The Agency Workers Regulations 2010 - Employee Rights/ Labour Relations

On 1 October 2011 the Agency Workers Regulations 2010 (the 'Regulations') come into force. The Regulations introduce a significant number of new rights for temporary agency workers. These new rights operate alongside existing rights and the current law governing suppliers of agency workers.

It would be going too far to suggest that the introduction of the Regulations will always make the use of agency workers uneconomic or burdensome in the future. However, the Regulations contain significant financial and other implications, including traps and liabilities for the unwary, and it is important that both hirers and suppliers of temporary agency workers are familiar with their content. Hirers and suppliers alike have an interest in carefully reviewing the agreements in place between them in light of the Regulations. The Government has issued guidance (the 'Guidance') on the Regulations and how they will operate in practice. The Regulations are complex, and the Guidance is lengthy, so the key elements are distilled below.

1. New rights for agency workers in the Regulations

From 'day one' with the hirer, agency workers have certain 'access' rights. The potentially more valuable 'equal treatment' rights are not available to agency workers until they have completed a 12-week qualifying period (see section 2 below).

'Day one': access rights

Two sets of access rights are available from 'day one'. To enforce these rights, agency workers must be able to identify a suitable comparator (see below for further details).

(a) Access to collective facilities and amenities

Agency workers have the right to be treated equally with comparable workers in relation to access to the hirer's 'collective facilities and amenities'. These facilities and amenities might include a canteen, childcare facilities, car parking, transport services, workplace gym, prayer room, drinks machine, toilet / shower facilities, common room, etc.

Less favourable treatment of agency workers in relation to collective facilities and amenities is permitted only if it is justified on objective grounds. The justification test is not a straightforward one, and the question of whether cost is sufficient justification is particularly controversial – it may not suffice on its own.

It is the hirer that will be liable for breaches of this aspect of the Regulations, as the agency will have no control over the availability of the hirer's collective facilities to agency workers.

(b) Access to employment opportunities

Agency workers must be given the same opportunity to find permanent employment as comparable workers. This means that, during the agency assignment, they must be informed of any 'relevant vacant posts' that the hirer may have.

In practice, a hirer can comply with this requirement by publishing vacancies in a suitable place within its establishment, such as on a general notice-board or intranet (to which agency workers have access). Again, it is the hirer that will be liable for breaches of this aspect of the Regulations.

To rely on these 'day one' rights, the agency worker must be able to point to a comparator. The Regulations set rules on who counts as a comparator. The comparator must work for (and under the direction and supervision of) the hirer, doing the same or broadly similar work as the agency worker. There are further rules regarding where the comparator works and whether they must be an employee (instead of another type of worker), which rules vary according to the particular access right concerned. If there are no comparators satisfying the statutory requirements, then a complaint will not succeed.

'Week 12' onwards: equal treatment and pregnancy rights

Once agency workers have completed a qualifying period of 12 continuous calendar weeks with a hirer (see section 2 below for details), they are entitled to the same basic working and employment conditions that would ordinarily have been included in their employment contracts if they had been recruited directly by the hirer for the same job (the 'equal treatment' rights). After the same qualifying period, the agency worker has further rights if she is pregnant or a new mother (see below).

The equal treatment rights relate to:

pay (see below)
working hours and night work
rest periods and rest breaks
annual leave

The equal treatment rights continue until the agency worker no longer works in the same role for the hirer, or there is a break during which he is not working (unless that break is one of the 'bridging breaks' referred to in section 2 below). If there is such a change of role or break, the worker must work a new period of 12 weeks to qualify for equal treatment.

However, a word of warning for hirers and agencies: if a Tribunal decides that the 'likely explanation' for the structure of an assignment (or assignments) is to prevent an agency worker continuing to receive equal treatment rights, the Tribunal may treat the agency worker as entitled to those rights and may award additional compensation to the agency worker of up to £5,000, payable by the hirer or agency (or apportioned between them). So there is a financial disincentive for hirers and agencies seeking to implement structures intended to avoid equal treatment rights applying. If such structures apply to more than one agency worker, this could be very costly indeed for the hirer and/or agency.

