The conduct of employment agencies and employment businesses regulations 2003 - recovering fees

The main provisions of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“the Regulations”) came into force on 6 July 2004. Since then, the Regulations have been subject to further amending regulations on five occasions, in 2008, 2010, 2015, 2016 and the most recent due to take effect this week on 5 April 2020. In this article I provide details of some of the more important amendments and steps that you must comply with in order to ensure you enhance your chances of successfully recovering your fees.

Purpose of the Regulations

The Regulations govern the conduct of the private recruitment industry and set minimum standards for employment agencies (“EA”) and employment businesses (“EB”) operating from premises in Great Britain. The Regulations apply to any (“EA”) or (“EB”) offering work finding services for work-seekers (“WS”).

Employment agency v Employment business

Save where a WS seeks work in the entertainment or modelling sectors (where further special regulations apply), an EA finds work for WS who are employed and paid by employers – often described as permanent work. The eventual hirer of the WS is responsible for paying the WS.

An EB engage WS under contracts with them then working under the supervision of someone else – often described as temporary work. Temporary WS are paid by the EB (or through an intermediary, umbrella or personal service company (“PSC”)) rather than the business to who they are supplied.

It is not unusual for recruitment companies to be both an EA and EB.

Work-seekers

A WS is an individual or limited company contractor to whom an EA or EB provides work finding services looking for permanent and/or temporary work.

A WS can be a company as well as an individual. Where the WS is a company, the Regulations apply to the company as well as the individual who is or would be supplied by the company WS. The company and those offering services through them can choose to give written notice to opt-out. For such notice to be effective it must be received by the EA/EB before any introduction is made and the hirer must be informed of the decision to opt-out.

The opt-out provisions do not absolve an EB from their obligations to provide a key information document to a company WS or to keep records in respect of the company WS.

Key information document

This is a new obligation taking effect on 6 April 2020. It only applies to EB. Under the amended Regulations an EB will be obliged to provide a WS (or agency worker (“AW”) in the case of a PSC) with a key information document before obtaining their agreement (or that of their PSC, umbrella company or intermediary) to the terms that will apply between the EB and the WS (or AW).

The amended Regulations do not apply to WS who have already agreed terms with an EB as at 6 April 2020 – they will only be entitled to a key information document if they sign up with a new EB.

The Regulations set out the details that should be included in the key information document and the method by which the document should be prepared and provided to the WS (or AW). Essentially, the document should include key information regarding pay including details of any fees and deductions that will affect their pay.

Further terms will also need to be supplied to WS before any work-finding services are provided setting out more specific details including, for example, holiday entitlement, notice periods, etc. These will vary depending upon whether the work-finding services are being provided by an EA or EB.

Requirements before work-seeker introduced

Having provided the key information document and the further terms it will then be necessary for certain information to be obtained from the hirer before any WS can be introduced.

Neither an EA or an EB may introduce or supply a WS to a hirer unless they have obtained sufficient information from the hirer to select a suitable WS for the position which the hirer seeks to fill together with confirmation from the WS that they are willing to work in the position which the hirer seeks to fill.

Sufficient information to be obtained from the hirer includes:

• The identity of the hirer and, if applicable, the nature of the hirer’s business.
• The date on which the WS is required to start and the duration or likely duration of the work or assignment.
• The position to be filled including the type of work, the location at which the WS will be required to work and the hours of work.
• Any health and safety risks known to the hirer and what steps they have taken to prevent or control such risks.
• The experience, training, qualifications and any authorisation which the hirer considers necessary, or which are required by law, or by any professional body, for the WS to possess in order to carry out the work.
• In the case of an EA, the minimum rate of pay and any other benefits which the hirer would offer and the intervals at which the person would be paid, and if applicable, the notice period.

In addition to the above, an EB may not introduce or supply a WS to a hirer unless it has obtained confirmation of the WS’s identity and that the WS has the experience, training, qualifications which the hirer considers are necessary, or which are required by law or by any professional body to work in the position which the hirer seeks to fill. This also applies to an EA if the position which the hirer is seeking to fill involves a WS working with, caring for or attending vulnerable persons.

Charges to hirers by Employment Businesses

Aside from the normal weekly or monthly charges which an EB renders invoices for an EB’s right to render charges to hirers generally falls into one of three categories. These are not specifically defined within the Regulations but are commonly referred to within the industry as transfer fees. The categories are:

1. Temp to perm incurred where a temporary WS supplied by an EB is subsequently taken on directly by the hirer by way of permanent placement.
2. Temp to temp where the WS is supplied to the same hirer on a temporary basis but through a different EB.
3. Temp to third party where the hirer introduces the WS to another party whether a subsidiary or parent company of the hirer or another EB who subsequently employs them directly.

