Agency Workers Directive seminar

The Agency Workers Directive
- what has the consultation process to
date revealed about how staffing
companies will operate in the future?
Frances Lewis and Kevin Barrow
Recruitment sector group
September 2009

Agenda

Welcome and introduction
– – Kevin Barrow
Who is an “agency worker” and what rights will they
have?
– – Frances Lewis
Likely workarounds and wider implications
– – Kevin Barrow
Q&A

© Blake Lapthorn 2009

Agenda: who is an “agency worker” and
what rights will they have?
Introduction
Where are we now?
What rights will "agency workers" have?
Comparator problems?
What type of temporary worker will be covered?


Introduction

Directive first proposed in 2002 by Economic and
Social Affairs Committee of EU: anti-agency working
Blocked for five years by UK and some others
(qualified majority vote required)
October 2008 – AWD became European law: UK
required to implement within three years whoever is
in power in UK
UK Government change of stance because of
– Polish Government change (= loss of blocking minority)
– Labour back bench pressure
– UK union pressure


Where are we now?

May to July 2009 - First round of BIS consultation on
“general principles” of implementing AWD in the UK
Late Sept 2009? - First draft of the implementing
Regulations
Late Sept to late Oct 2009? - second 4(!)-week
consultation on draft Regulations
End of 2009? – Laid before Parliament for approval
April 2010? – Come into force (latest – end 2011)
May be transitional provisions for existing ‘temps’



Directive = equal treatment from day 1 (as in 2002
draft)
CBI-TUC “least worst” option deal in May 2008
– 12-week qualifying period under UK legislation
– occupational social security schemes (pensions,
occupational sick pay, financial participation schemes)
= outside scope



12-week qualifying period
– anti-avoidance measures
– consulting on “gap” between assignments
– BIS = four weeks
– other proposals = length of assignment if < four weeks
– new role = new qualifying period?
Same "basic working conditions" as comparable
permanent employee
– does NOT confer or imply employment rights
“Basic working conditions" = pay, working time, holiday
and sick pay



What will “pay” include?
– not defined in Directive
– proposals for basic hourly pay – keep simple
Plus
– other contractual entitlements linked to the work
undertaken by the agency worker while on assignment.
holiday pay [CBI – WTR entitlement sufficient]
overtime
shift allowances
unsocial hours premiums and
bonuses and bonuses relating to personal performance,
eg based on piece-work



What will “pay” not include?
– benefits such as share participation,
– profit sharing schemes
– car allowances
Notice of permanent vacancies
– notice board? Intranet site?
– proposal – no requirement to advertise staff re-
deployment vacancies?



Access to onsite facilities
– canteen, childcare facilities, transport facilities
Access to training
– BIS proposal – encourage access to government
training
Rights for pregnant and new mothers
– eg paid time-off to attend ante-natal appointments

BUT
– is there a comparable permanent employee with whom
to establish equal treatment?


Comparator problems?
Right to same benefits, etc. as “comparable” perm
Proposal that comparator must be:
– real person
– performing “same job” as individual who has been “recruited
directly” by the user organisation
CBI proposal:
– same job description
– same skill level
– same workplace
– same shift pattern
Pay scale? – same treatment as new starter
No real comparator = no equal treatment?


Who is an "agency worker"?
Directive definitions
– “..worker with a contract of employment or an employment
relationship with a temporary-work agency with a view to being
assigned to a user undertaking to work temporarily under their
supervision and direction”
– Temporary-work agency “…any person who, in compliance with
national law [?], concludes contracts of employment or employment
relationships with a temporary agency workers in order to assign
them to user undertakings to work there temporarily under their
supervision and direction”
BIS proposes that the following types of worker will fall within
scope:
– PAYE temps engaged by employment business
– anyone who undertakes “personally” to work for the end user
– umbrella company workers (how to define? payment threshold?)


Who is an "agency worker"?

