Agency Workers – Tribunal Decides “Swedish Derogation” Lawful for Maintaining Pay Difference between Permanent and Agency Workers

Agency Workers Regulations 2010 and the Swedish Derogation

The regulations are designed to protect agency workers allocated work through temporary work agencies. One of the most effective protection it offers is under Regulation 5 which provides that after a 12 week qualifying period agency workers have the same entitlement to working and employment conditions as those people who are employed and were directly recruited by the end user employer. However the “Swedish Derogation” (regulation 10(1)(a)) provides an exemption to this with regards to pay. In circumstances where the agency worker enters into a permanent employment contract with the Temporary Work Agency whereby they are paid a minimum amount between assignments, then as long as this employment contract was entered into before the beginning of the first assignment with the end user employer under the contract, Regulation 5 will not apply. These are known as Swedish Derogation style contracts.

In the case of Bray and others v Monarch Personnel Refuelling (UK) Ltd  the tribunal heard that 8 tanker drivers were employed by a temporary work agency and allocated to the end user employer to make deliveries to petrol stations.  The temporary work agency had generally paid the tank drivers approximately £1 an hour more than the market rate. There was also the possibility that the agency workers would gain permanent employment with the end user employer and so this assignment was a particularly attractive one, especially as those employed directly by the end user employer were paid £1.70 an hour above the market rate.

However the end user employer became concerned that if in the future the agency worker’s pay was raised further and therefore matched that of its staff, it would face pressure from the unions to increase their permanent staff’s pay to ensure the differential between agency and permanent staff was maintained. With this in mind, the end user employer made it known to all employment agencies that assignments on its current terms would cease on 30 November 2011 with all new assignments (from 1 December 2011 onwards) only being given to drivers who were employed under the Swedish Derogation style of contract.

Relying on this, the agencies informed their agency workers that they would receive new guaranteed hour’s contracts and these were issued on 15 November 2011. Ultimately these contracts waived their right to equal pay with the end user employer’s permanent drivers but entitled them to pay between assignments.

Out of the 8 contracts issued only 7 were returned signed by the end of the November, the 8th being received on 12 December 2011, but all 8 agency workers had started work on 1 December 2011. The agency workers then brought a claim in the Tribunal seeking to rely on Regulation 5.

The tribunal dismissed the claims on the basis that the new contracts had in fact complied with regulation 10(1)(a) as they had been entered into before the first assignment had occurred under the new contract.

The agency workers argued that the change in their pay arrangements was simply a variation in their contractual terms. The tribunal held that the change from zero hours to guaranteed hours and therefore entitled them to payment in between assignments, was such a fundamental change that it had the effect of terminating the old contract, that being substituted by a new and radically different contract. All the new contracts with the exception of the late contract were entered into before the date of the first assignment.

On an interesting side issue, with regards to the late contract the tribunal held that there was no requirement under regulation 10(1)(a) that the agreement to the new terms and conditions need be in writing citing the fact that agency workers could signify their agreement by conduct i.e. by accepting the assigned duties in the knowledge that this was only available under the new contract. This is the application of existing legal principles to this particular situation in the context of the Agency Workers Regulations.

Although this was an Employment Tribunal decision and therefore not binding on other Tribunals, it is the first judicial interpretation of Regulation 10(1)(a) and is important for those end user employers who seek to rely on the “Swedish derogation” types of contract so that the Regulations do not apply to their temporary agency workers.

This article was written by Alison Downie, Partner, Employment, with assistance from Jack Diamond.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.