The draft Agency Workers Regulations 2010

This article examines the draft Agency Workers Regulations 2010, which are set out in the Government's consultation document on implementing the Temporary Agency Work Directive, and will come into force in October 2011. It looks at what the right to equality for agency workers means and the terms and conditions to which it applies. 

On this page:
Background to the draft Agency Workers Regulations
The purpose of the draft Agency Workers Regulations
Maternity rights
Who is covered by the draft Agency Workers Regulations?
The right to equality for agency workers
Relevant terms and conditions
Defining pay
The qualifying period for agency workers
Day-one rights for agency workers
Liability of agencies and hirers
Information rights
Exception for permanent contracts providing for pay between assignments
Workforce agreements exception
Amendments to other legislation
Consultation

Background to the draft Agency Workers Regulations

The Temporary Agency Work Directive (2008/104/EC) was adopted on 19 November 2008 and must be implemented in the UK by 5 December 2011. Its overall aim is to ensure the protection of agency workers by providing that they should enjoy the same basic working and employment conditions as if they had been directly employed by the end user.

The Directive was adopted only after the UK dropped its opposition to the measure as a result of an agreement between the CBI and the TUC reached in May 2008, which set out, very broadly, the terms on which the Directive would be implemented in the UK. The key feature of the agreement was that the right to equality should apply only once an agency worker has been engaged for 12 weeks "in a given job". The agreement also expressed the Government's hope that, once the Directive was agreed, implementing legislation could be introduced "in the next parliamentary session".

While that hope proved optimistic, the Government no doubt feels that the publication of the draft Agency Workers Regulations 2010 for a final phase of consultation adheres to the spirit of the agreement. The draft Regulations specify that they will come into force on 1 October 2011, giving businesses almost two years to prepare for the new rights.

The purpose of the draft Agency Workers Regulations

It is important to stress that the draft Agency Workers Regulations do nothing to alter the fundamental employment status of agency workers. Following the Court of Appeal decision in James v London Borough of Greenwich [2008] IRLR 302 CA, it is generally accepted that the overwhelming majority of agency workers are not employees and have no right to redundancy payments or to claim unfair dismissal.

The Regulations are chiefly concerned with giving agency workers the right to the same basic terms and conditions that they would have enjoyed had they been directly employed by the end user. This apparently simple proposition has, however, presented challenges in terms of drafting the implementing legislation. There are two main reasons for this. The first is that the triangular nature of the relationship between the agency worker, the agency and the hirer creates difficulties in determining who should be liable for any failure to provide equality. The second is the Government's desire to prevent agencies or hirers developing structures or relationships that avoid the requirements of the Regulations, either through the use of intermediaries or through the setting-up of "umbrella" companies that directly employ workers and send them to work for hirers. As a result of these two factors, the draft Regulations are longer and more complicated than might have been expected.

Maternity rights

As well as dealing with the position of agency workers in comparison to directly employed staff, the draft Agency Workers Regulations make some important amendments in relation to agency workers and pregnancy. Schedule 3 inserts provisions into the Employment Rights Act 1996 giving agency workers the right to time off for antenatal care, as well as a right analogous to suspension on maternity grounds where health and safety prevents the assignment from continuing. Where this occurs, the agency has to provide an alternative assignment or pay the worker for the likely duration of the original assignment.

Who is covered by the draft Agency Workers Regulations?

The draft Agency Workers Regulations apply in respect of agency workers who are supplied by a temporary work agency to work under the direction of a hirer. An agency worker must be an individual who is either employed or "otherwise engaged" by a temporary work agency. The worker must not be a party to a contract under which he or she undertakes to do work for another party to the contract who is a client or customer of any profession or business undertaking carried on by the worker. This means that agency workers who are genuinely in business on their own account will not be covered.

In many ways this definition of agency worker mirrors the definition of "worker" found in other pieces of employment legislation, albeit modified to reflect the triangular nature of the relationship. Thus there is no requirement that the agency worker enter into a contract under which he or she undertakes to perform work, as in the agency context it is a common feature that the worker is under no continuing obligation to work and is free to turn down or terminate assignments.

