It has been estimated that implementing the Agency Workers Regulations 2010, which came into force on 1 October 2011, will cost UK business a total of £1.8 billion.
The Regulations entitle the UK’s 1.4 temporary workers to the same pay and benefits as permanent staff after 12 weeks in the same job with a given employer. This entitlement includes rights to equal pay and the same holiday and working hour arrangements as other personnel.
But the press has recently claimed that a number of employers, including Tesco, are seeking to avoid the impact of the new legislation by using the ‘Swedish derogation’. For example, the Sunday Telegraph reported that the supermarket had asked recruitment consultancy Mainstream, a major supplier of its agency truck drivers in Kent, to directly employ the workers that are supplied to it.
So what is the Swedish derogation and how does it work? The employment law team at Croner, a Wolters Kluwer‘s company, explains:
While the Regulations contain anti-avoidance measures — to prevent hirers repeatedly terminating assignments before 12 weeks, for example — the so-called ‘Swedish derogation’ model acts as an alternative, legal means of remaining compliant. The term relates to an opt-out clause negotiated by the Swedish delegation when the Agency Workers Directive was being debated at European Union level.
Under this model, temporary staff cannot claim their entitlement to equal pay if they are permanently employed by an umbrella company or agency. This situation also means that the umbrella firm must pay the contractor between assignments.
Key conditions
But there are conditions attached to this opt-out clause as well as requirements that the agencies must meet:
- Agency workers needs to be genuinely employed by the umbrella company and a permanent employment contract must be in place
- The contract of employment has to contain an explicit statement to the effect that entering into it means that the agency worker concerned is not entitled to equal pay as set out in the Regulations.
Among other things, the contract also has to spell out:
- the scale, rate and method of calculating remuneration
- the nature of the work and the need for any relevant qualifications
- the location of assignments
- hours of work.
The umbrella company is obliged to explain the situation to the agency worker so that they can make an informed decision as to whether they are willing to forgo their rights by entering into a permanent contract. The contract must be entered into (ie signed) before the start of the worker’s first assignment.
Other points to bear in mind are that:
- Reasonable steps must be taken to find the worker suitable employment and any available work must be offered to them
- Agency workers have to be paid a ‘minimum amount’ between assignments ie during the periods when they are not working and when there are no suitable assignments available
- The rate of pay (the ‘minimum amount’) between assignments must be at least 50% of usual assignment pay, at least match the National Minimum Wage (£6.08 an hour for workers aged 21 and upwards) and be calculated using a reference period. This is usually the 12 weeks immediately preceding the period of pay between assignments.
- The derogation only applies to pay. Rights to equality in the length of working time, night work, rest periods and rest breaks as well as annual leave entitlement also covered under the 2010 Regulations will continue to apply.
Implications
What this all means is that after 12 weeks in a given job, agency workers will not be entitled to the same pay as if they had been recruited directly. If employers want to consider using the derogation, however, they should satisfy themselves that all of the above criteria have been met.
Agencies should likewise be sure that there are financial advantages (and, preferably, savings) to be had from the arrangement and that they are content to pay workers when they are between assignments.
But the Swedish derogation is no ‘miracle solution’ for employers to avoid the impact of the 2010 Regulations. As previously mentioned, agency workers will still be entitled to other rights laid out under the new legislation.
It will also come as no surprise, however, that employment law experts are still divided over whether the Swedish model is viable in every case. Watch this space for further developments.
