The Agency Workers Regulations implement the Temporary Agency Workers Directive, and give agency workers certain basic rights as if they had been employed directly by the hirer. The Government recently announced that they will not make further amendments.
The regulations will come into force on 1 October 2011. Draft guidance on the regulations has also recently been published.
What are the key principles?
After 12 weeks on the same assignment, agency workers will have the right to 'equal treatment' in respect of certain basic working and employment conditions including pay. The agency will be responsible for providing these conditions, but the agency and hirer are both liable for breach. There is a 'reasonable steps' defence available to the agency (only).
Agency workers will also have a right of access to certain facilities (such as a staff canteen) and to details of permanent vacancies from day one.
Who is covered?
The regulations apply to workers engaged by an employment agency to work under the supervision and direction of a hirer, unless they are genuinely self-employed. As well as standard temps, they will therefore cover:
- those supplied through a chain of intermediaries (eg under master vendor agency agreements);
- those supplied by umbrella companies; and
- those engaged by agencies via personal service companies unless genuinely in business on their own account. The wording also appears to capture personal service companies contracting with the hirer directly; although the Government does not believe that such individuals would be caught, arguably the wording is broad enough to capture them.
The following are not covered:
- workers introduced by an agency and engaged directly by the hirer;
- self-employed individuals supplied by agencies, or under a service company arrangement, if they are genuinely in business on their own account; and
- those working on managed service contracts provided they are not supplied to work under the hirer's supervision and direction. Although the wording is not entirely clear, employees of service providers who provide staff to work under the hirer's supervision and direction appear to be covered.
What rights does the Equal Treatment principle apply to?
Three categories of rights are covered:
- holiday - including both working time and contractual holiday. It may, however, be possible to pay in lieu of unused contractual holiday at the end of an assignment;
- rest periods, rest breaks, and the duration of working time and night work - these include arrangements applied by the hirer over and above rights under the Working Time Regulations; and
What counts as pay under the equal treatment principle?
Pay includes any sums that the hirer would normally pay if the agency worker had been hired directly as an employee or worker to do the particular role in question, including wages and salary, fees, commission, some bonus payments (see below), holiday pay and overtime. This would cover payments under collective agreements or those which have become contractual by reason of custom and practice. It may also possibly encompass some non-contractual payments. Pay also includes vouchers with a monetary value exchangeable for cash or services.
There are, however, certain specific exclusions:
- sick pay;
- retirement and pensions payments;
- maternity, adoption and paternity pay;
- certain payments for time off for union duties;
- guarantee payments (ie amounts which employees receive for those days on which they would normally work but are not provided with work);
- loan advances;
- non-cash benefits (this is the intention, although the wording of the regulations arguably may not achieve this);
- some bonus payments (see below); and
- financial participation schemes – meaning share schemes, share options and profit sharing schemes (see below).
When are bonuses covered?
The starting point is that most bonuses are covered with the general approach being one of equal treatment in terms of 'pay for work done'. Effectively, therefore, payments which reflect the worker's contribution are covered, whereas those which reflect the specific quality of an employment relationship (for example, retention payments) may be excluded.
Bonus is excluded if it is 'not directly attributable to the amount or quality of the work done' and is given for a reason other than 'the amount or quality of work done', such as to encourage loyalty or reward long service. This formulation is rather odd, but would mean piecework and sales/commission-type bonuses are caught, as are contractual and discretionary bonus payments awarded for individual performance.
The Government glosses over the difficulties of assessing the amount of an individual performance bonus. It comments that what is important is the end, not the means, and therefore hirers do not have to undertake a formal performance appraisal and can instead employ a simplified method of calculating what would be due.
The regulations do not specifically address bonuses which involve a mix of both company and individual performance, and the analysis will depend on the exact structure of the scheme, but in principle it is likely they would generally be caught, at least to the extent that they reward individual performance. However, a bonus purely based on company performance should be excluded, since the payments would not be attributable to the individual worker's contribution.
In determining entitlement to a bonus, hirers are entitled to apply the same considerations as applied to other employees. Therefore, if payment under a scheme is conditional on continued employment or employment for a full year, the agency worker would not have an entitlement if he/she did not meet those conditions.
'Financial participation schemes' are also excluded. These are defined as any scheme that offers workers a distribution of shares or options, or a share of profits in cash or shares. The Government considers that phantom share schemes would also fall into this exclusion.
Who is the worker compared with?
The test looks at what the worker would be paid if he had been hired directly by the hirer into that job. If there is an actual comparator who is paid the same for the same or broadly similar work, and whose relevant terms are ordinarily applied to comparable employees, that will provide a complete defence.
If there is no actual comparator, a worker can bring a claim on the basis of what he would have been paid if hired directly. In assessing this, the tribunals will look at general provisions such as collective agreements, pay scales and pay structures that are generally applied to particular categories of the hirer's employees, or even the 'going rate' for a particular job.
The Government's draft guidance on this point indicates that, if there is no standard pay structure, and terms are genuinely negotiated case by case so that there is no possibility of a comparison, the equal treatment principle will not apply in relation to pay. In that situation, the equal treatment principle may still apply to holiday and working time rights, if there is a general practice. However, tribunals are likely to be reluctant to find that there is no standard structure.