The draft Regulations also make it clear that an individual is still to be regarded as an agency worker even if his or her services are provided through one or more intermediaries. The Government was clearly concerned with ensuring that agencies and hirers are prevented from circumventing the Regulations by structuring the supply of agency workers in a way that avoids the Regulations, for example by engaging agency workers through umbrella companies or by the supply of workers through one or more intermediaries such as master vendors.

The right to equality for agency workers

The most important provision in the draft Agency Workers Regulations is reg.9, which deals with the right to equality in terms of working conditions. Regulation 9 provides that, once the qualifying period has been completed, an agency worker is entitled to the basic working and employment conditions to which the worker would have been entitled had he or she been directly employed by the hirer at the point that the qualifying period commenced.

One contentious issue is the definition of basic working and employment conditions. In July 2009, correspondence between the Institute of Directors and the European Commission was published in which the Commission suggested that the Directive was intended to apply only in cases where the employer is bound by a formal pay system, thus excluding the majority of private sector employers in the UK, which are free to negotiate individual terms and conditions with employees, even if, in practice, they operate a structured system for pay.

The Commission's point was based on art.3(1)(f) of the Directive, which defines basic working and employment conditions as those "laid down by legislation, regulations, administrative provisions, collective agreements and/or other binding general provisions in force in the user undertaking".

The problem is that is difficult to relate this wording to any UK employer and a literal interpretation of the phrase could render the Regulations effectively meaningless.

The Government has chosen to take what appears to be a wider view. Regulation 9(2) provides that "basic working and employment conditions" means "relevant terms and conditions that are ordinarily included in the contracts of employment of the employees of the hirer whether by collective agreement or otherwise".

This is an ambiguous phrase. However, the Government's intention seems to be that, if an employer "ordinarily" pays an employee £10 an hour, this will be the term that is ordinarily included and will form the basis of the comparison with the agency worker's rate. If, on the other hand, there is no "going rate" and no collective agreement or pay scale that can be used as a point of reference, it will be impossible to identify a term relating to pay that is ordinarily included in contracts of employment, so the agency worker will have nothing on which to base a claim for less favourable treatment in relation to pay.

The comparison is further qualified by reg.9(3), which provides that the right to equality will be deemed to have been complied with if the agency worker is employed on terms equal to those of a "comparable employee", defined as someone employed by the hirer in the same establishment, whose terms and conditions include the relevant terms and conditions ordinarily included in the contracts of employees engaged by the hirer, and who is engaged on the "same or broadly similar work", having regard, where relevant, to whether or not the two have a similar level of qualifications and skills.

The effect of this provision is that any given agency worker is entitled to claim equality with only the lowest-paid employee doing any given job - irrespective of how long the agency worker has been engaged or what directly employed workers could usually be expected to be paid.

Where, for example, a pay scale is in operation, with employees expecting to receive incremental pay awards based on performance or experience, an agency worker will have no right to benefit from any such increases, provided that there is at least one employee engaged on "broadly similar" work who is still being paid at the bottom of the scale. This is provided, of course, that the comparable employee is engaged on terms "ordinarily included" in the contracts of employees. If an employer engaged a token employee on a rate below the standard pay scale, the employee would not be engaged on terms "ordinarily included", so this action would not protect the employer from a claim.

Relevant terms and conditions

The right to equality does not apply to all terms and conditions of employment: only "relevant" terms and conditions fall to be compared. These are defined in reg.5 as terms and conditions relating to:

• pay;
• the duration of working time;
• the length of night work;
• rest periods;
• rest breaks; and
• annual leave.

The most important term here is pay, which is dealt with below. The issues of length of work and rest breaks should be straightforward, and, asthe minimum legal entitlement to paid leave for both employees and agency workers has been 5.6 weeks since April 2009, the impact of the annual leave measure should not be too great.

It will not be possible to compensate a worker for receiving a shorter period of leave or having fewer rest breaks by paying a more favourable rate. The comparison under reg.9 is done on a term-by-term basis and there is no defence of justification for failing to provide equality in terms and conditions.

Defining pay

The key contractual term in relation to which agency workers can claim equality is pay. This is defined in reg.5 as "any sums payable … in connection with … employment … including any fee, bonus, commission, holiday pay or other emolument". Agency workers will therefore be entitled to be paid the same rate of overtime as employees, and will also be entitled to commission on the same basis.

