should be requested. This includes assessing the employees terms and condition of employment when:

• that employee is considered comparable to the agency workers;
• the terms and conditions are normally in the contract of the comparable employee.

This clarity enables an agency to avoid liability for breach of the AWR by a hirer when the agency takes reasonable steps to obtain information about the hirer's terms and conditions, providing agencies with peace of mind when using SD.

What are the pros / cons to the agency and employer?

The pros and cons to the employer and agency will largely depend on the level of agency workers an organisation uses and its ability to pressurise the agency to use SD and reduce their fees to the agency. The ability to drive wages below the current workforce may be limited by the National Minimum Wage. The table below outlines some of the key issues.