The recent agreement by EU employment ministers to give temporary and agency workers the same rights as permanent employees is causing concern in City organisations that engage large numbers of IT contractors.
Standard practice in how the sector engages IT contractors through employment agencies is likely to fall foul of the new rules and thus result in increased costs in using agency employees. With a possible implementation date in the UK of October 2009, City HR professionals are looking at how these changes will impact the way they resource their IT function.
Q What changes will the new Agency Workers legislation introduce?
A There are two key changes. First, agency workers will have the same rights as their permanent counterparts in terms of pay, family-friendly benefits, access to collective facilities and leave. Second, employers will be obliged to inform agency workers about permanent employment opportunities. The UK will, however, be able to implement a ‘grace’ period. This means agency workers will need 12 weeks’ continuous service before these new rights apply.
Q When will these rights kick in?
A The directive has a couple more rounds of approval at a European level before the legislative process starts to implement the changes into UK law. Depending on the level of consultation, these proposals could become law in the UK from October 2009 onwards.
Q Will these rights extend to ‘limited company’ IT contractors?
A It is understood that the agency workers legislation is not intended to apply to limited company IT contractors. As such, genuinely self-employed contractors will be excluded. However, this position is not clear until the domestic UK legislation is available. But the rules will apply to the many IT contractors that are engaged via an employment agency.
Q Most contractors work through agencies – how will the new rules impact employer’s relationships with such agencies?
A These developments will increase costs for employment agencies, which are likely to be passed on to business. It remains to be seen whether businesses will restrict their use of UK agency staff. It has been suggested that agency workers will simply be released prior to 12 weeks or that employers will look to outsource overseas where possible. The need for a 12-week qualification period should, however, still allow businesses to deal with peaks and troughs in demand and shorter-term staff absences. Difficulties will arise where businesses rely on agency staff for longer term projects and appointments.
Q Financial institutions in the City typically employ 100 or more IT contractors at any one time. How advisable is it for them to continue with that practice?
A City firms need to be aware that their agency workers will be entitled to substantial rights after 12 weeks. The legislation will also include a variety of anti-avoidance measures to prevent employers from implementing practices that circumvent these rules. This may include, for example, dismissing and re-engaging workers before the 12-week limit. This will impact banks and financial institutions at a time when they are unlikely to want to increase headcount by adding 100+ new employees to their costs. A re-think of practice in this area and how IT expertise can be resourced under the new rules should be high on the agenda. The publication of the legislation will provide the detail the City needs to identify how it will manage this new environment for agency and temporary workers.
Q Typically, contractors contracts are terminated after 51 weeks to avoid them gaining employee status – how wise is to continue that practice?
A This practice is aimed at preventing contractors from having the right to bring a claim for unfair dismissal on the termination of their engagement. Under the current law, contractors can only bring such a claim if they can show they were an ’employee’ and employed for 12 continuous months. As the law on employment status is uncertain, many employers take the cautious approach of dismissing such workers after 51 weeks. Provided there is a break of at least one week before the worker is re-engaged, the employer should be protected from an unfair dismissal claim. It is likely that the right to claim unfair dismissal will be extended to agency workers. With agency workers acquiring certain employee rights at 12 weeks, the practice of terminating at 51 weeks will have to be reviewed.
Richard Brown, employment partner, Osborne Clarke