Some payments are excluded from the definition of pay. These are:

• occupational sick pay;
• any sums relating to pension, retirement or compensation for loss of office;
• payment in respect of maternity, paternity or adoption leave;
• redundancy payments;
• payments made under a financial participation scheme;
• any payment or reward made by way of a bonus awarded pursuant to a performance appraisal pay system aimed at the long-term management, motivation and retention of staff (although bonuses that are not part of such a system are covered by the definition of pay);
• payment in relation to statutory time-off rights, for example time off for union duties;
• guarantee payments; and
• payments as loans, advances of wages, payments of expenses and payments not related to the employment relationship.

The most controversial of these exceptions is bonuses awarded pursuant to a performance appraisal pay system aimed at the long-term management, motivation and retention of staff. Disputes about what difference, if any, there is between a "performance appraisal pay system" and a common or garden performance-related bonus are likely. However, the more fundamental point is the legal basis on which such a payment can be excluded from the definition of pay.

The Government's argument will be that, as agency workers do not have a long-term relationship with the hirer, they should not benefit from bonuses that are part of a long-term relationship. However, it is not clear that the Directive allows for what could well be a significant amount of money to be excluded from the definition of pay. If an agency worker is engaged for a long period, why should he or she not be rewarded in the same way as directly employed staff? There is likely to be considerable argument about whether or not this definition complies with the Directive.

The qualifying period for agency workers

The Directive provides for agency workers to be entitled to equality from day one of any assignment. However, the agreement between the TUC and the CBI (allowed by art.5(4) of the Directive) provides for equality only after 12 weeks "in a given job". This 12-week qualifying period is reflected in reg.7 of the draft Agency Workers Regulations.

Under reg.7, to complete the qualifying period, an agency worker must be engaged in the same role with the same hirer for 12 continuous calendar weeks, whether on one or more assignments. Where the worker has completed the 12-week qualifying period, the worker will continue to be entitled to equality as long as he or she continues in the same role. A week will count towards the qualifying period if the agency worker is engaged for any part of it. For example, if an agency worker works for five days in the first week, four days in the second and one day in the third week, he or she will have been engaged for three weeks. The hirer cannot argue that, because the worker was engaged for only 10 days, this counts as only two weeks.

For each week that the agency worker is engaged, he or she will be taken to be in the same role unless engaged on a new assignment (with either the same or a different agency) that "comprises substantively different work or duties" to the previous assignment.

In terms of resetting the clock, the important point is therefore not how different the work is but rather the need for a new assignment. If the hirer merely directs the agency worker to do different work without agreeing a new assignment with the agency, weeks will continue to accrue towards the qualifying period for the agency worker no matter how different the work is in practice.

Where an agency worker is unable to continue an assignment because of a reason related to pregnancy, childbirth or maternity when she is in the protected period (or maternity leave, adoption leave or paternity leave), the assignment is deemed to continue for the duration, or likely duration, of the assignment. The "protected period" is defined as running from the start of the pregnancy to the end of maternity leave (in the case of employees), or until two weeks after the end of the pregnancy (in relation to other workers).

One of the aims of the draft Agency Workers Regulations is to stop agencies and hirers avoiding their obligations under the Regulations by manipulating the duration of assignments. Provisions have therefore been put in place dealing with breaks during or between assignments. Under these, provided that certain conditions are met, weeks accrued before a break will be treated as continuous with any weeks completed with the hirer after the break.

Continuity will be preserved in this way in relation to a break - for any reason - that lasts no more than six weeks. For example, if a worker is employed for two weeks and then returns after a five-week break for a further two-week period, he or she will have accrued four weeks towards the qualifying period.

Where the break is the result of the worker being sick or injured (for a reason not related to pregnancy), continuity will be preserved provided that the break is not more than 28 calendar weeks and the worker has given the agency such medical evidence "as may reasonably be required".

Continuity is also preserved when the reason for the gap is any other statutory or contractual leave or time-off entitlement. This will cover not only annual leave, but also time off such as parental leave (where the worker is entitled to it).

A gap for jury service will not break continuity provided that it does not last for more than 28 weeks.