There is often a mistaken belief amongst EB and hirers alike that the Regulations abolished transfer fees. That is not the case. Transfer fees can still be charged. However, the intention of the Regulations was to ensure that EB do not seek to charge transfer fees unreasonably as a means of discouraging or deterring hirers from offering permanent employment to temporary WS or introducing them to third parties. Accordingly, the Regulations do set out restrictions on how an EB can charge transfer fees.

The Regulations are complex but essentially any term between an EB and a hirer by which the EB seeks to charge a transfer fee will be unenforceable unless the hirer is given the option, instead of paying a transfer fee, to give notice to the EB to opt to have the duration of the WS’s assignment extended, at the end of which the WS would transfer without charge to the hirer.

There is no restriction on the period of time by which the EB has to agree to extend the WS’s assignment. This is a matter for agreement between the EB and the hirer at commencement of the assignment. All the EB has to do is agree that if, the hirer gives notice of its intention to extend the assignment for whatever agreed period of time, it can do so with the WS than transferring at no additional cost to the hirer at the end of that extended period. Of course, the hirer will remain liable to the EB for ongoing charges during the extended period of hire. These ongoing charges must be on terms that are no less favourable to the hirer than those as originally agreed.

EB also cannot charge transfer fees if the transfer takes place after the end of the relevant period. The relevant period is defined in the Regulations as meaning whichever of the following periods ends later:

(a)    The period of eight weeks commencing on the day after the day on which the WS last worked for the hirer pursuant to being supplied by the EB; or
(b)    The period of 14 weeks commencing on the first day on which the WS worked for the hirer pursuant to the supply of that WS to that hirer by the EB.

In determining the first day on which the WS worked for the hirer pursuant to the supply of that WS to that hirer by the EB, no account shall be taken of any supply that occurred prior to a period of more than 42 days during which that WS did not work for that hirer pursuant to being supplied by that EB.

If a transfer fee is payable there is also no restriction on how that transfer fee is calculated, although notice of the method of calculation should have been provided to the hirer by the EB at the commencement of the assignment.

Prior to 7 May 2016 it was a requirement under the Regulations that terms had to be agreed with hirers before any introductions were effected. This was abolished in May 2016. However, as with any other commercial contract, if the EB (or EA) wishes to ensure that their terms of business are incorporated into the contract with the hirer they should ensure that they are sent to hirer before any introduction is made and/or the hirer becomes liable for payment of any charges.

It is unlawful for an EB to seek to enforce any contractual term that is unenforceable under Regulation 10 or otherwise to request any payment in these circumstances so it is very important to make sure that your contractual terms deal with the position correctly.

Rebates by Employment Agencies

It is common place within the recruitment industry for an EA to offer a rebate to the hirer in the event that a WS should leave the hirer’s employ within a specified period of time. There is no fixed formula for calculating the same but generally, the sooner the WS leaves the employ the more the rebate they receive up to and including, in most cases, a back stop date of up to 8 or 10 weeks after the date of commencement of the WS’s employment with the hirer.

The Regulations do not seek to impose any prohibitions on the use of rebates by EA. Accordingly, normal common law rules regarding incorporation of terms and conditions will apply as with any other commercial contract. As with the question of transfer fees it is therefore imperative that EA ensure their terms are incorporated into the contract with the hirer if they are to be able to recover their fees.

Conclusion

Whilst the Regulations are quite wieldy and impose a whole host of procedures which must be carried out in order to ensure fees can be recovered, they are by their very nature repetitive and so if good internal processes are in place there is no good reason why any EA or EB should fall foul of the Regulations and be prevented from recovering their fees.

The above comprises only some of the more important Regulations which must be complied with and so a detailed read and understanding of the Regulations is essential to ensure that all processes are undertaken correctly but as a brief aide mémoire EA/EB should ensure:

1. All relevant information is given to WS and hirers and that they in turn provide you with such information.
2. Your terms and conditions are incorporated into all your contracts, whether with WS or hirers.
3. Your terms comply with the provisions of Regulation 10 as regards the charging of transfer fees.
4. If a WS gives notice to opt out of the Regulations, written notice is provided to EA/EB and in turn to the hirer before any introduction takes place.