Repeal of Swedish derogation ‘could lead to huge change for recruitment businesses’

The repeal of the ‘Swedish derogation’ contract commonly used to employ agency workers could force many recruitment businesses to revisit their models, experts have suggested.

On Monday, the government unveiled its Good Work Plan describing the contract as a ‘legal loophole’which excludes agency workers from the principle of equal treatment in relation to pay under the Agency Workers Regulations (AWR) 2010. It confirmed it had introduced legislation which would scrap the practice.

Under the AWR – commonly used in warehousing and logistics, among other sectors – temporary workers employed for more than 12 weeks by the same employer should receive the same pay and employment conditions as permanent staff. 

However, agency workers who work under a Swedish derogation contract have a permanent contract with their agency, not the end client, which allows them to be paid between assignments but not receive the same wage and employment benefits as other members of full-time staff. 

Although the practice was legal, it faced criticism for allowing recruitment companies to exploit agency workers. “Until now, companies have been able, intentionally or not, to use loopholes and the lack of clarity in the law to undermine workers’ rights,” Law Society president Christina Blacklaws said. 

“Agency workers can now be confident that they have a legally enforceable right to be treated and paid equally to colleagues employed directly by the employer.”

Duncan Brown, head of HR consultancy at the Institute for Employment Studies (IES), told People Management the move was likely to be broadly accepted as a positive step by employers. 

“People in employment agencies and recruitment understandably want to ensure the market does not become over-regulated and restrict people, because there are lots of advantages to agency workers, both for employees and for employers,” he said. 

“However, while many companies would not have used this under an exploitation agenda, there have been some bad apples and allegations of exploitation around the edges of employment. This should be a level playing field and there shouldn’t be the ability for people to undercut their workers.” 

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC) stressed on Monday that Swedish derogation – named after the country where the practice originated – should not have been an excuse for poor treatment, adding: “We favoured reforming the rules to ensure those whom were being adversely affected by the model were protected.” 

But Diane Gilhooley, global head of Eversheds Sutherland’s human resources and pensions practice, said the new legislation could trigger ‘significant change’ for sectors that benefited from the contract. 

“A particular concern identified in the Taylor Review was an imbalance of power between organisations and workers, described as ‘one-sided flexibility,’ she said. 

“A significant change for certain sectors will be the scrapping of the Swedish derogation, which may now prompt many to revisit their arrangements with employment businesses, as well as their employment models.” 

The REC has announced that once legislation regarding the Swedish derogation repeal has been passed, it would create guidance for their members on moving away from the model, but added: “If you have workers on these contracts, nothing will change overnight.” It said it expected an implementation period.

A spokesperson from the department for Business, Energy and Industrial Strategy told People Managementlegislation on the repeal of the Swedish derogation would be debated by parliament in the new year, and was due to come into force by April 2020.