Agencies and agency workers: frequently asked questions

Sue Nickson, Partner and International Head of Human Capital at Hammonds, concludes a series of articles on employment agencies and agency workers by answering some frequently asked questions.

Which employment legislation governs employment agencies?

The employment agency industry is regulated by the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003, which came into force in April 2004. The Regulations cover various issues relating to agencies including fees, information about the hirer and the worker, confidentiality and the remedies available in the event of a breach of the Regulations.

What is the difference between an employment business and an employment agency?

'Employment business' and 'employment agency' are terms defined under the Employment Agencies Act 1973. An employment business engages work-seekers under either a contract for services or a contract of service and supplies them to end-user clients for temporary assignments or contracts where they will be under the control of the end-user. Such work-seekers are often referred to as agency or temporary workers. An employment agency introduces work-seekers to client employers for direct employment by those employers on a permanent basis or on fixed- or short-term contracts.

A company can be both an employment business and an employment agency if it is engaged in both permanent recruitment and the supply of temporary/agency workers. However, under the Conduct of Employment Agencies and Employment Businesses Regulations 2003, the company must say in its terms of business in which capacity it is working.

An employment business must confirm in its terms of business with the work-seeker whether the work-seeker will be employed under a contract of service (and will therefore be an employee of the employment business) or will work under a contract for services. In either case, the terms of business must clarify the terms and conditions of the appointment. Employment agencies are required to set out agreed terms in writing to the work-seeker, but they are not required to confirm the specific terms in the same way that employment businesses are.

Once the terms of business have been agreed, neither an employment agency nor an employment business can vary the terms without the work-seeker's consent.

Can employment businesses and agencies charge work-seekers fees for finding work or for registering with them?

The Employment Agencies Act 1973 places restrictions on charging persons who are seeking employment. The Act provides that employment agencies shall not charge work-seekers fees for finding, or seeking to find, them employment. The Act also provides that employment businesses shall not charge employees (ie those agency workers engaged by the employment business under contracts of service) fees for finding end-users under whose control the employee would work on a temporary basis. In addition, the Act states that employment businesses shall not charge a person fees for finding an end-user with a view to that person becoming an employee of the employment business and working under the control of the end-user on a temporary basis.

A breach of these provisions can result in a fine of up to £5,000. Exemptions to the provisions are set out in the Conduct of Employment Agencies and Employment Businesses Regulations 2003, Schedule 3 and mainly relate to the entertainment, sport and modelling sectors.

What are temp-to-perm fees?

Employment businesses charge end-users temp-to-perm fees to discourage or deter the end-user from offering agency workers permanent work. Other fees falling under the same umbrella are temp-to-temp fees (where the agency worker is supplied to the same end-user through a different employment business) and temp-to-third-party fees (where the end-user introduces the agency worker to a third party to be employed by that party).

The Conduct of Employment Agencies and Employment Businesses Regulations 2003, regulation 10 deals with the fees charged by employment businesses to end-users. It provides that where an employment business has introduced an agency worker and (irrespective of whether or not the agency worker actually undertakes temporary work for the end-user) the agency worker is subsequently employed directly by the end-user or through another employment business, any contractual terms relating to temp-to-perm or temp-to-temp fees will be unenforceable. This is unless the terms of business also contain an option for the end-user, instead of paying a fee, to have the agency worker supplied to it for a specified extended period of hire, at the end of which the agency worker transfers to the end-user without charge.

Regulation 10 further provides that the end-user will not have to pay the employment business a temp-to-perm or temp-to-temp fee if the agency worker begins permanent work or is supplied by another employment business to the end-user and at least eight weeks have elapsed since the agency worker last worked for the end-user or, if it is a short-term placement of less than six weeks, 14 weeks have elapsed since the date the agency worker first started to work for the end-user. Gaps of more than 42 days will break continuity for the purposes of calculating the 14-week period.

In the temp-to-third-party scenario, there is no requirement to offer the end-user a choice between the transfer fee and an extended period of hire, provided that the employment business sets out in its contract with the end-user the method for calculating the temp-to-third-party transfer fee and the transfer takes place within eight weeks of the end of any assignment or 14 weeks from the start of the first assignment, whichever period ends later. A gap of more than 42 days will break continuity for the purposes of calculating the 14-week period.

Can an employment business prevent an agency worker from joining the end-user with which he or she is placed?

No. The Conduct of Employment Agencies and Employment Businesses Regulations 2003 specifically provide that an employment business cannot subject an agency worker to any detriment because he or she has terminated or given notice under the contract between them or has taken up or proposes to take up employment with any other person. An employment business is also not allowed to require an agency worker to disclose the identity of any future employer.

Are agency workers engaged on short-term assignments entitled to statutory sick pay?

No. In the recent case of Commissioners for Her Majesty's Revenue and Customs v Thorn Baker Ltd and others [2007] EWCA Civ 626 CA the Court of Appeal held that, pursuant to the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, regulation 19, agency workers engaged on assignments of less than three months are not entitled to statutory sick pay.

Next week's article will be the first in a series looking at the Working Time (Amendment) Regulations 2007.

Sue Nickson is Partner and International Head of Human Capital at Hammonds (Sue.Nickson@hammonds.com)

Further information on Hammonds Solicitors can be accessed at www.hammonds.com