Agency workers' 'Swedish derogation' does not need new hire to apply, says tribunal

In its first decision on the scope of the 'Swedish derogation' of the Agency Workers Regulations (AWR), an employment tribunal appeared to cast doubt on Government guidance on the issue. The Swedish derogation provides an exemption from the AWR's general principle of equal treatment in relation to pay where a worker is employed permanently by a temporary work agency (TWA) and continues to be paid a minimum amount, of no less than 50% of their highest pay in the previous 12 weeks or the National Minimum Wage, between assignments.

Employment law expert Simon Horsfield of Pinsent Masons, the law firm behind Out-Law.com, said that confusion over whether the exception could apply where workers continued to work for the same hirer was largely the result of the Government's "unhelpful" guidance on the issue.

"The guidance states that, if the parties are considering a Swedish derogation contract, they should discuss and agree this approach 'from the outset'," he said. "This tends to suggest that the Swedish derogation should only be used in the case of new hires, although there is nothing in the wording of the legislation which suggests that this is the case. Perhaps unsurprisingly, therefore, the employment tribunal has confirmed that discussions about a 'pay between assignments' contract do not necessarily need to take place at the outset of the relationship between an agency worker and a hirer."

"There can be little doubt that this decision will be of interest to those who are currently considering whether to switch to a Swedish derogation contract. Whilst it should be remembered that there has recently been renewed criticism of the Swedish derogation provisions from unions, which have claimed that agency workers can easily be exploited by being required to enter into 'pay between assignment' contracts without realising what rights they are waiving, comfort can be taken from the fact that there is nothing inherently unlawful in this approach," he said.

The AWR, which came into force on 1 October 2011, gave temporary agency workers the same rights as directly employed staff doing the same work to "basic working and employment conditions", such as pay and holidays. To be eligible for those rights, agency workers must successfully complete a 12-week qualifying period.

In its ruling, the employment tribunal considered claims brought by a group of tanker drivers who had been hired by Monarch Personnel Refuelling on 'zero hours' contracts. The workers were assigned to BP to make deliveries to petrol stations in the North and Midlands, and had worked for BP "continuously ... in some cases for several years" according to the ruling.

Just before the AWR came into force, BP sought to renegotiate its contracts with Monarch. It did so because its own directly-employed drivers earned 70p per hour more than those employed by the agency, and it was concerned that its own unionised workforce would protest if pay was harmonised. All agency drivers had to be re-contracted under new 'guaranteed hours' contracts, giving up any right to equal pay with the permanent drivers in exchange for pay between assignments.

The tribunal found that the new contracts were compliant with the regulations, as they had been entered into before the beginning of the first assignment under those contracts. The existence of a previous relationship with the same employer was irrelevant, as 'assignment' under the AWR referred to a particular period of time during which the worker was hired out rather than the continuous period during which the worker had been hired out to that company, the judge said.

A decision by an employment tribunal is not binding on other tribunals, and is open to appeal to the Employment Appeal Tribunal (EAT). However, employment law expert Simon Horsfield pointed out that the tribunal had made some "interesting comments" about whether the Government's guidance should have legal force.

"It seems to me that, if the guidance is given any greater weight than would be afforded to a commentary provided by any other informed observer, then there is a risk that the principle of the separation of powers is infringed," said Judge Forrest. "On that basis ... I take the guidance from [the Department of Business, Innovation and Skills] as entitled to the same weight as observations from any other informed commentator."