A gap caused by a combination of the specific reasons listed above will not break continuity. For example, an agency worker who returns to the same role after taking 20 weeks of sick leave followed by four weeks' holiday and then six weeks of jury service will be able to carry over any weeks accrued before the break. However, the six-week break for "any reason" cannot be combined in this way. If an agency worker takes four weeks of annual leave and then is simply not assigned for a further four weeks, continuity will be broken and any new assignment - even to the same job - will amount to starting afresh.

Day-one rights for agency workers

Regulation 10 of the draft Agency Workers Regulations gives agency workers some rights from the first day of each assignment. Under reg.10, an agency worker has the right to be treated no less favourably than a comparable employee in the hirer's establishment in relation to:

• access to canteen or other similar facilities;
• access to childcare facilities; and
• the provision of transport services.

In contrast to the reg.9 right to equality, this right contains no room for a hypothetical comparator. The agency worker must show that comparable employees - those doing broadly the same work - are being given access to these facilities, while he or she is not. The hirer has the option of showing that denying access to agency workers is justified on objective grounds.

In practice, it is not expected that this provision will cause hirers too much difficulty.

Liability of agencies and hirers

Perhaps the most fundamental difficulty in enforcing the rights of agency workers will be knowing against whom the rights should be enforced. An agency worker's primary contractual relationship is with the agency, so it makes sense that liability should rest there in the first instance. However, the hirer is the party in a position to know what the agency worker would have been paid if he or she had been directly employed, and the agency will have to rely on this information in determining the agency worker's pay.

Regulation 12 therefore allows for the sharing of liability between the agency and the hirer, depending on the extent to which each is responsible for the breach of the right to equality. For example, the tribunal could determine that the agency could have made better efforts to obtain information, but that the hirer was also remiss in not informing the agency of the correct going rate, and order the worker's compensation to be paid equally by the agency and the hirer.

However, reg.12(2) provides that an agency will not be responsible for any breach of the right to equality if it can show that it obtained, or took reasonable steps to obtain, relevant information from the hirer about the basic working and employment conditions in force at the hirer's establishment, and - where it received such information - acted reasonably in determining what the agency worker's basic working and employment conditions should be. Relevant information for these purposes includes information that explains the basis on which an individual is considered to be a comparable employee, and sets out the basic working conditions that apply to the comparable employee.

Because the rights relating to access to facilities under reg.10 represent an obligation on the hirer only, reg.12(7) provides that liability for any breach of reg.10 rests exclusively with the hirer.

Remedies

The overall structure of the remedy for breach of the draft Agency Workers Regulations is essentially the same as that provided in the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551) and the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034): the amount of compensation that the tribunal considers just and equitable having regard to the loss suffered by the claimant as a result of the breach (reg.15(7) and (9)). There is no upper limit on the amount of the award, but no award can be made for injury to feelings.

The claimant must decide against whom to bring the claim - but under normal tribunal rules could cite both the agency and the hirer on the claim form. Regulation 15(8) therefore provides that, where both the hirer and the agency are respondents, and the tribunal rules that compensation is payable to the agency worker, it will order them to pay a proportion of the compensation according to the extent to which it finds each to be responsible for the breach.

One problem with the Regulations as currently phrased is that it is not clear whether an agency worker will always have an effective remedy where there is a failure to provide equality, or whether he or she could fall between the reasonable attempts to provide equality made by the agency and the hirer. For example, if the agency shows that it acted reasonably in seeking information from the hirer and acting on that information, the agency is deemed not to be responsible for the breach (see above). In these circumstances, it is likely that the hirer will bear 100% of the burden for the breach, but this is not expressly set out in the Regulations. If the hirer can show that, despite the information given to the agency, it is not responsible for the infringement - perhaps because the information is so complicated or because the correct comparison is not easy to determine - it may be possible for it to persuade the tribunal that it should not be required to pay any compensation.

Such a result would be difficult to reconcile with the Directive, and the issue is one that may be revisited before the Regulations are finalised.

Information rights

Regulation 13 provides agency workers who believe that they have been treated in a manner that contravenes the right to equality with the right to receive information relating to the basic working and employment conditions in force at the hirer's establishment. The worker must make a written request for the information to the agency in the first instance. If the information is not provided within 28 days of the request, the worker may repeat the request directly to the hirer, which has 28 days to respond. If the request relates to the reg.10 rights (access to facilities), the request should be made to the hirer.

