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Osborne Clarke Comment on possible changes to AWR

AWR: press comment today about possible major changes

The main front page story in the Telegraph this morning (6 September) is that a policy adviser working for the Prime Minister's office has made proposals, in light of advice from Martin Howe QC, on how:

the Agency Workers Regulations 2010 ("AWR") can be watered down and/or

the UK can avoid implementing the Agency Workers Directive ("AWD"). The AWD requires member states of the EU to implement the provisions of the AWD by the end of 2011.

This follows reports earlier this summer about policy advice given to the Prime Minister about the AWR (see for example a report in the Evening Standard in late July). The Financial Times has also (briefly) covered the story.

The details given by the Telegraph of the proposals are sketchy.

There are a few key points we would make at this very early stage:

The allegation made is that Vince Cable's Department of Business Innovation and Skills ("BIS") has gold-plated the AWD - i.e. the UK AWR are harsher than is needed. The only example given in the Telegraph article is that people who set up their own companies (which we assume to be a reference to those agency workers who trade as personal service company ("PSC") contractors) should be subject to a blanket exemption. This was debated at length by us and others at the lobbying stage. It is not a new suggestion. BIS decided, however, that it could not exempt PSCs on a blanket basis. This decision may have been because BIS (and the unions) felt that in some cases PSC contractors are in fact not really in business on their own account and there would be a rush towards "forced" incorporation of people who really worked under supervision etc. and deserved AWR protection. HM Treasury might also object, at a time of financial difficulties for the Government, to any AWR exemption which effectively pushed workers into a PSC contracting model because that would take them out of the PAYE regime (and reduce the amount of tax and NICs collected by the Government).

There is however an exemption in respect of any worker genuinely in business on their own account (incorporated or not). In any event we consider that the potential for claims by PSCs is relatively low because (i) they tend to be paid more than comparators and (ii) if they brought an AWR claim they might face a retrospective tax claim (HMRC would say "if you think you are an agency worker supervised by the hirer then you should have been paying  tax as such under IR35 (which is effectively PAYE) . In other words this particular gold-plating point may be a bit of a non-point.

As it happens there is some gold-plating for example in the 12 week anti-avoidance provisions and there are other drafting problems for example in relation to the operation of the pay between assignments derogation (the so-called "Swedish Derogation"), which is causing a lot of problems for hirers and staffing companies seeking now to set up compliant supply models. The Telegraph article does not address these points.

The gold-plating to the extent it exists is in most if not all cases likely to be as a result of union requirements - union agreement was required (as a matter of EU law relating to the role of "social partners" in agreeing to derogations under the AWD) to the deferral of equal pay rights for 12 weeks and the union price for agreeing the 12 week rule (and for agreeing the exclusion of occupational benefits such as pensions) was the introduction of other "extras". It has always been a concern that if the "extras" are withdrawn then the unions may insist on abolition of the 12 weeks rule and/or inclusion of pension rights etc. in equal pay rights.

One suggestion in the Telegraph article is that the UK can avoid implementing the AWD altogether - which we believe means the Government would face claims and penalties at a time when HM Treasury seems to be avoiding incurring extra liabilities. These claims would come in the form of infraction proceedings by the European Commission or even by other member states of the EU (who are anxious about the UK undercutting them with lower labour market costs). Individuals whose AWD rights have not been given to them by the December deadline may also possibly be able to bring class actions against the UK Government if the Directive is deemed to have direct effect.

We have always felt that there should be an exemption for any person paid higher than a particular rate (perhaps a multiple of the National Minimum Wage). However our suggestions at lobbying stage were rejected.

Some observers might comment that:

This story seems "political" and may all be a bit of spin - is it a ploy allowing the Government to say it looked at the problem but it could not in fact change anything because of "the EU" or because of "Gordon Brown's mistake" in allowing the AWD through in 2009?

It is very late to do anything. Hirers and staffing cos have spent millions on planning for implementation, and need to know very soon if the Government is serious about the reported proposals.

The PM's policy adviser has previously been reported as wanting to scrap maternity rights, close job centres and introduce technology to make Britain sunnier. None of these plans have been implemented as yet, and it seems that often it is then denied that he has made the proposals as reported.

We will let you know as soon as there is anything further of consequence to report on this story.

Kevin Barrow – partner in Osborne Clarke recruitment sector group


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