(a) Meaning of 'pay'

'Pay' includes (but is not limited to) basic and overtime pay, holiday pay and certain bonuses and commission. (In relation to the tricky issue of bonuses, see below.)

'Pay' excludes enhanced sick pay, certain leave pay, redundancy pay, notice pay, expenses and pension payments. However, when the new rules on pension scheme auto-enrolment come into force (beginning October 2012), agency workers may be entitled as 'job-holders' to be enrolled in the pension scheme of whichever organisation (hirer or agency) normally pays them. For a more comprehensive list of examples of 'pay' from the Guidance, see Table 1.

(b) Bonuses

The Regulations state that agency workers who qualify for equal treatment are entitled to all bonuses (or other incentive payments or rewards) except those that are 'not directly attributable to the amount or quality of the work' the agency worker has done.

The Guidance provides examples of payments that would, and would not, be directly attributable to work done by the agency worker.

Personal performance is clearly key. If hirers do not reward staff (in whole or part) based on personal performance, then agency workers should have no claim for bonuses or similar rewards. If hirers do reward staff based on personal performance, then clearly they ought to ensure there is a sound, albeit not necessarily published, mechanism for assessing performance.

The Guidance says that the process for assessing the performance of agency workers does not need to be identical to that for the hirer's employees (as employee appraisals may serve a wider purpose, for example in relation to career development). The Guidance suggests, quite rightly in our view, that the hirer's annual appraisal process may be modified and shortened for agency workers (and indeed there may be no call for any process where bonuses are calculated on financial or other raw data). Hirers would be prudent to ensure that any performance assessment process for agency workers does not mislead them into thinking that it affects their employment status (for example, by calling it something different from the employee appraisal).

To be covered by the Regulations, agency workers must have a contract with the agency (see section 3 below for further details), although this need not be a permanent employment contract. Where the agency worker does have a permanent employment contract with the agency (which fulfils detailed minimum requirements set out in the Regulations), and the agency pays a minimum amount between assignments when the agency worker is available for work, the Regulations provide that the right to equal treatment with regard to pay does not apply during assignments with hirers. This is often referred to as the 'Swedish Derogation'.

The exemption is only with regard to pay (including holiday pay). The agency worker is still entitled to equal treatment (after the 12-week qualifying period) with regard to working hours, night work, rest periods, rest breaks and (unpaid) annual leave, as well as to the 'day one' access rights. It is therefore not a complete solution to the application of the Regulations, but it is a potentially valuable exemption. The detailed requirements for this exemption to apply are beyond the scope of this note.

From a commercial perspective, taking advantage of the exemption requires the agency, as the fundamental starting point, to treat agency workers as employees – with all that that implies. Specific rules prevent the use of 'zero-hours' contracts as a means to achieve the exemption cheaply. However, there may be pressure on agencies to use the exemption in sectors where agency worker pay tends to lag behind that of permanent staff (such as the care sector). There is already evidence that large numbers of agency workers are being moved to permanent contracts by agencies who have calculated that the exemption will lead to substantial costs savings.

(d) Pregnant women and new mothers

The Regulations contain new rights for agency workers who are pregnant or have given birth within the previous six months or are breastfeeding, provided they have worked the 12-week qualifying period.

Ante-natal appointments

Both the hirer and the agency must allow a pregnant agency worker paid time off to attend ante-natal medical appointments and ante-natal classes. This right mirrors the right of employees who are pregnant.

Health and safety: changes to working conditions, termination of assignment on maternity grounds, alternative work and ongoing payment

The hirer is under a duty to protect a worker from health and safety risks if she is pregnant, has given birth in the previous six months or is breastfeeding.

If such an agency worker is unable to carry out her duties for health and safety reasons, and the hirer cannot make reasonable changes to her working conditions or hours to avoid the risks to her, the agency must end the assignment (on 'maternity grounds').