BIS proposes to exclude:
– personal service company contractors
– genuinely self-employed e.g. scoped deliverable
– agency workers working on “managed service
contracts” = services controlled and delivered by
service provider
Unclear as to how “exclusions” will work
– difficult to define
– subjective assessment
– uncertainty, particularly re limited company contractors,
umbrella company workers and self-employed workers


Summary: who is an “agency worker” and
what rights will they have?
Draft Regulations this month
Four-week consultation period
Regulations to apply from April 2010 (?)
PAYE temps in scope but uncertainty re umbrella and
limited company contractors
12-week qualifying period
Occupational schemes excluded
Real comparator?


Agenda: likely workarounds and wider
implications

How will end users be affected?
How will staffing companies be affected?
Possible workarounds
Wider implications



Direct effects on end users?
Administrative burden
– agencies and end users will need [within 12 weeks?] to
assess if agency worker is caught and if so compile
data about pay
– consultation thresholds
Claims against end user?
– (currently seems unlikely that end user will be deemed
primarily liable in the event of claims)
– failure by end user to provide correct up to date data
could make the end user liable for claims made by
agency workers


Direct effects on end users?
Higher cost of agency workers
– widely reported concerns that equal "pay" requirements will
lead to increased costs
– lower paid agency workers?
– higher paid professional/technical agency workers?
Cost of providing other benefits, etc.?
– holiday pay? (CBI suggestion of WTR already provided by
staffing companies for PAYE temps)
– facilities? Anti-natal etc.
– training? (“dialogue to improve access to training”/access to
Govt training schemes)
– access to vacancies? (notice boards; redeployment?)


Indirect effects on end users?
May have to come to terms with new contracting models
designed to avoid application of AWD e.g. discontinuity resulting
from churn to exploit 12 week rule may:
– reduce cost effectiveness of agency workers?
– increase training/on-boarding costs
Concerns about providing pay data about comparators to
recruiters?
Will be asked by staffing companies to sign new contract terms
setting out obligations to provide data
[Easier to take agency workers temp to perm?]


Indirect effects on end users?
Put off using agency workers! 71% of UK employers say they
will be damaged by these measures (Manpower/ Personnel
Today Survey)
BUT
– arguably the AWD now gives agency workers (and Tribunals) a
framework under which a specific class of agency worker can claim
(relatively) limited rights to comparable basic pay
– …which is better than the current position under which various
classes of agency worker assert rights as direct employees of the
end user, and sympathetic Tribunals feel their only recourse is to
“find” employment status
– …which could trigger serious tax and class action employment
claims for end user per US experience



Costs will all be passed on to staffing company?
– Increased pay rates will get deducted from margin?
– Cost of comparator exercise will be born by staffing
company?
– Indemnities will be requested from staffing companies?


Staffing companies will have to request "comparator"
information:
– if commercially sensitive: offer confidentiality/non poach
undertakings and/or have chinese walls?
– offer “comparator consultancy” as a value add?
– at what stage will comparator information need to be
provided?
– contract terms may need to be re-written to include
obligations of end user to co-operate and provide data
Not yet clear how compliance will work in practice
– may have to change working practices and contractual
arrangements at short notice
– what about temporary workers already under contract?



Some may move away from supplying lower paid workers
Some may be attracted to new contracting models,
moving away from “casual” agency worker relationships of
the past
– will have to be implemented quickly
More “churn”:
– helps margin where sliding scales apply, but more work finding new
candidates and potential loss of contract every 11 weeks?
– helps arguments about the tax efficiency of travel, subsistence and
accommodation expenses (not a “permanent place of work” if
moved from end user to end user)
– elaborate systems of agency worker swaps between end users?
Immediate issue: education of clients


Likely workarounds

Swedish derogation:
– employed contractors: employed by supplier
– paid between assignments?
– staffing company factors employment costs into margin?
– (tax efficiency: tax free travel, subsistence and
accommodation expenses ?)
Umbrella workers?
– no “employment relationship” or contract with staffing
company = not an “agency worker” under the Directive?
– debate about inclusion of umbrella workers below a payment
threshold
– interplay with Swedish derogation


