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UK – New legislation to ban Swedish Derogation

17 December 2018

The UK government has announced today that it will set out the biggest package of workplace reforms for over twenty years. The Business Secretary Greg Clark pledged to take forward 51 of the 53 recommendations made by Matthew Taylor in his Good Work report following his review of modern working practices.

The new legislation introduced today will:

  • repeal the Swedish derogation – which provides an exemption from equal pay for agency workers
  • extend the right to a day one written statement of rights to workers, going further to include detail on rights such as eligibility for sick leave and pay and details of other types of paid leave, such as maternity and paternity leave
  • quadruple maximum employment tribunal fines for employers who are demonstrated to have shown malice, spite or gross oversight from £5,000 to £20,000
  • extend the holiday pay reference period from 12 to 52 weeks, ensuring those in seasonal or atypical roles get the paid time off they are entitled to
  • lower the threshold required for a request to set up Information and Consultation arrangements from 10% to 2%

The government is also committing to legislate to improve the clarity of the employment status tests to reflect the reality of the modern working relationships.

The so-called Swedish Derogation, described in the announcement as a “loophole”, is a provision which was included in the Agency Workers Directive 2008 at the request of the Swedish government. It permitted EU member states to provide employers with an exemption from agency workers’ right to receive the same pay as if they were directly employed by the hirer, provided they are given an indefinite employment contract that could not be terminated unless the worker had received 50% of their normal pay between assignments for at least 4 weeks.

As part of the reforms, the Government is also responding to the Labour Market Strategy set out by Sir David Metcalf, the Director of Labour Market Enforcement, with detailed plans to tackle exploitation of low paid workers, including:

  • bringing forward proposals in early 2019 for a single enforcement body to ensure vulnerable workers are better protected
  • more resource for the Employment Agency Standards (EAS) Inspectorate
  • creating new powers to impose penalties for employers who breach employment agency legislation like non-payment of wages
  • consulting on Salaried Hours Work and Salary Sacrifice Schemes to ensure National Minimum Wage rules do not inadvertently penalise employers
  • bringing forward legislation to enforce holiday pay for vulnerable workers
  • consulting on the recommendations on non-compliance in supply chains

Sir David Metcalf, the Director of Labour Market Enforcement, said:

“I welcome the government’s response to my UK Labour Market Enforcement Strategy for 2018 to 2019. I am extremely grateful to the 3 enforcement bodies for their engagement and help during the development of the Strategy and for the constructive approach they have taken throughout with a view to strengthening Labour Market Enforcement across the UK.

I am pleased that the vast majority of my 37 recommendations have been accepted, including my recommendations regarding a shift to more proactive enforcement and improving joint working between the 3 enforcement bodies under my remit and wider organisations within labour market enforcement”.

One reform which will not proceed is the ban on zero-hours contracts or contracts for services that the unions had argued for. This reflects the views expressed by Matthew Taylor in his review into Modern Working Practice that:

  • banning zero hours contracts in their totality would negatively impact more people than it helped
  • that the flexibility of ‘gig working’ is not incompatible with ensuring atypical workers have access to employment and social security protections; and
  • that platform-based working offers welcome opportunities for genuine two-way flexibility and can provide opportunities for those who may not be able to work in more conventional ways.

Responding to the government’s new package of workplace reforms announced today, Recruitment & Employment Confederation chief executive Neil Carberry said:

“The Taylor review set out how valuable the UK’s flexible approach to work is for workers as well as employers, and that is reflected in today’s government response. Recruiters across the country will welcome the acknowledgement that temporary and agency work is a key part of a vibrant jobs market that delivers opportunity.

 “Making sure workers have more knowledge of their rights at work – and greater ability to ensure flexibility works for them – is sensible.

“Agencies have always been clear that the Swedish derogation should not be an excuse for poor treatment. We favoured reforming the rules to ensure those whom were being adversely affected by the model were protected. Now that government has decided to remove Swedish derogation, it is essential that ministers engage with the recruitment sector to ensure that the transition away from this model is smooth for workers, agencies and clients.

“Looking ahead, public policy must do more to reflect the fact that many people choose to work flexibly. For example, the REC asked for the apprenticeship levy to be broadened to include training for agency workers, which Taylor agreed with in his recommendations. We are therefore disappointed the government continues to drag its feet on something that could help agency workers develop and progress up the career ladder and provide added skills to employers.

“We also welcome greater focus on compliance, and resource for enforcement, particularly on umbrella companies, which we have long been calling for. This should help create a level playing field for recruiters.”


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