If the assignment is ended on maternity grounds, the agency must be willing to propose the agency worker for suitable available alternative work (which pays at least as well as the original assignment) to last as long as the intended or likely duration (whichever is longer) of the original assignment.

If such work is not available (or if the agency worker has reasonable grounds for refusing it), the agency must pay her until the expected end of the original assignment.

For information about the existing rights of pregnant agency workers see section 6(d) below.

2. How is the 12-week qualifying period calculated?

These rules are complex and a full account is beyond the scope of this note; however, key points to note are:

When is the first date on which agency worker can complete the 12 weeks?

The Regulations are not retrospective, so no period before 1 October counts towards the 12 weeks. This means that agency workers will not accrue the key equal treatment rights under the Regulations until Christmas Eve 2011 at the earliest.

What counts as a week?

Each consecutive calendar week during the whole or part of which the agency worker is engaged in the same role on assignment to the same hirer counts towards the 12 weeks.

It is therefore not only whole weeks that count and the number of hours worked each week is irrelevant (so part-timers are not disadvantaged).

However, if the worker starts a new (substantively different) role, the 12-week clock will start running again, subject to one proviso: the agency must have informed the agency worker in writing of the type of work involved in the new role (otherwise, the original clock will keep running).

Do breaks (when the agency worker is not working) stop the clock?

Some breaks stop the clock altogether, so the agency worker will need to start the qualifying period from scratch after the break. Any break of more than six calendar weeks (either during or between assignments in the same role with the same hirer) will stop the clock altogether – unless it is a 'bridging break' or falls foul of the anti-avoidance rules (see below).

'Bridging breaks' merely 'pause' the clock, so the period after the agency worker returns from the break is counted as continuous with the period before the break (but the break itself does not count towards the qualifying period). These bridging breaks are set out in the Regulations.

Any break not exceeding six weeks is a bridging break. Longer breaks will also be bridging breaks if they are for specific reasons, for example: (i) certified sickness / injury (maximum 28 weeks); (ii) pregnancy / maternity (up to six months after birth); (iii) jury service (maximum 28 weeks); (iv) planned shutdowns (no maximum duration); and (v) any statutory or contractual holiday or maternity / paternity / adoption leave to which the agency worker is entitled (no maximum duration) (See section 6(d) below in relation to the statutory right to maternity / paternity / adoption leave.)

Anti-avoidance

As mentioned above, the Regulations contain rules discouraging hiring patterns that are designed to prevent an agency worker claiming equal treatment rights. If a Tribunal decides that the 'likely explanation' for adopting a particular structure (for example, rotating agency workers' roles or using multiple hirers) is to avoid the 12-week qualifying period being completed, that qualifying period will be deemed to have been completed and the Tribunal will be able to make an additional award of compensation, payable by the hirer and/or the agency, of up to £5,000 per agency worker.

3. Intermediary arrangements: what is an agency and who is an agency worker?

The Regulations apply to any individual who has a contract with a relevant agency (whether a contract of employment or any other contract to perform work or services personally for the agency) and who is supplied by the agency to work temporarily for and under the supervision and direction of a hirer. These conditions are deemed to have been met in certain situations.

The agency must be engaged in the activity of supplying, and being responsible for paying, such individuals. It may be run by one person or a collection of people, for profit or not for profit, and on a public or private basis. (The only exception is where the agency is a client of the individual's business.)

Temporary workers can be supplied through a range of structures involving intermediaries (including personal service companies, managed service companies, umbrella companies and in-house staffing banks). These arrangements are dealt with in different ways under the Regulations. Table 2 summarises the likely position, but is no substitute for detailed advice on specific scenarios.

4. Enforcement of the Regulations: written statements and employment tribunal claims

Agency workers have the right to request written information from the hirer or agency when they consider that their rights under the Regulations may have been breached. They are also protected from suffering detriment (including dismissal) as a result of exercising this right (or any other right under the Regulations). This is similar to the existing right of fixed-term employees.

