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Agency Workers Directive seminar reveals government threat to contractor livelihoods

Lawspeed revealed to an audience of recruiters, contractor organisations and politicians in London yesterday that the most damaging of the proposals found in the Department of Business Innovation and Skills (BIS) Agency Workers Directive (AWD) consultation have, in fact, been added by government.

There is potentially some good news, though, as the government proposes that limited company contractors could be excluded from AWD legislation, although umbrella company contractors might find themselves negatively affected. However, the idea is not without problems, and it’s all to play for at the moment, and nothing is a foregone conclusion.

ContractorCalculator CEO and editor-in-chief Dave Chaplin, who attended the invitation-only event, is shocked at the extent to which the government-led consultation expanded the scope of the proposed legislation. “We’ve been led to believe that the worst aspects of this unwanted directive, which could threaten the UK’s flexible workforce, have been led by Europe, when in fact it’s our own government and its supporters who are driving this.”

This view is echoed by Shadow Minister for Corporate Governance, Jonathan Djanogly, who spoke at the event and criticised the government’s record on regulations for business, saying: “…legislation has often left employers bemused, baffled and bewildered. It has had a profoundly negative impact on UK companies.

Legislation has often left employers bemused, baffled and bewildered. It has had a profoundly negative impact on UK companies

Jonathan Djanogly, Shadow Minister for Corporate Governance Conservative Party

“Indeed, the British Chamber of Commerce (BCC) estimates that Government regulation has cost British business in excess of £76 billion since 1998. It is an example such as this that highlights how we believe the Labour Government has continually damaged the UK’s labour market.”

Government expands AWD scope

Lawspeed managing director Adrian Marlowe drew attention to the original scope of the directive in clause 3.1f, revealing that the AWD was intended only to cover organisations that had ‘binding provisions’ already in place, such as agreed pay scale rates.

This would exclude most commercial private sector businesses and client organisations, and nearly all small businesses. Under the original terms of the AWD, if a temporary agency worker is hired by an organisation that has no agreed comparative scale rates, the worker will not receive equal pay.

However, as Marlowe explains: “The consultation document from BIS significantly expands this definition, proposing to include any employer and end-user client that were originally excluded from the directive from Brussels. Clearly the implications are significant.”

There are currently 7000 claims under the Equal Pay Act 1970 going through the courts and we would certainly see a significant increase in pay award claims if the AWD, as proposed by government, becomes law

Adrian Marlowe, Lawspeed

Added to this, the consultation proposes to include a battery of cumbersome tests to determine what ‘equal pay’ a temporary worker should receive, which Marlowe says are fraught with potential pitfalls.

“There are currently 7000 claims under the Equal Pay Act 1970 going through the courts,” continues Marlowe, “and we would certainly see a significant increase in pay award claims if the AWD, as proposed by government, becomes law.”

No time for thorough consultation

The government has committed to implementing the AWD within the current session of Parliament, which gives them until November 2009 to draft the legislation in final form, to enter the statue book and become law as soon as April 2010.

“This is simply too fast if the intention of the consultation is actually to consult,” says Chaplin. “We’re being given hardly any time to thoroughly consider the directive and its implementation into law. The first stage, which is to determine key principles and policies, will be completed by July.

“The second stage, which will be the full regulations, must be released in September or October to make the current session. This clearly does not provide enough time for the government to understand the implications, much less engage in debate with key stakeholders.”

If the implementation is delayed until after the next election, and the UK has until December 2011 to make the directive law, Djanogly gave assurances that the AWD will be one of a raft of employment legislation a future Conservative government would revisit.

And Marlowe explained that the UK has rushed into implementing directives in the past, and been badly burned, whilst other EU member states have looked on, taken more time and learned from the UK’s mistakes.

But some good news for contractors?

As the consultation currently stands, limited company contractors may be excluded by any resulting legislation. However, specifically excluding ‘Personal Service Companies’ (PSCs) might be viewed as an attempt at exclusion by the European Courts of Justice.

According to Marlowe, the consultation shows that it is clearly the intention of the government to exclude limited company contractors: “Excluding PSCs is not the silver bullet everyone is looking for and the directive does not allow the exclusion of any section of the workforce, so could be classed as avoidance.”

Umbrella company contractors will potentially be affected, despite already enjoying full employment rights from their umbrella company employer.

Impact and solutions

If clients are forced to increase the pay of agency workers, it is clear that some clients will simply choose not to employ UK workers, or EU workers for that matter, as all member states will be affected. This can only mean fewer contracts available for contractors and, in some disciplines, a resurgence of off-shoring.

The recruitment sector will undoubtedly suffer. Research compiled by the Recruitment and Employment Confederation on the agency sector suggests that many small and niche agencies will not survive the squeeze on their margins as they are forced by clients to bear some of the cost, so many temporary workers could lose work.

The Association of Recruitment Consultancies is proposing that agency workers should receive equal pay and conditions in timescales that vary according to their pay, with those earning less than 1.5 times the national minimum wage (c. £15,000 per annum) receiving equal pay after 12 weeks, and workers earning more than this threshold qualifying after 12 months.

“Whatever the ultimate solution turns out to be,” concludes Chaplin, “in the short term the brakes must be put on the whole process and proper consideration given to the implications of what the government is proposing to do.”

Published: 26 June 2009

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