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Companies deploy exclusions to avoid impact of Agency Workers Regulations, finds Eversheds

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Employers have faced a hike in costs since the Agency Workers Regulations took effect, according to a study by law firm Eversheds, with some reporting increases of more than 10%, some even citing increases of between 25 and 50%.

The report shows nearly two thirds of respondents are relying on at least one or more exclusions to avoid the worst of the impact of the Regulations and in excess of 17% of those surveyed are using Swedish Derogation Contracts.

Eversheds has conducted a study of 143 companies to see how the Agency Workers Regulations have impacted on business six months on from their introduction. In recent years Eversheds has conducted a number of studies regarding the proposals which culminated in the Agency Workers Regulations last October.

Despite the inevitable rise in costs borne out by the results of our study, what proved particularly revealing is the extent to which the responses suggest many employers are avoiding the worst of the impact currently, by relying on exclusions from the Regulations.

Interestingly, and despite some resistance from trade unions and employee representatives, use of Swedish Derogation Contracts appears wider than was anticipated, possibly as awareness of such contracts has increased. This is a form of contractual arrangement whereby agency workers are engaged on permanent contracts of employment which guarantee them minimum levels of pay between agency assignments.

Richard Sheldon, associate at Eversheds said: "Four years ago a very large proportion of respondents to one of our studies (80%) told us that they feared a hike in costs once the Regulations took effect. More recent feedback suggests considerably fewer organisations have encountered a rise in their overall UK labour costs although, clearly, some of the impact will have been absorbed -or avoided- in other ways in the long run up to the Regulations. In terms of the extent of current increases, the results of our study show the majority of costs rises are less than 10% although a small minority of organisations have faced the dramatic rise in costs some feared of between 25 and 50%."

Sheldon added: "Nearly two thirds of respondents claim to rely on at least one or more such exclusions. Short term assignments (of less than 12 weeks) or engagement of excluded categories of worker, such as the genuinely self-employed, are clearly legitimate circumstances to which the Regulations may not apply. It has always been the case in practice that the majority of agency workers are recruited for very short periods, to cover absence or peaks in demand. However, where there is a permanent need for labour, hirers will need to ensure agency workers are not engaged on repeated short term assignments which could be perceived as an unlawful avoidance tactic under the Regulations.

"Bearing in mind a number of respondents to our study specifically commented that the administration and monitoring of agency engagements is proving a real challenge, this seems unlikely to diminish if they are to keep track of short term assignments and avoid breaching the Regulations. Furthermore, organisations will need to be sure that the relevant workers genuinely fall into an excluded category and their working arrangements bear this out. This is likely to prove an interesting area going forwards and one where case law is likely to emerge.

"Last year just 12% of employers told us they would be adopting Swedish Derogation Contracts. Our latest survey results suggest take up of this option is in excess of 17%. They also indicate that those who adopt this approach tend to use it extensively, in our experience exclusively in certain roles or locations. Comment was nonetheless made that adverse publicity over these types of contracts has generated some nervousness."

"Amidst current uncertainty as to how some of the exclusions contained in the Regulations will be applied in practice, it is interesting to note that a sizeable percentage of respondents have opted to put in place Swedish Derogation Contracts. The Regulations are not drafted as clearly as they might have been in this regard but, ironically, once established and adhered to, this mechanism may in fact offer a degree of certainty lacking elsewhere in the Regulations. It remains to be seen how practice will evolve in this area in the coming years and months."