If the breach relates to access to communal facilities or employment opportunities, the agency worker's request must be sent to the hirer. If it relates to equal treatment regarding basic working and employment conditions, it may be sent to either the agency or the hirer (who must pass it on to the agency initially). The Regulations contain a detailed procedure for dealing with these requests (which includes timeframes and details of what the hirer must do if the agency fails to respond to the agency worker).

If the agency worker subsequently brings proceedings in the Employment Tribunal in respect of a breach of the Regulations, the response to the agency worker's request for information (or any failure to respond) may be taken into account in those proceedings.

Where an agency worker brings a successful complaint of breach of the Regulations, there are three remedies a Tribunal may order: (i) a declaration as the agency worker's rights; (ii) payment of compensation to the agency worker; and (ii) recommendations for other action to be taken by the hirer or agency. The amount of compensation payable by an agency or hirer to the agency worker is at the discretion of the Tribunal. There is no maximum award but it must be 'just and equitable'. There is a minimum award of two weeks' pay (which can be reduced if it is not just and equitable in light of the agency worker's conduct). Additional compensation can be awarded (up to £5,000 per agency worker) to penalise hirers and agencies who have tried to avoid the Regulations with their assignment structures (see above).

As with the majority of statutory employment rights, any contractual provision purporting to disapply the Regulations is unenforceable. Whilst ACAS will be able to conciliate disputes under the Regulations, unfortunately there seem to be no effective mechanism for resolving them through a compromise agreement. Advice in this area will be essential.

5. Information about agency workers

Under the Regulations, hirers and agencies must now provide information about their agency workers and include agency workers in calculations for certain purposes, including:

Mass redundancies and TUPE transfers: Whilst agency workers will not normally be directly affected by the legislation on mass redundancies, or on transfers under the Transfer of Undertakings (Protection of Employment) Regulations 2006, information relating to the use of agency workers must be provided to the representatives of the hirer's employees who are affected. Specifically, this includes details of the number of agency workers in use, their location and the type of work they are doing.
Information and consultation bodies: Agency workers must now be counted in the threshold for establishing 'bodies representing workers' for negotiating with, or being informed and consulted by, the employer (for example, in respect of union recognition and de-recognition, UK information and consultation bodies and European Works Councils). However, the Government has taken the option of providing for them to be counted in the agency's threshold, not in the hirer's threshold.

6. Existing rights of agency workers

The Regulations are coming into place alongside, and not in place of, the existing laws on agency workers.

(a) Rights against agencies

The Conduct of Employment Agencies and Employment Businesses Regulations 2003 remain fully in force and confer certain rights on agency workers in relation to their dealings with employment agencies and employment businesses (as defined in those regulations). ( b) Rights against hirers and agencies

Establishing the status of an agency worker, and the rights that flow from that status, is not straightforward and a detailed discussion is beyond the scope of this note. However, the rights that an agency worker is likely to have are:

Equality Act rights (discrimination, harassment and victimisation etc related to sex, race, disability, age, religion / belief, sexual orientation, pregnancy / maternity, marriage / civil partnership or gender reassignment): Both the agency and hirer are potentially liable for breaches of equality legislation, depending on the facts and circumstances. Agency workers are often 'employed' by the agency, in the wider discrimination law sense, and can bring claims against the agency on that basis. Agency workers are also often protected as 'contract workers' under the legislation and can bring claims against the hirer on that basis.
Statutory sick pay and statutory maternity / paternity / adoption pay: As this relates to pay, liability rests with whoever is responsible for paying the worker (normally the agency). Certain qualifying conditions (eg regarding length of service and level of earnings) apply.
National minimum wage rights: Again, as this relates to pay, liability rests with whoever is responsible for paying the worker.
Working time rights: Liability again rests with whoever is responsible for paying the worker.
Whistleblowing rights: Liability rests with whoever is responsible (or substantially responsible) for setting the agency worker's terms and conditions.
Health and safety rights: Liability is likely to rest with the hirer (although may extend to the agency in some cases).

