The ‘Swedish derogation’ is a fancy pretence about permanent contracts for UK agency workers

While the enthusiasm of British businesses for zero-hours contracts has been widely criticised, the ‘Swedish derogation’ gives a fancy name to a British system which enables one-hour-a-week contracts to legally masquerade as ‘permanent work’ and strips agency workers of entitlement to be paid the same as non-agency workers.

Ed Miliband has announced that, if elected, his government will remove the 'Swedish derogation’ from British employment law.  This is to be welcomed since Britain's so called ‘Swedish derogation’ makes a mockery of principles applied in Sweden to promote decent work and permanent employment with labour agencies.  There are significant benefits to workers of having a ‘proper job’ with an agency and being paid in-between assignments.   However, the idea of encouraging permanent employment with agencies has been picked up and seemingly plonked into a British context with none of the surrounding regulatory infrastructure or sectoral collective bargaining to make it advantageous for agency workers. 

Miliband's attention is also timely. Following a ruling of the EAT in December, the British courts risk getting into something of a pickle over interpreting what is meant by 'temporary' in the Temporary Agency Workers Regulations 2010.  The reasoning in Moran v Ideal Cleaning veers between eligibility based on a) working for a 'temporary' agency b) working under a temporary contract of employment c) working on a temporary assignment d) temporary as meaning 'that which is not permanent'.  More to follow in a case note on Moran, but suffice to point out here that the cleaners concerned had worked for an employment agency, on the same cleaning contract with a client organisation, for between 6 and 25 years.  They were paid less than they would have been if directly employed by the client organisation.  The judgment denied them access to rights under the Temporary Agency Workers Regulations to better pay, on grounds they had been 'permanently placed' by the agency. 

The Agency Workers Directive 2008/104/EU established that basic working conditions for temporary agency workers are to be at least those which would apply if the worker was directly recruited by the client organisation.  Its focus on temporary agency work supported the accommodation of responsible employment practice in member states where agency work was offered on the basis of permanent employment with the agency (such as Sweden).  Paragraph 15 provided:

‘In the case of workers who have a permanent contract with their temporary-work agency, and in view of the special protection such a contract offers, provision should be made to permit exemption from the rules’.

Accordingly, Regulation 5(2) concerns pay and provides that  'where temporary agency workers have a permanent contract of employment with a temporary-work agency [and] continue to be paid in the time between assignments' the agencies can be exempt from having to pay agency workers at least as much as would apply if the worker was directly recruited by the client.

At the time when the 2008 directive was introduced, Britain was one of only six EU member states that did not already provide equal pay protection to agency workers.  In addition, the number of agency workers in the UK was thriving.  The UK’s Agency Worker Regulations came into effect in October 2011, when there were estimated to be 1.5 million agency workers.

How the regulation of agencies works in Sweden

In Sweden, employment agencies adhere to minimum rates of pay which are reached, by sector, through negotiations between employers’ associations and trade unions. All employment with an agency is automatically assumed to be permanent unless otherwise specified.  If stipulated as a temporary contract, it is subject to strict time limits.  In advance of a client hiring a worker from an agency, the law requires the company to consult with the relevant employers’ association about which collective agreement should be observed.

Employment agencies are members of the Swedish Staffing Agencies Association, which signs negotiated agreements with the Swedish trade unions. Membership provides the agencies with authorised status and obliges them to follow a collective agreement.  In the event of a collective agreement being broken, the agency can lose its authorisation to operate.

Collective agreements for skilled agency workers guarantee pay based on a monthly minimum of 133 hours, rising to 150 hours of work after 18 months employment.   They also cover compensation for overtime, displaced working time, on-call duties, traveling time compensation, holiday and sick pay. The agreements for unskilled agency workers provide for a guaranteed wage for the times they are not hired out to a client based on 90% of their average income during the prior three months.  Terms set out in collective agreements include working time, traveling time compensation, leave of absence, sick pay, holiday, the working environment, and paid time to participate in vocational and educational training.

In Sweden, it is these sectoral collective agreements that regulate the employment contract, not a blanket minimum wage as in the UK.  Swedish agency workers with permanent employment are exempt from EU provisions offering pay which is the same as would apply if the worker was directly recruited by the client organisation.  However, Swedish agency workers have the opportunity to both participate and be represented in a strong, government supported system of joint negotiation between unions and employers in which their voices are heard. 

What the ‘Swedish derogation’ means in the UK

The Agency Workers Regulations 2010 provide that UK agency workers who have worked in the same role, with the same hirer for at least 12 weeks, are entitled to the same ‘basic working and employment conditions as [they] would be entitled to for doing the same job had [they] been recruited by the hirer.’  However, parity is limited to pay, working time and holiday entitlement.  Expressly excluded  is sick pay, maternity pay, redundancy pay, pension, payments for time off for trade union duties and any payment for expenses.

It has been estimated that UK agency workers earn 32% less than comparable employees who are directly hired.  Furthermore, UK agency workers do not generally have the legal status of an ‘employee’ and are therefore are not entitled to the full range of employment rights and receive wages only for the hours they are engaged in an assignment.

The UK Agency Workers Regulations (2010) provides in Regulation 10 that the right to the same pay as if directly hired by the client does not apply to agency workers engaged under a ‘permanent contract of employment providing for pay between assignments’.  On the face of it, the income stability offered by a permanent contract is highly beneficial to agency workers.  However, what passes for a ‘permanent contract’ under these regulations is miserly.  According to Regulation 10(1)(a)(v) an eligible ‘permanent contract’ may guarantee the worker just one hour of work each week during an assignment.  This one-hour-a-week contract counts as ‘permanent’.  The pay intended to sustain the worker between assignments is either the National Minimum Wage or at least 50% of the hourly rate earned in the highest earning week of the previous 3 months.  In return, the agency worker must be available to take work as an when it becomes available and sign away all legal rights to same pay. 

In short, under a ‘permanent’ contract, an agency worker can be paid for 1 hour a week, at the minimum wage, in exchange for giving up their right to decent pay.   The rationale for the UK’s use of this permanent employee status exemption appears motivated by concern for the cost to client companies of approx £3,722 per agency worker per year for ending pay discrimination against agency workers.  

In Conclusion

It would appear that the Swedish system is a genuine attempt to increase the level of employment security offered to agency workers.  It illustrates that insecurity, lack of rights and economic hardship associated with temporary work need not necessarily always be a feature of working for an agency.  However, the use which has been made of this exemption in the corresponding UK regulations appears to be driven by a more cynical rationale.  

Miliband’s commitment to get rid of the 'Swedish derogation’ is a small chink of light in a gloomy national political culture which is tolerant of poor working conditions, low wages and disrespect for workers rights.  It is perhaps more than a little ironic that zero-hours contracts have been widely condemned (and are currently the subject of a public consultation) while the ‘one hour a week contract’ is currently alive and well, with a fancy sounding name and the legal capacity to turn a casual agency worker into a permanent employee so they can sign away their entitlements to equal treatment.

see Ahlberg K (2011) Agency Workers should have Equal Rights, Nordic Labour Journal; Temporary Agency Work and Collective Bargaining in the EU, (European Foundation for the Improvement of Living and Working Conditions, 2009)