Contractors win exemption from EU Agency Workers' Directive

Ministers delighted business yesterday; first they put back new rights for temporary agency workers; then proposed that those rights should not apply to limited company contractors.

Alongside the owners of limited liability companies, self-employed people and managed service workers will be outside of the now-delayed Agency Workers Directive.

However, the EU-inspired law will apply to agency workers who use umbrella companies or operate a personal service company if they are not "genuinely" self-employed.

Workers via intermediaries will also fall under the AWD, designed to give temps equal treatment, when it takes effect in October 2011 - the last possible start date under EU law.

Unions, which lobbied for an earlier implementation, said the delay was "extremely disappointing" because the recession meant agency workers needed protections even more.

Under the directive, temporary workers supplied through an employment business will qualify for full-employment rights, including equal pay and holidays, after 12 weeks in the job.

But business minister Pat McFadden said the government was "mindful of the need to avoid changing requirements on business until the economic recovery is more firmly established."

As a result, he said the directive would not come into force until late 2011, when the jobs market should be stronger, affording "recruiters and their clients time to prepare and plan."

This seems to break a promise made by Gordon Brown at the Labour party conference that the directive would be on the statue book "in the coming few months."

Alan Rommel, managing director of Parity Resources, the public sector IT recruitment specialist, said the push back of the Agency Worker Directive was "a relief."

"It will permit more time for consultation, and allow companies to assess the sensible application of the plans," he said.

"Rushed implementation of the directive would only cause confusion, stalling flexibility for both contractor and client - a factor essential for getting the economy back on track."

The delay to the legislation was first floated last week by the Conservatives, who argued enterprise could not afford to start paying its cost - £40billion over the next decade.

However, the estimate was made before the government's clarification yesterday that the directive will not apply to limited company contractors, the self-employed and managed service workers.

"We consider that extension of coverage to these groups would go beyond what the directive actually requires", said officials at the Department for Business, Innovation and Skills.

Extending the law to these groups would also "clearly have adverse consequences for the wide range of circumstances in which these arrangements are used entirely legitimately."

The Recruitment and Employment Confederation, whose member firms include IT recruiters who place limited company contractors, put the state's realisation another way.

Director of external relations Tom Hadley said: "The government has accepted that establishing equal treatment for temporary and contract workers is not as easy as it sounds".

The British Chamber of Commerce confirmed the escape for one-person firms, saying: "We are pleased that small businesses with no pay scales or a comparable employee will be de facto exempt from this legislation."

And the Professional Contractors Group agreed that the proposal to exclude limited company contractors from the directive was a welcome move, but said more time was needed to analyse the implications.

Asked about those implications, Roger Sinclair, a legal consultant at Egos said: "Freelancers operating outside IR35 and wishing to continue to do so will doubtless welcome the announcement that they are to be excluded from the disruptions these regulations will cause in the market place.

"Indeed, given the obligations and additional risks that engagements within the scope of the regulations will impose on agencies and on end clients, there will now be an additional reason for agencies and clients to cooperate in structuring engagements so as to fall outside IR35 - because arrangements outside IR35 will generally also fall outside the scope of the Agency Workers Regulations."

Yet in their consultation paper on draft regulations to implement the AWD, Lord Mandelson's business department said it would not ignore personal service companies.

"Guidance will be provided to address a concern…that we should not inadvertently exclude people simply channelling their income through personal service companies, unless of course they are genuinely in business of their own account (i.e. they are in fact limited company contractors)."

The concern behind the guidance – that unscrupulous employers may get round the AWD's central provisions – is why officials will consider "additional steps" to ensure temps receive equal treatment rights.

For now, however, the definition of an 'agency worker' in the regulations is based on 'worker' in the Working Time Regulations (1998), but "adjusted to reflect the triangular relationship between the worker, the employment business and the hirer."

Temporary agency workers who win equal treatment, from week 12 of work, will be entitled to paid holiday entitlement, yet they will not be allowed to take time off for civic duties, state the proposals, which are open for response until December 11, 2009.

Also seeming to have enterprise in mind, the government is expected to say any firm with fewer than 250 employees will have an exemption from incoming laws to permit employees to take time off for training.

However under the current proposals, temporary agency workers were promised the same access to training and workplace facilities as employees are granted, effective from the first day of work.

These new rights will be open to umbrella company workers from October 2011, placing the onus on recruiters and their clients to begin the necessary preparations.

"Distinctions between umbrella and limited [company] contractors are one measure," Mr Rommel said, pointing to the draft regulations in the consultation.

"Parity understands the need to stop artificial vehicles to bypass the regulations, but in our industry, umbrellas are used for valid reason with the best intentions. Hopefully a compromise can be met to support this part of the industry."

Mr Sinclair agreed that the regulations, and marketplace strategies, to be adopted by umbrella companies, umbrella workers, and the agents or end-clients that use them, would need to be "thought through carefully."

He added: "There will be implications and consequences which will have a significant effect not only on hirers and agency workers themselves, but also on the ways in which freelancers and the agencies and umbrella companies whose businesses are structured around them are able to carry on business.

"How these implications need to be handled, and the changes that will need to be made to minimise adverse impact, will depend very much on the detail of the way in which the directive is implemented, and on the detail of the regulations themselves."

To ease the burden on end-clients, businesses were told that the agency, not them as the hirer, will be responsible for any breach of right in relation to equal treatment, including working conditions, unless the agent has a defence.

Such a defence can be made only if the agency took "reasonable steps" and acted "reasonably" to determine the agency worker's basic working and employment conditions complied with the AWD.

In the draft regulations, the government acknowledged: "It is necessary to give due time for the agencies and hirers to adjust to what will be a significant change in the regulatory framework."

It added: "We are also acutely conscious of the additional difficulty that some businesses concerned might face in making the adaption [sic] necessary in the context of difficult economic times, particularly given the valuable role that agency staff are likely to play in the [economic] recovery.

"We have therefore concluded that the [AWD] regulations should come into effect on the common commencement date preceding the implementation deadline provided in the directive."

Parity reflected: "The Agency Worker Directive is not designed to cause upset, uncertainty or bureaucratic hassle. It's more to protect the right people in the right circumstances.

"[But] without correct implementation, it will fail, and take businesses and workers' livelihoods with it."
 

Further reading: Agency Workers Regulations section.