Impacts of Swedish Derogation Removal on UK Workforce

The End of Swedish Derogation: What It Means for Agency Workers and Employers

Background and Removal

The Swedish Derogation, a controversial provision within the Agency Workers Regulations 2010 (AWR), was abolished on 6 April 2020. This change was part of the government's Good Work Plan, aimed at enhancing the rights of agency workers. The derogation allowed temporary work agencies (TWAs) to employ workers on contracts that circumvented the right to pay parity with comparable permanent staff, in exchange for a guarantee of pay between assignments.

How the Swedish Derogation Worked

Under the Swedish Derogation, TWAs hired workers on permanent contracts, paying them a wage that might not match that of a worker in a similar role. Between assignments, the agency paid the worker for up to four weeks, at a rate of at least 50% of their average basic wage from the past 12 weeks, ensuring it was at least the national minimum wage (NMW). This model was commonly used in sectors such as retail and manufacturing, affecting approximately 8-10% of UK agency workers, or around 130,000 people.

Reasons for Abolition

The Taylor Review of Modern Working Practices recommended the repeal of the Swedish Derogation to encourage more employers to hire permanent employees, providing greater security and certainty to workers. The derogation was often exploited, with few workers actually receiving pay between assignments, leading to a lack of tangible benefits for sacrificing the right to pay parity.

Impact of the Removal

The abolition of the Swedish Derogation means that all agency workers are entitled to pay parity with comparable permanent staff after a 12-week qualifying period. By 30 April 2020, TWAs were required to provide workers whose contracts contained Swedish Derogation provisions with a written statement informing them that these provisions no longer apply. Workers asserting rights under the new regulations are protected from detriment and unfair dismissal.

Financial Implications

The removal of the Swedish Derogation has significant financial implications for both TWAs and hirers. The cost impact will depend on the number of agency workers engaged under Swedish Derogation contracts and the difference in pay between agency workers and permanent staff. Hirers and TWAs must revisit client terms and pay rates, which will cause an administrative burden.

Conclusion

The end of the Swedish Derogation strengthens the rights of agency workers, aligning their pay with that of comparable permanent staff. While this change may pose financial challenges for TWAs and hirers, it aims to provide greater security and fairness to agency workers, a key objective of the Good Work Plan. Employers and TWAs must ensure compliance with the new regulations to avoid potential claims in employment tribunals.