Forget those awkward dance moves that had us all smiling recently, Theresa May has shown she now means business with a series of new proposals.

Of key interest to me, and the recruitment world generally I expect, is that May has confirmed she plans to scrap the Swedish derogation under the Agency Workers Regulations 2010 (“AWR”)! This is of course major news for the recruitment sector.

Theresa May has committed to taking steps that will secure greater rights (and potentially pay) for agency workers by amending the AWR. As you may already know, these regulations entitle agency workers who are supplied to do temporary work to end user clients to enhanced legal protection. 

Under the AWR, agency workers get certain day one rights at the end client (e.g. access to collective facilities there and information about employment opportunities). They also get other equal treatment rights after a 12 week qualifying period on the assignment is met – this includes the right to receive equal pay and other terms in line with comparable workers doing the job at the end client.

Sounds pretty good for the worker? You bet it is.

As you may remember, the AWR were brought in to create a level playing field by ensuring that agency workers who are doing the same job as comparable workers receive equal treatment in respect of pay and other specified terms at the end client. However, some argue that part of the AWR should be removed and that it contains a legal loophole which benefits employers and others in the supply chain unfairly.  The issue relates to Regulation 10 of the AWR, which is more commonly known as the Swedish derogation.

In simple terms, the Swedish derogation is an exemption that means the agency worker is not entitled to equal pay after the 12 week period so long as certain conditions are met. These conditions includes that the worker must be provided with a permanent contract of employment, be paid between assignments where required and that other requirements are complied with. You may remember that this exemption met with some criticism at the time when the AWR came into force and those grumblings are still happening today. 

As a result, Matthew Taylor’s recent report on modern working practices considered the issue of potential exploitation in this area in more detail and changes. The Government has also recently consulted on the matter and removal of the Swedish derogation entirely.  Theresa May’s recent comments re-affirm the plan for this to go ahead. 

Some will welcome the news but for others it will be a huge concern.  May’s proposal to scrap the Swedish derogation has been welcomed by certain unions.  For example, Frances O’Grady (TUC general secretary) acknowledged that this decision was a “big deal” and is understood to have welcomed this particular change. 

However, for others in the sector, this is going to cause a headache and upset the current supply chain arrangements in place.   Many recruitment businesses supply workers who have entered into Swedish derogation contracts of employment and have been required to supply on this basis by clients.  What happens to them?

Changing the law will lead to many having to re-visit client terms (and pay rates), which is always tricky to manage.  The change may also lead to more competition for other client contracts, because those businesses supplying workers based on the Swedish derogation arrangement will need to move away from that work and offer the same terms as others.

It will also mean that contractual commitments in the agency worker’s contract of employment may no longer be desirable or appropriate to recruitment businesses so changes would be needed there too.  We anticipate that recruitment businesses won’t fancy paying their agency workers between assignments if they can’t rely on the pay exemption under the AWR!  

How this is dealt with will need some careful thought.   It’s not clear when the change will come in, but businesses would be wise to begin considering and agreeing a strategy for dealing with it both internally and with clients.   If advice is needed on dealing with these issues, then we would urge those businesses to get in touch.

Other proposed changes to look out for are also commented on in the Guardian's article here too and appear to have received a mixed response so far: