Jo Seery looks at some of the avoidance practices that employers have adopted and suggests ways unions can challenge them

Although the Agency Worker Regulations 2010 include a number of anti avoidance measures, this has not stopped some employers from doing what they can to avoid their obligations. This includes corporate structures, manipulating assignments and the Swedish Derogation.

Using corporate structures

Umbrella companies

The Regulations apply to agency workers who are supplied by a temporary work agency to work temporarily for and under the supervision and direction of the hirer.

Many employers recruit agency workers through an umbrella company, believing the Regulations will not apply. This is because, in some cases, it either does not supply the agency worker direct to the hirer or is only responsible for forwarding payment.

However, even if it does not supply the agency workers directly, it still amounts to a temporary work agency under the Regulations because it is effectively managing the recruitment process. 
Likewise, an agency worker may contract with an umbrella company, either to

rovide their services personally (a contract for services) or be employed directly under a contract of employment.

Again, even though the agency worker has a contract with the umbrella company and not the agency, the Regulations will still apply because the company is involved in supplying the agency worker to the hirer.

Offshore umbrella companies

Another tactic common in the transport sector is for the umbrella company to be set up offshore. This then supplies the agency worker to a UK hirer.

It may be possible in those circumstances, however, to argue that the Regulations apply because the worker is working in Great Britain (the Regulations do not apply to Northern Ireland which has its own provisions).

Managed service contracts

Some agencies have rebranded themselves as managed service companies that provide a specific service to a company. As they manage and deliver that service, they are not treated as temporary work agencies and are not therefore covered by the Regulations.

These types of companies are common in the catering and cleaning sectors.

So, for example, if a cleaning agency is contracted to provide services for an office block and is responsible for organising the work (such as allocating cleaners to specific floors and deciding the shifts they work), they are likely to amount to a managed service contractor and so be exempt from the Regulations.

If, however, a cleaning agency simply supplies cleaners to the owner of the office block, who then decides how the cleaning is organised and when it should be done, that will not amount to a managed service contract and the Regulations will apply to those cleaners. That‘s the case even if the agency company puts a supervisor on site. 
The Department for Business, Innovation and Skills made clear in its guidance that the agency can only claim to be a managed service company if the supervisor is responsible for organising the workers and determining how the work is done.

Manipulating assignments

Although there is nothing under the Regulations to stop hirers or temporary work agencies from engaging agency workers on assignments that stop at 11 weeks, Regulation 9 is designed to prevent that from happening continuously.

It states that an agency worker will be deemed to have satisfied the 12-week qualifying period if they are prevented from doing so because of the way the assignment is structured. However, this only applies if the worker has completed two or more assignments with the hirer or worked in two roles during an assignment on at least two occasions where the roles have been different.

If a temporary work agency or hirer is found to have structured the assignments in such a way as to avoid their obligations, they may find themselves having to pay an additional award of compensation of £5,000 to the worker.

Unique jobs

Another tactic is to assign agency workers to particular jobs to avoid giving them the same rates of pay as permanent employees. This is so that the employer can argue that the agency workers are employed in jobs that are not comparable to directly employed employees.

Although the right to equal treatment is not dependent on an agency worker identifying a comparator, it may be more difficult for them to establish what they would have been paid had they been directly recruited by the hirer without one. In some cases, the difference between the agency worker and the directly employed employee may only be the job title rather than the job itself.

In these circumstances, unions should obtain full details of the jobs the agency worker and the permanent employee are doing.

They can use the comparison table on page 10 to work out whether or not any specific role undertaken by the agency worker is similar to that of a comparable worker employed directly by the hirer.

Swedish Derogation

The Swedish Derogation refers to an opt-out clause negotiated by Sweden during the drafting of the European Directive on temporary agency work (Regulation 10 under the Regulations).

This states that the right to equal treatment on pay under Regulation 5 will not apply to an agency worker who has a permanent contract of employment with the temporary work agency, including umbrella companies.

The agency worker can, however, still claim equal treatment in relation to the other basic working conditions: hours of work, holidays, night work, rest periods and rest breaks.

Permanent contracts

The Regulations do not define a “permanent contract”, but generally it is a contract of indefinite duration, in other words not a fixed-term contract, which must also meet the conditions set out in Regulation 10. This states, among other things, that it has to have been entered into before the start of the first assignment.

This means that, if an agency worker is currently working for a hirer and does not have a permanent contract with the agency, it cannot simply change their contract during the assignment to one that is permanent to avoid their obligation to equal pay.

Even if the agency worker has a break in their contract of less than six weeks (or if they have been off sick for less than 28 weeks), and return to work for the hirer to the job which they were doing prior to the break, the agency cannot make the worker sign a permanent contract as a condition of returning to work. This is because their contract will be treated as continuous under the previous assignment.

An umbrella company that supplies agency workers to a hirer, who simply terminates a contract in order to offer them a permanent contract, may leave themselves liable to a tribunal claim that they have subjected the agency worker to a detriment under Regulation 17. In any case, the contract cannot be terminated for at least four weeks between assignments, if the agency worker was not working but was paid by the agency.

The contract must also include a term that confirms that the worker does not have any entitlement to the same rate of pay as a comparable worker employed directly by the hirer.

Minimum terms of a permanent contract

Regulation 10 sets out minimum terms that should be included in a permanent contract. These are:

  • details of the minimum rate of pay
  • place of work or the places where the agency worker might be expected to work
  • the expected hours of work during any assignment
  • the maximum number of hours of work that the agency worker may be required to work each week during any assignment
  • the minimum hours of work per week that may be offered to the agency worker during any assignment which is subject to a minimum of at least one hour
  • details of the nature of the work that the agency worker may expect to be offered, including relevant requirements such as qualifications or experience.


The Regulations do not allow for agency workers to be employed on a zero hours contract.

Although the term relating to place of work is broadly defined so that the permanent contract could require the agency worker to work anywhere within the country, unions could argue that the permanent contract is subject to an implied term that the place of work should be within reasonable travelling distance.

Benefits of a permanent contract

Some agency workers may think that having a permanent contract will benefit them since they may be able to claim unfair dismissal or redundancy pay.

However, the benefit is likely to be short-lived as the government is increasing the qualifying service from one year to two with effect from 6 April 2012.

Similarly, to qualify for a statutory redundancy payment, the agency worker would have to have worked for a minimum of two years. The statutory maximum redundancy pay is currently £430 per week for each year of service.

Clearly, in the current climate of high unemployment, many agency workers may be keen to sign these types of permanent contracts with temporary work agencies.

However, they need to be aware that they come at a price. In particular, with no right to equal pay, they may end up working side-by-side with employees of the hirer on very low rates of pay.

Suitable alternative work

A temporary work agency, including an um-brella company, is obliged to take all reasonable steps to seek suitable alternative work for the agency worker when an assignment with the hirer comes to an end.

If, however, there is no suitable alternative work, the temporary work agency is required to pay the agency worker for a minimum of four weeks at the rate of 50 per cent of the highest level of pay in the 12 weeks before the last assignment. It must be paid at a rate that is not less than the national minimum wage.

Challenging the derogation

It will be important for unions to make agency worker members aware of their rights under the legislation to deter umbrella companies from engaging them on inferior terms.

Government guidance gives the following examples where the Swedish Derogation may be challenged:

  • An agency pays a worker for as little as one hour per week when there is no assignment available. The worker could argue they are not working under the supervision of the hirer, so the obligation in the Regulations to pay the worker between assignments applies.
  • The hours of work that the agency offers the worker differ from the expected hours in the permanent contract.
  • In both these examples, the agency worker could argue that the Swedish Derogation does not apply and they can claim equal pay.