The written statement from the agency should set out relevant information relating to the basic working and employment conditions in force at the hirer, and explain the factors that it took into account in determining what those terms and conditions are - for example by reference to the pay scales that the hirer operates or the general practice it adopts in employing employees. Where a comparable employee is being relied on, the information should explain the basis on which the employee is considered comparable and set out the basic terms and conditions on which he or she is employed.

A breach of the right to information is not actionable in itself, but a tribunal can take into account a failure to comply with a written request in determining whether or not there has been an infringement of either reg.9 or reg.10.

Exception for permanent contracts providing for pay between assignments

The Directive allows member states to provide for exceptions in relation to agency workers with a permanent contract of employment with an agency who are paid between assignments (art.5(2)). The Government has decided to take advantage of this exception and the relevant provisions are set out reg.21 of the draft Agency Workers Regulations.

Regulation 21 provides that the right to equality in terms of pay does not apply to an agency worker who has a permanent contract of employment with the agency, provided that the contract was entered into before the beginning of the first assignment and sets out in writing:

• the scale or rate of remuneration or the method of calculating remuneration;
• the location or locations where the agency worker may be expected to work;
• the expected hours of work during any assignment;
• the maximum number of hours that the agency worker may be asked to work each week during any assignment;
• the minimum number of hours per week that may be offered to the agency worker during any assignment (which must be at least one hour); and
• the nature of the work that the agency worker may expect to be offered, including any relevant requirements relating to qualifications or experience.

This means that an agency worker entering into a contract to which the right to equality in terms of pay does not apply is fully informed about the conditions that he or she will be entitled to expect.

The Government is also keen to ensure that agency workers are not trapped into entering into a contract and then issued with unreasonable demands from the agency, such as having to work at a distant location.

The essence of the exception is that there is a genuine contract of employment between the agency and the worker that goes beyond the confines of a single assignment. Regulation 21 goes on to provide that, for the exception to apply, when the agency worker is between assignments, the agency must take reasonable steps to seek a suitable new assignment for the agency worker, offer such work when it is available and pay the agency worker a minimum amount.

The minimum amount is defined in reg.22 as 50% of the basic pay that the agency worker received in the best-paid pay reference period in the 12 weeks running up to the end of the immediately preceding assignment. This prevents an agency from providing a brief period of very low pay in the run-up to a period between assignments, and is designed to provide a level of protection for agency workers that compensates them for the lack of a right to equality during assignments.

As further protection, reg.21(1)(c) provides that a condition of the employer taking advantage of the exception to the right to equality is that the agency worker's contract of employment is not terminated until the agency worker has been engaged between assignments for an aggregate of at least four weeks. This is designed to discourage agencies from employing agency workers on a "pay between assignments" basis and then dismissing them as soon as an assignment comes to an end to avoid paying them for the "between assignments" period.

Workforce agreements exception

The draft Agency Workers Regulations also allow a limited exception in cases covered by collective or workforce agreements. Regulation 20 provides that the principle of equality set out in reg.9 can be amended by a collective or workforce agreement, provided that the relevant terms and conditions of the agency worker, when taken as a whole, are no less favourable than they would be if reg.9 applied. This means that any less favourable treatment in terms of the basic rate of pay must be compensated for in terms of extra holiday or other items in the overall package. This is a limited form of flexibility, but it will give employers the option of adjusting to the particular needs of agency workers, provided that an agreement to that effect can be reached with the workforce or the appropriate trade union.

Amendments to other legislation

In accordance with the Directive, sch.3 of the draft Agency Workers Regulations makes minor amendments to a number of other pieces of legislation. For example, under the Trade Union and Labour Relations (Consolidation) Act 1992, in various circumstances where employers are obliged to give information about their business to employee representatives (including as part of the duty to consult regarding collective redundancies), employers will have to include details about the number and use of agency workers in the undertaking.

Consultation

The Agency Workers Regulations 2010 are still in draft form. Although the Government has made up its mind on the key policy issues, it is seeking views on the practical impact of the Regulations and whether or not the current draft achieves its policy objectives. The consultation (on the BIS website) runs until 11 December 2009.