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UK Agency Workers Regulations 2010: Are You Ready? Contributed by Christopher Walter and Robin Wolfenden, Covington & Burling LLP

Tuesday, July 26, 2011

By Christopher Walter and Robin Wolfenden, Covington & Burling LLP

The Agency Workers Regulations1 (Regulations) - which come into force on October 1, 2011 - implement the EU Temporary Agency Workers Directive2. Whilst the Regulations will primarily apply to companies within Great Britain, U.S. headquartered companies with operations in Great Britain will also be affected.

The Regulations will entitle agency workers (or “temps”) to the same basic pay and working conditions as the employer or hirer’s own employees3, and access to the hirer’s facilities and to information on job vacancies4. Certain rights will apply to temps from day one, whilst others will be subject to a 12-week qualifying period5.

The U.K. Department for Business, Innovation and Skills (BIS) has recently issued the final version of its guidance on the Regulations.

As the implementation date of the Regulations looms, hiring employers and staffing companies — including multi-national companies with operations in Great Britain — should ensure that they are up to speed with the new rights for agency workers. This article concentrates on those issues that we have identified in discussion with clients and industry groups as being of particular relevance. It also takes into account the Government’s guidance.

Overview of the Regulations
The Regulations provide that all agency workers must be able to access a hirer's collective facilities and amenities - for example, canteen facilities and child-care facilities6. They must also have access to information about the company’s job vacancies7. These rights apply from the first day of the agency worker’s assignment.

In addition, after completion of a 12-week qualifying period, agency workers are entitled to the same "basic working and employment conditions" that they would have been entitled to had they been recruited directly by the hirer8. This includes terms relating to pay, working time, night work, rest periods, rest breaks and annual leave9. The definition of pay is of particular importance and includes basic pay, overtime pay, shift or unsocial hours allowances, paymentfor annual leave, certain vouchers or stamps with a monetary value and bonuses or commission payments which are directly attributable to the amount or quality of the work done by the individual. The position concerning bonuses is addressed in more detail in below.

The Regulations are not retrospective and so those agency workers already on assignment on October 1, 2011 will start to accrue their 12-week qualifying period from that date.

Who Is Within Scope? Outsourced Third Party Service Providers?
An agency worker10 is defined as anyone:

  • employed under a contract with the “temporary work agency”,

  • who is supplied temporarily to a hirer; and

  • who is subject to the hirer’s supervision and direction.


The Regulations define a temporary work agency11 as a person in the business, whether operating for profit or not, of supplying agency workers. The BIS guidance makes it clear that agency workers will be in scope even when they are supplied by an intermediary umbrella company, or where the contract between the worker and the temporary work agency is a contract “for services” (rather than an employment relationship), involving an intermediary service company. The BIS guidance suggests that “managed service contracts” are outside the scope of the Regulations, but offers no firm definition or explanation as to what a managed service contract is.

For companies with a workforce that includes many atypical workers - contractors, service providers, agency workers - it will be extremely challenging to determine which groups may assert rights under the Regulations. Employers may in some cases have to analyse the individual’s circumstances closely in order to understand the potential legal exposure. The examples below illustrate the point.

First, Company A, a pharmaceutical company, has a sales force comprised of both employees and contract sales workers provided by a third party. Guidance from the Medicines and Healthcare products Regulatory Agency (MHRA) indicates that Company A, as marketing authorisation holder, has primary responsibility for ensuring that its products are marketed and sold in accordance with the Medicines (Advertising) Regulations 1994, while the Code of Practice of the Association of the British Pharmaceutical Industry (ABPI Code) requires Company A to ensure that both employed and contract representatives comply with all aspects of the ABPI Code. Liability for any failure to comply rests with Company A. As a result, Regional Sales Managers ensure all sales staff in their regions receive the same training, and are monitored regularly and consistently for both compliance and performance metrics. Bonus targets are consistent for all workers,

Are the contract sales workers in scope? Two of the three tests provided in the Regulations would seem to be satisfied - namely, that workers are employed by a third party, and work under the supervision and direction of the hirer. What is less clear is whether the supply to the hirer is “temporary”, and the BIS guidance unfortunately provides no answers on that point.

