Umbrella Companies, the AWR & the Conduct Regulations

Employment umbrellas fall within the definition of an Employment Business within the Employment Agencies Act 1973 and will also be temporary work agencies under the Agency Worker Regulations 2010 (“AWR”). However, the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“Conduct Regulations”) largely do not apply as they do not offer work finding services.

However, this is set to change. All umbrella companies who are intending to offer the Swedish Derogation ‘model’ (regulation 10 of the AWR) to its workers will no longer be able to avoid the Conduct Regulations. One of the requirements of regulation 10 of the AWR is that during any period under their employment contract when the agency worker is not working but is available to do so, the temporary work agency must “take reasonable steps to seek suitable work for the agency worker” i.e. to provide a work finding service.

Therefore, umbrella companies operating the Swedish Derogation will have to comply with the Conduct Regulations and indeed the procedural aspects of the regulations. This means they will be unable to sign up to ‘pay when paid’ clauses as this would be a breach of regulation 12 of the Conduct Regulations. This may also bring umbrella companies under the remit of the Employment Agency Standards Inspectorate, perhaps an unexpected result for many service providers which holds potential implications for the future relationships between the recruitment and umbrella sectors.