Abolition of the Swedish Derogation in April 2020 – what this means for business

As part of the Government’s Good Work Plan the Government will be abolishing the “Swedish derogation” within the Agency Worker Regulations 2010 in April 2020.

This will be a significant cause for concern to a number of businesses who use a high volume of blue collar agency workers.    Estimates are that the cost of this change to business will run into millions.

What is the Swedish Derogation? 

• The “Swedish Derogation” is a shorthand term for a special type of employment contract provided for in Regulation 10 of the Agency Workers Regulations.  Its official name is a “pay between assignments” contract because workers engaged on these contracts with a temporary worker agency (TWA) give up the right to pay parity with comparable permanent staff (which they would normally be entitled to after 12 weeks) in return for a guarantee to receive a certain amount of pay when they have gaps between assignments, pay between assignments.
• This arrangement has been most commonly used where large numbers of blue-collar workers are needed e.g. retail, manufacturing, etc.  According to the Government’s figures, 8-10% of UK agency workers are on Swedish derogation contracts, which means as many as 130,000 people at any time.

Why is it being abolished?

• The Taylor Review recommended that the derogation be repealed.   The underlying agenda for this is to encourage more employers to take on permanent employees, so providing some greater level of certainty and security to those individuals.
• The Agency Workers (Amendment) Regulations 2019 will come into force on 6 April 2020 and will remove the Swedish Derogation provisions set out in Regulations 10 and 11 of the AWR from this date.

What does this mean for business?

• The abolition of the derogation means that all agency workers will be entitled to pay parity after 12 weeks continuous employment.
• By no later than 30 April 2020 TWAs must provide workers whose existing contracts contain a Swedish Derogation provision with a written statement telling them that with effect from 6 April 2020, those provisions no longer apply. Agency workers can bring a claim in the Employment Tribunal where their TWA fails to provide that statement on time.
• Workers asserting rights under the new Regulations will be protected from detriment and unfair dismissal.

What is pay parity?

• An agency worker is entitled to the same basic working and employment conditions as direct recruits of the same business (including pay) once he/she has undertaken the same role with the same hirer for 12 continuous calendar weeks.
• “Pay” includes any sum payable in connection with the agency worker’s employment, including certain bonus payments, holiday pay, overtime, shift allowances and unsociable hours premiums, but excludes company sick pay, maternity/paternity pay, adoption pay, pension contributions and redundancy pay.
• It does not include bonuses which are not directly attributable to the amount or quality of the work done by a worker, and which are given to a worker for a reason other than his/her personal output, such as to encourage the worker’s loyalty or to reward the worker’s long-term service.

How will this impact my business?

• If the client hires agency workers who are currently employed under Swedish Derogation contracts, then these changes could have significant financial implications after the 12-week qualifying period because it will then have to pay the agency worker the same rate as direct recruits.

• TWAs will also be concerned with the change, as many recruitment businesses supply on Swedish Derogation contracts of employment because they have been required to supply on this basis by hirers. This mean they will have to re-visit client terms and pay rates, which will cause a potentially considerable administrative burden.
• How much this impacts on each client will depend on how many agency workers they hire on Swedish Derogation contracts, how long for and in what kind of roles. In particular, of course, the cost will depend on how great is the gap between what the client currently pays for those staff and what it will need to pay when they are entitled to the same rates as its comparable permanent staff. Of course the pay between assignments will now no longer be payable, so this will also need to be factored into the calculations.