Other key employment rights include the right not to be unfairly dismissed, the right to receive a redundancy payment and the right to receive statutory maternity, paternity and adoption leave. It is highly unlikely (but not impossible, depending on the circumstances) that an agency worker will have these rights against the hirer (as they necessitate an employment relationship, in the traditional sense).

(c) Can an agency worker be found to be an employee of the hirer for the purpose of unfair dismissal and redundancy pay rights etc?

If an agency has an employment relationship at all, it is far more likely to be with the agency than with the hirer. Some agencies remove all uncertainty about the status of agency workers by placing them on their books as employees of the agency (and this may become far more common because of the permitted pay exemption in the Regulations – see above).

More commonly, at present, agency workers have a contract for services with the agency, under which they are not employees but agree to go to work for hirers on agreed commercial terms. The agency enters into a contract with the hirer and the agency worker works for the hirer without there being any contractual relationship between the two of them. The hirer often has little or no control over who is sent to do the work.

Occasionally however, the facts and circumstances may point to a contract of employment existing between the agency worker and the hirer. In deciding whether an employment contract had come into being, a tribunal would look at the relationship in detail and in the round. Only if it was necessary to classify the arrangement as one of employment would a tribunal do so – in practice this is highly unlikely in a normal three-way agency arrangement.

(d) What are the rights of agency workers with regard to maternity, paternity and adoption leave?

As mentioned on page 4 above, the Regulations confer new rights on agency workers who are pregnant or new mothers, notably in relation to paid time off for ante-natal care, health and safety risk assessments, and the opportunity to secure suitable alternative work if they are unable to continue their assignment for health and safety reasons. These new rights are in addition to existing rights, including those under the Equality Act and the laws relating to statutory maternity pay.

Although agency workers may be eligible for statutory maternity pay, they will not be entitled to statutory maternity leave unless they have an employment contract with the agency or the hirer. This means that agency workers have no statutory right to a formal period of maternity leave with a guaranteed right to return to the same role.

However, an agency worker who is refused re-engagement by a hirer (or agency) because she has taken time off to have a baby might argue that this falls foul of the Equality Act, which provides specific protection for expectant and new mothers. Whether this will succeed is likely to depend on the particular circumstances.

Furthermore, if an agency worker does return to work in the same role for the same hirer, her absence for pregnancy / maternity reasons will be treated as a 'bridging break' for the purpose of equal treatment rights under the Regulations (see section 2 above).

The position with regard to paternity and adoption leave (and pay) is similar to that for maternity leave (and pay). Agency workers may be eligible for statutory paternity or adoption pay, but will not be entitled to statutory paternity or adoption leave unless they have an employment contract. However, unlike non-employee pregnant agency workers, non-employee agency workers wishing to take paternity or adoption breaks have no obvious protection under the Equality Act to help them force this upon unwilling hirers or agencies.

Conclusion

The Regulations are predicted to increase costs for agencies significantly. Some agencies are responding by transferring their agency workers onto permanent employment contracts in order to take advantage of the pay exemption described above. In other cases, agencies will seek to transfer some or all of the additional cost to hirers by increasing their charges.

Hirers will want to ensure that the use of agency workers remains a commercially viable option. From the perspective of both hirers and agencies, standard terms and conditions of hire will need to be revisited and may need to be renegotiated.

In addition to assessing the commercial viability of existing arrangements, both hirers and agencies will want to ensure that there are adequate provisions for dealing with claims by agency workers and awards by employment tribunals. Warranties and indemnities in standard terms should reflect the new obligations and liabilities that the Regulations have brought into being.

This briefing note gives a summary of the law relating to agency workers and, in particular, the Agency Workers Regulations 2010. It is not a comprehensive statement of the law in this area. We advise that agencies, and employers who use agency workers, seek detailed legal advice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

UK: The Agency Workers Regulations 2010