The permanent contract exclusion
The agency is not required to provide equal treatment in relation to pay if it has a permanent contract with the worker. This is subject to fairly stringent conditions:
- the agency must pay minimum pay between assignments: at least 50% of the worker's pay as enjoyed during a reference period based on his last assignment. This must not be lower than the national minimum wage;
- the agency must enter a permanent written contract with the worker before the assignment begins which covers certain key elements such as pay, maximum/minimum hours, type of work that may be undertaken, location/possible locations where work may be offered, and the fact that the employee will not benefit from the equal treatment principle under the regulations;
- the agency must make reasonable efforts to find work for the worker during assignments and must offer the worker to any hirer offering a suitable assignment; and
- the contract must not be terminated unless the agency has complied with its obligations to look for work and to pay the worker for at least four weeks in aggregate.
Who is liable for providing equal treatment?
The agency is responsible for providing equal treatment, but in practice the burden of compliance will fall on both the hirer and the agency, both of whom are liable for breach. The agency will have a defence if it took reasonable steps to obtain information from the hirer about pay and conditions, and then acted reasonably in determining what the workers' pay and conditions should be.
The hirer will be liable to the extent it is responsible for any infringement, and the tribunal will have power to apportion liability between hirer and agency where each is partly responsible.
What if the worker's role changes or he has a break between assignments?
If the worker moves to a genuinely different role (ie one where all or most of the duties are substantively different), the 12 week 'clock' for the purposes of the equal treatment right resets, and the right will not apply until he has worked for a further 12 weeks in the new role.
Breaks between assignments will also reset the clock back to day one provided the break is for at least six weeks. However, annual leave does not count towards the six week break between assignments.
There are special rules covering breaks during an assignment for sickness and maternity related absences. These are complex, but the general scheme is that:
- if the worker is absent due to illness/injury for up to 28 weeks, the clock will pause, and will begin ticking again when he returns; and
- if the break is pregnancy, childbirth or maternity related and is during a protected period, or the worker is on maternity, paternity or adoption leave, the clock will continue to tick.
The regulations include an anti-avoidance provision under which an agency worker will be deemed to benefit (and an additional award of £5,000 may be payable) if the structure of assignments appears to have been designed to avoid the equal treatment principle. Relevant factors would include the duration and number of assignments with the hirer and any connected hirers, whether roles are different and the period of any break.
What other rights apply?
From day one, agency workers have the same rights of access as comparable employees of the hirer to certain facilities, unless their exclusion is objectively justified. Facilities include specifically:
- canteen and 'similar facilities';
- child care facilities; and
- transport services (eg a bus between sites).
The Government intends to issue further guidance on this.
Agency workers will also have the right to be informed of vacancies at the hirer to provide them with the same opportunities as comparable employees or workers to find permanent employment. The hirer is liable for any breach of these obligations. It appears that the obligation is limited to notifying the worker – although the regulations refer to giving workers the same opportunities to find employment, this does not appear to be a free standing right and so it appears there would be no obligation to offer a role or even to an interview.
The Government intends to issue further guidance on how the obligation should apply including in the situation where roles become available only as part of a restructuring or headcount freeze, and are not true 'vacancies'.
Can agencies still charge transfer (ie temp to perm) fees?
Agencies will still be able to charge transfer fees. As at present, an extended hire period must be offered as an alternative. The former Government originally considered imposing a reasonableness requirement, but rejected this.
Employee consultation rights
There will be new rules on counting agency workers towards the threshold for various consultation rights within the agency. Hirers will also be required to give information about their use of agency workers in the course of their employee consultation, for example in collective redundancy situations, TUPE transfers and under the Information and Consultation of Employee Regulations.
Do the rules affect the status of agency workers for employment purposes?
In principle, no. The approach in the recent case law is that where there is a genuine agency arrangement which is not a sham, and the parties have acted consistently with the arrangement, the tribunals will not imply a direct contract of employment between the hirer and the worker. There may be practical issues, however, where assessing pay or bonus involves an assessment of performance and it will be sensible for hirers to adopt a different system to that applied to employees (eg they should avoid using the standard employee appraisal).
Agency workers will have the right to request information from the agency as to how their relevant conditions were determined, any comparator, and any terms applied to that comparator. If the agency does not respond within 30 days, the agency worker can approach the hirer. Adverse inferences can be drawn from a failure to respond or any inadequate response.
Agency workers can bring a tribunal claim for just and equitable compensation, taking into account their financial loss. Claims must be brought within three months, but the tribunal can extend time where just and equitable to do so.
What should you do now?
There is no immediate need to change anything, because there is a long lead in time. However hirers will need to consider:
- the impact in terms of cost and administrative burden - and whether this will impact the ongoing use of agency workers in some areas;
- the process for exchanging information with agencies about terms and conditions and control over the agency's use of it;
- how they will assess what the relevant terms would be if the person had been hired directly, and whether they will be able to identify a deemed comparator;
- what will fall within the meaning of pay - including special allowances such as shift and unsocial hours allowances;
- to what extent bonus and similar incentive payments will be covered;
- where pay is assessed on the basis of performance (eg bonus and performance related salary increases), how this should be addressed;
- whether to look at relying on the permanent contract exclusions;
- how they will ensure access to vacancies - do all agency workers currently have access to all vacancies; and
- what facilities are covered and how access will be provided..