Removal of Swedish Derogation

Removal of Swedish Derogation

The “Swedish Derogation” (so called because it was negotiated by the Swedish government in relation to the Agency Workers Directive) has always been controversial.  Although introduced as a means of guaranteeing pay between assignments, there is limited evidence of agency workers actually receiving pay between assignments and the derogation is often used simply to circumvent the rights of agency workers to comparable pay with the hirer’s workforce.  The government’s Good Work Plan confirmed that the Swedish Derogation would be abolished with effect from 6 April 2020.    

Removal of the Swedish Derogation

The Swedish Derogation was implemented into domestic law by regulations 10 and 11 of the Agency Workers Regulations 2010 (AWR).  It provides an exemption from the right of agency workers to the same pay as the hirer’s equivalent staff following completion of a 12 week qualifying period.  In effect, it means that agency workers to whom the derogation applies can lawfully be paid less than comparable staff who are directly recruited by the hirer.  The Agency Workers (Amendment) Regulations 2019 (the Amendment Regulations) come into force on 6 April 2020 and revoke regulations 10 and 11 of the AWR 2010.

Background

For the derogation to apply, certain conditions must be met, including the employment business (also known as a “temporary work agency” or, more commonly, a “temp agency”) providing the agency worker with a written contract of employment that satisfies minimum requirements, including the right to a minimal level of pay between assignments.  The derogation was, therefore, touted as a means of providing income for agency workers between assignments.  It was also considered favourable to hirers in sectors where agency staff are notoriously paid less than a hirer’s directly recruited staff, such as health care and manufacturing.

Reason for abolishing the derogation

In reality, research has found that few agency workers are ever paid between assignments, either because they are immediately assigned to a new hirer after completion of an assignment, or the employment business exploits loopholes in the legislation.  The result is that agency workers to whom the derogation applies often find themselves without any tangible benefit in exchange for sacrificing the valuable right to parity of pay with the hirer’s comparable staff.  The Good Work Plan seeks to remedy this and to protect what are considered to be some of the most vulnerable workers in the gig economy.

Impact of the Amendment Regulations

On or before 30 April 2020, any employment business that employs agency workers under the Swedish Derogation must provide such workers with a written statement confirming that, from 6 April 2020, the worker is entitled to parity of pay with a hirer’s directly recruited staff (subject to completing a 12 week qualifying period with the hirer).  Employment businesses may choose to enter into new or amended employment contracts with such agency workers, which reflect their right to parity of pay (ideally, through mutual agreement with the worker to avoid breaching other employment rights that the individual may have).

Agency workers will be protected from detriment and unfair dismissal if they assert rights under the Amendment Regulations. 

Conclusion

Although the removal of the Swedish Derogation will strengthen the rights of agency workers, many hirers and employment businesses are concerned about the financial implications and the extent to which the increased costs will be borne by either the hirer or employment business.  The significance of the financial impact will depend on the number of agency workers engaged by a hirer and employed by an employment business under contracts that contain the Swedish Derogation, and the difference in pay between agency workers and the hirer’s permanent staff.

 

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