Agency Workers Directive – sleepwalk to disaster?

The Agency Workers Directive (AWD) has long been simmering in the background, with many believing it would never become law, especially since the Government was originally against the proposals. However, following another policy U-turn, the Government announced on the 20th May that a deal had been made with the TUC and the CBI that would give agency workers the right to equal treatment. The details of how the deal was reached were, to say the least, a little sketchy.

On the 9th June the EU Council discussed the AWD proposal, with the UK now supporting the Directive. Notably on the same day the UK secured the retention of the opt-out from the 48 hour working week under the Working Time Directive, which had been under threat. This appears to be another deal behind closed doors.

The BERR website states “The Government hopes that EU agreement will be obtained in time for the necessary UK implementing legislation to be introduced in the next parliamentary session.” This suggests that legislation could be in force in the UK a lot sooner than most people, including the REC, believe. In fact, if the Government intends to introduce the implementing legislation in the next parliamentary session, then it could be in force as early as April 2009.

One question unanswered is who agency workers are going to have equal rights compared to. The Directive currently states that temporary agency workers shall have basic working and employment conditions as if they had been “recruited directly by that undertaking to occupy the same job.” This appears to cover temporary direct placements, as well as permanent employees, but the REC believes the comparator will only be to employees of the end-user.

There are other misconceptions flying around, including the belief that the Directive would not apply to pay. However, the Directive makes it clear that “basic working and employment conditions” include pay. IT contractors also believe that the Directive will not apply to them, but the Directive does not exclude any industry. One area where the Directive could have a major impact on the whole recruitment industry, is if agency workers become entitled to maternity rights, which under the current draft of the Directive is entirely possible. Not only could this mean agency workers being entitled to statutory maternity pay (with a question over who is liable to pay) but if agency workers become entitled to maternity leave it follows that they may have the right to return to the same job they were in before they went on maternity leave. This goes against a key idea of the recruitment industry; being able to supply a flexible and disposable workforce.

There is also a question over when agency workers would get these rights from. Under the proposed Directive agency workers would be entitled to equal treatment from day 1, but Member States can derogate from this and have a qualifying period. The UK currently proposes 12 weeks, but this would have to be approved in Europe.

It is arguably unfair that the Government has failed to warn the recruitment industry of the potentially devastating impact this legislation could have on their businesses. So far the Government has shown no intention of carrying out a new Consultation or Regulatory Impact Assessment (RIA). Following one carried out in 2002 it was concluded that: “The present UK regulatory framework offers a balance between flexibility and protection and agency workers”. So the question is why the Government now feels that there is a need for change.

Taking figures from the RIA in 2002, it is possible to estimate what impact the new legislation could have on the recruitment industry. Then it was estimated that 210,000-290,000 agency workers would benefit from the proposals, but the figure today is now around 1 million. Adjusting the figures in the RIA to reflect this increase, and also taking into account increases in the Retail Price Index, the benefit to agency workers would be about £950 million a year in equal pay. On Government figures this would mean an increased cost to end users, as a result of higher fees from agencies, of around £1.625 billion per year. This is a staggering amount of money, and possibly more than end users would be prepared to pay. This legislation therefore has the potential to blow the whole recruitment industry apart.

The impact and immediacy of AWD have been underplayed by the Government and others. It could be that the Government does not realise the full impact the legislation would have, in which case it is imperative that a fresh RIA is carried out. Also if the detail of the comparator has not been thought through, what would be the position if the Government suddenly realised that it cannot work, yet it has facilitated the AWD in Europe?

On the other hand, several factors point to the possibility that the Government is fully aware of the potential consequences for the recruitment industry. For example, VAT concessions are being abolished by April 2009, and on the 26th June the Equalities Bill was introduced. This encourages employers to disclose levels of pay, in order to help eradicate unequal pay between men and woman. The combination of these measures could significantly damage the recruitment industry. Is this too much of a coincidence? It could be suggested that the Government is deliberately instigating a move towards the model of recruitment industry adopted in other European Countries.

The message that needs to be conveyed is that if the recruitment industry wants to stop these potentially catastrophic pieces of legislation coming into force, then action needs to be taken now. If enough recruitment companies come together it may be possible to convince the Government to delay any domestic legislation, and crucially persuade them to carry out a fresh consultation and RIA. Putting it another way – unless agencies think that the AWD and the UK legislation will benefit them, why do they not oppose it?

Lawspeed will continue to work in this area to ascertain the facts and to highlight the dangers.Individual briefings and/or representation on this issue can be arranged – call 01273 236236.