Second, A media company, Company B, contracts out the management of its staff canteen. Company B has no day-to-day involvement in the management of the canteen; instead, the third party contractor will manage the entire operation of the canteen and be responsible for the direction and control of its own catering staff.

Are the third party’s staff in scope? This arrangement is unlikely to be caught by the Regulations. Although the third party’s staff are working on Company B’s premises, they are unlikely to fall within the Regulations because they are not subject to Company B's direction or control.

Third, A law firm seconds two trainees to an investment banking and securities firm to assist their in-house legal team. The trainee lawyers will be subject to the client’s procedures, rules and regulations during their secondment, which is expected to last six to nine months.

Are the trainee lawyers in scope? The BIS guidance suggests not - because the law firm’s main activity is not the supply of workers to clients. However, the Regulations do not state that the supply of workers must be the temporary work agency’s primary business, so some doubt remains.

Do We Have to Pay Agency Workers a Bonus?
BIS guidance confirms that the Regulations include within the definition of “pay” bonuses or commission payments directly attributable to the amount or quality of the work done by the individual. This might include commission linked to sales or production targets and payments related to quality of personal performance. The problem is that many employers award bonuses partly on the basis of personal performance and partly to reflect the performance of the division in which the employee works, or of the wider business. In those circumstances, unless the amount attributable to personal performance can be distinguished from the company-wide element of the bonus, then the whole bonus may fall within the definition of "pay".

A first step for employers is therefore to determine whether their bonus schemes fall within the scope of the Regulations, or not. If they are in scope, should the company apportion part of the bonus clearly to company performance, so excluding agency worker participation in that element of the bonus?

If the bonus (or a portion of it) is attributable to the “amount or quality” of the work done by an agency worker, then the agency worker is entitled to the bonus that he or she would have received if employed directly by the hirer. In order to make a fair determination, companies may have to integrate contract sales workers (for example) into the annual employee appraisal process — something that is rarely, if ever, done currently. Such integration and assessment may of course increase the risk of an agency worker claiming employee status, so careful thought will need to be given to the design of any new processes.

How Do We Make a Meaningful Comparison?
The Regulations require temporary work agencies to ensure that agency workers are given the same pay as relevant comparators, being those employed directly by the hirer to perform the same or similar roles. But what is unclear currently is whether agency workers can cite a hypothetical comparator in support of their claims, or whether they need to name a current employee, or employees. We know that some companies may completely outsource certain business functions and therefore have no employees against whom to compare terms and conditions — for example, some companies may completely outsource their IT support functions or internal catering functions. Perhaps that will provide those employers with a defence to claims. BIS guidance suggests hypothetical employees are permissible, but that interpretation does not sit comfortably with the wording of the Regulations, and may not be practicable in the circumstances described above.
How Do We Prepare for the Regulations?
All companies will need to review and assess their arrangements for engaging agency workers and introduce procedures and controls to monitor the length of agency contracts and assignments for individual agency workers.

Employers will need to understand what contractual arrangements exist with the agencies and work with their HR departments to determine comparator groups for agency workers engaged on terms of 12 weeks or more. Agency contracts may well need to be renegotiated.

Companies will also need to consider the financial impact of additional labour costs on existing customer contracts and pricing structures.

Christopher Walter is a partner of Covington & Burling LLP’s London office and a member of the Employment Practice Group. Christopher also chairs the International Committee of the Employment Lawyers Association, and is a member of ELA's Management Committee. Those interested in a more detailed discussion concerning the Regulations should contact Christopher by telephone on +44.(0)20.7067.2061 or by email at cwalter@cov.com.

Robin Wolfenden is an associate in the London office of Covington & Burling LLP.

Disclaimer
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.

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