Legal opinion: The Agency Workers Regulations 2010 and the Swedish derogation


The Agency Workers Regulations 2010 came into force on 1 October 2011 and are designed to create equal treatment in regard to pay and working conditions between agency workers and the hirer’s permanent employees who work in comparable roles.

The commercial parties affected (hirers and temporary work agencies) have been examining the Regulations to see how they can best “manage” the inevitable “rights creep” that this will introduce.

Given the tight anti-avoidance provisions contained in the Regulations, the potential ways to restrict these new rights are limited. The Swedish derogation is so named due to the Swedish Government’s insistence on its inclusion in the Temporary Agency Workers Directive. Unfortunately, as anyone familiar with the law will know, the name is far more exotic than the substance! But, as several large businesses (including Tesco) have recently announced they will be availing themselves of the Swedish derogation, and lawyers are increasingly being asked to advise on it, is it the way to go?

Exception from equal treatment with regard to pay

In short, the Swedish derogation provides that there is a permitted exemption from the principle of equal treatment with regards to pay only, where the temporary work agency provides the agency worker with a permanent contract of employment that meets several specified requirements. These include specifying expected hours of work, location and the nature of the work that can be offered. Most importantly, the contract must also provide for certain minimum payments to be made between assignments.

It should be immediately apparent that the Swedish derogation is no “silver bullet”, as it does not excuse all the other elements of equal treatment under the Regulations, including hours, holiday entitlement, breaks and access to facilities.

In addition, the employment of the agency worker by the temporary work agency gives rise to a variety of employment rights not previously available to the worker. These include the right to claim unfair dismissal (after 12 months’ service) and the right to redundancy pay (if employed for two years).

Extra costs

While this is clearly beneficial to the agency worker, it brings with it inevitable costs and responsibilities, which may not be welcomed by the temporary work agency. While companies the size of Tesco may be able to use their clout to insist on this type of arrangement, some others may not be able to do so. Also, it seems only sensible that those extra costs will ultimately be passed on and reflected in the price paid by the end user.

In addition, the legislation and guidance is unclear on some of the details of how the derogation will work in practice. Of particular concern is the fact that the contract of employment should be entered into “before the beginning of the first assignment under that contract”. So what happens if an agency worker has been provided by the agency to the end user before? Unfortunately, there is no complete answer yet.

Similarly, the grounds on which the contract can be terminated and when payments between assignments are due are, to differing extents, tied to what efforts the agency has made to find “suitable work” for the employee between assignments and whether or not the employee has been available to do that work. Not only does this leave inevitable room for debate (and litigation), but it also seems far from the natural relationship of agency worker and agency.

An increase in TUPE transfers?

A potentially unintended effect of using the Swedish derogation could be an increase in TUPE transfers. For example, if an end user has contracted with a temporary work agency to provide individuals to carry out a certain function (for example to run its admin) and later decides to bring this function in-house, that is a service provision change caught by TUPE. If the agency has “employed” individuals under Swedish derogation contracts and they are dedicated to that function, they should transfer to the end user.

So, aside from the TUPE point, if you are the end user and have the commercial strength to insist on the use of the Swedish derogation (just to save on the pay equality) without an associated rise in agency charges, you probably think it is a great idea. Similarly, for those agency workers who actually want to be “employed” (I query how many of those individuals there are) it may be welcome. For everyone else it seems to be smoke and mirrors.

Leon Deakin, associate, Thomas Eggar LLP

FAQs on the Agency Workers Regulations from XpertHR

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