Likely workarounds

Limited company contractors
– (how this exemption will work depends on final draft
Regulations – will HMRC be happy to see BIS make
limited company contracting more attractive?)
Working on a “project” basis without end user
“supervision or direction”
– paid for delivering pre scoped deliverable
– substitution rights: not personal service
– (helps employment risk as well)
– (helps IR 35)
– (EU model, and growing in US)


Likely workarounds

11-week appointments:
– what will break continuity?
– there will be anti-avoidance mechanisms
– end user concerns about churn?
– (may help employment risk as well but beware
discrimination claims)
Pay structure
– focus on basic pay means end users will look ever
more at benefits/bonuses/etc. for perms
– (problems at lower paid end of market)


Likely workarounds

Comparator tactics: appoint agency workers as
trainees for comparator purposes
– French model
Workplace agreements
– override AWD rights
– what will Union appetite be?
– (will some Unions become employers of lower paid
temps?)


Wider implications
Employment rights risk and AWD challenge may lead to:
– trend towards employed model for many types of workers in
many sectors? Allows use of travel, accommodation and
subsistence expenses
– trend towards end users setting up their own umbrella
companies: allows VAT mitigation, and staffing company
becomes margin-only introducer of candidates
(some end users are considering employment claims risk is
worth taking in return for VAT saving)
– umbrellas directly contracting with end users in respect of
certain types of worker (as part of trend away from regarding
staffing companies as “owners” of candidates)?
– reduction in use (on longer assignments) of PAYE workers
paid under ss44-47 ITEPA?


Wider implications

Employment rights risk and AWD challenge may lead
to:
– trend towards shorter term engagements and “churn”
amongst lower paid? Long-stayers managed out?
– use of limited company contractors/project agreements
(specialist higher paid contractors are likely to be
relatively unaffected, especially if not “controlled”)?
– staffing companies being asked to provide consultancy
support re pay rates as part of comparability exercise:
chance for more sophisticated suppliers to build
deeper relationships?


Wider implications

Pensions Act - contribution obligations relating to
agency workers from 2012. May add to trend towards
employed models via umbrellas?
Not clear whether tax implications of AWD have been
considered. HM Treasury may insist on changes if
the Regulations encourage contracting models which
reduce HMRC’s tax take
– churn assists exploitation of tax free payment of
expenses via “employed” models
– renewed attraction of personal service company
contracting if all umbrella workers are within the AWD
regime


Wider implications
Litigation?
– BIS seem not to have been given sufficient time to draft the
regulations tightly enough to avoid uncertainty
– uncertainty will therefore have be resolved in the Tribunals
and Courts
– it will cost agency workers nothing to bring a claim in a
Tribunal
– class actions led by US style law firms?
BUT proper planning should mean that staffing companies and
end users can set up contracting models avoiding major risk,
and allowing safe use of agency workers


Conclusions
Now EU law
UK Regs have yet to be finalised but will be finalised soon
Don't panic - a lot of scaremongering out there – unlikely to
apply to all agency workers, and little effect in many cases
Identify which, if any, of your temporary workforce may be
affected and break down by skill sets and pay grades
Staffing companies and end users need to start talking to each
other about possible “workarounds”: no single solution will suit
one and all – different industries will adopt different solutions for
different skill sets and pay grades BUT there will be solutions
Keep an eye on updates throughout the Autumn and Winter
(Drafting problems may lead to delay beyond Spring?)


If you have questions on this or other related topics, please contact:
kevin.barrow@bllaw.co.uk
Blake Lapthorn is an English law firm regulated by the Solicitors
Regulation Authority under SRA number 448793 whose rules can be
accessed via www.sra.org.uk
This presentation is protected by copyright and is not a substitute for
detailed advice on specific transactions and problems and should not
be taken as providing legal advice on any of the topics discussed.
A full list of our partners is available on our website at
http://www.bllaw.co.uk/about_us/a_to_z_of_partners.aspx or at any one
of our offices http://www.bllaw.co.uk/offices.


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