Speak to our friendly staff directly  +44 (0)20 7242 2523

A leading set specialising in commercial, construction, insurance and property law

This document is from our archive and no action should be taken in reliance on it without specific legal advice.

Employment Law - Employment Agencies Regulations

After 30 years without significant changes to the regulation of the recruitment and temping industries wide-ranging changes are being brought into effect from 6 April. This note considers the sparse case law on employment agencies and then gives a brief summary of the new regulations. All agencies need to plan to ensure that they comply with the new regulations.

The Case Law

Employment agencies have generated numerous decisions relating to the employment status of their workers and the applicability of the discrimination legislation.

There are few cases considering the management of the agencies themselves and their relationship with the companies to which they provide workers (a "Hirer"). It seems to be estate agencies which produce those cases.

The Court of Appeal has only rarely considered whether a fee is properly payable by a Hirer to the agency. In one case a Hirer interviewed and rejected a candidate from one agency (WHA) in July and interviewed and employed the same candidate when offered by another agency in November. WHA sued for their commission. The Court of Appeal confirmed that the common law position is that no fee is payable to an agent until the event agreed by contract occurs. Furthermore the agent must be the "effective cause" of that event. This is to be assessed for an employment agency by the interval between introduction and engagement and by any change in the nature of the position filled. However these presumptions can be rebutted by clear words in the contract which both parties need to consider with care (Wallace Hind Associates v Lastolite Ltd and also Freedman v Union Group, unrep, CA).

The new regulations provide for Hirers (or others who suffer a loss if the regulations are broken by an agency) to bring compensation claims against the agency. It must be expected that more supposedly simple claims for the contract price will be met with counter-claims for failure to follow the regulations.

The Legislation

The Employment Agencies Act 1973 applies to any organisation offering the service of providing workers, whether for profit or not, whatever the legal status of the worker and even if the provision of the worker is made only by supplying information (eg contact details). This covers recruitment agencies, au pair agencies, modeling agencies, executive search and "temping", whether the temp is under the control of the recipient or the agency.

The Act is supplemented by regulations. The new Regulations (SI 3319/2003), which apply from 6 April 2004, define two types of agency. An "employment agency" provides staff who become employed by the Hirer (ie a recruitment agency). An "employment business" provides staff who do not become employed by the Hirer (ie a temping agency).

Under the new regulations neither type of agency can charge workers for placing them or require them to use other services (eg cv writing) at a fee. There are exceptions, including for modeling agencies. Neither type of agency can attempt to prevent the worker themselves from working for anyone else or expose them to any detriment for leaving the agency unless a refusal to complete agreed work causes loss.

The most significant regulation may turn out to be the prohibition on payment of temporary staff by the agency unless it engages the worker directly. For technical reasons this could lead to an increase in VAT paid by the Hirer. Alternatively the Hirer can employ the workers but this undermines part of the reason for using agency staff. The implications of this change could be far reaching on the industry - and incidentally greatly reduce litigation on the employment status of agency workers.

An "employment business" is also subject to the following:

  • They cannot supply a worker to perform the duties of someone taking part in an official strike
  • There are restrictions on charging fees to Hirers when the temp goes to work directly for the Hirer or where the temp works for the Hirer but is supplied by another agency (the circumstances where fees can be charged are very complex)
  • The worker must be paid whether or not the agency has been paid and even if there is no signed time-sheet
  • No deduction can be made from payment for a period actually worked because of a failure to work in a different period

Both forms of agency are subject to requirements to give workers and Hirers notice of various contractual terms and to record those terms and any amendments in a single document. The terms to be set out for temporary staff include the nature of the relationship, pay rates, holiday and notice periods.

Both forms of agency are required to take and record certain details of their instructions in specified documents. Finally, both are generally responsible for carrying out pre-employment checks on staff and maintaining confidentiality save in specified circumstances.

Enforcement is in one of three ways:

  • Anyone who charges fees to those seeking work or makes a fraudulent record in any document required by the Regulations can be prosecuted and fined.
  • An Employment Tribunal can make an order prohibiting individuals from carrying on, or being concerned in, an agency. There is an Employment Agency Standards Inspectorate which operates to enforce the rules.
  • There is a right to sue for loss caused by any breach of the Regulations.

Negotiations are taking place potentially leading to an EU Directive on agency workers. This would make radical changes. The Directive would apply a principle of equal treatment between agency workers and permanent staff; any difference would have to be objectively justified. The principle would not apply where the appointment was for less than 6 weeks or the worker was covered by a collective agreement. Member states would be obliged to take steps to make it easier for temporary workers to find permanent positions. This is significantly different from the current position under the discrimination and equal pay legislation; see Allonby v Accrington, in this edition's case summaries.

The Regulations: http://www.legislation.hmso.gov.uk/si/si2003/20033319.htm

The guidance: http://www.dti.gov.uk/er/agency/conduct.pdf

The proposed EU directive: http://www.dti.gov.uk/er/agency/directive.htm

The Recruitment and Employment Confederation: http://www.rec.uk.com/home.htm