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OPTING OUT OF THE CONDUCT OF EMPLOYMENT AGENCIES

OPTING OUT OF THE CONDUCT OF EMPLOYMENT AGENCIES

AND EMPLOYMENT BUSINESSES REGULATIONS 2003

(“the Conduct Regulations”)

Is everyone entirely sure what this means?

Agency recruiters talk about contractors opting out of the Conduct Regulations, but I’m not always convinced that everyone understands what that means.

Before I start, let’s be clear that the Conduct Regulations call agency recruitment companies “Employment Businesses”. But for the purpose of this blog, I’m still going to refer to them as recruitment agencies that do agency recruitment. (Permanent recruitment companies are called Employment Agencies in the Conduct Regulations).

In most agency recruitment, in contracts for candidates who are working through their limited companies (Personal Service Companies or PSCs), there will be a provision that refers to opting out of the Conduct Regulations. Specifically it will refer to Regulation 32. Regulation 32 deals with how the Conduct Regulations apply to PSCs. (When I refer to PSCs in this blog, please take it that it refers to the contractor too.) Contrary to popular opinion, opting out doesn’t mean that the Conduct Regulations just don’t apply anymore

Regulation 32 explains how the Conduct Regulations change in their application to PSCs. Paragraphs 1-8 of Regulation 32 make alterations to the Regulations which if the PSC and the contractor elect to opt out of (under paragraph 9 of Regulation 32), will not come into effect.

So opting out means the PSC agrees that paragraphs 1-8 of Regulation 32 shouldn’t apply to their contract, not the whole of the Conduct Regulations. Paragraphs 1-8 list the Regulations that are amended to apply to PSCs, and it’s the application of those in the list which the contractor ops out of in the contract between the agency and the PSC.

These are the primary (or in my mind most important Regulations) that won’t apply if the PSC opts out:

Regulation 5: This restricts an agency from making it a contract condition that the PSC must use other services the agency offers and charges for; or making the PSC hire or buy goods. So if the PSC opts out, the agency can make it a contractual provision that the PSC use their insurer or umbrella company for example.

Regulation 6: This prevents an agency from imposing a post contractual financial penalty after terminating an assignment if the PSC works with the client directly or through another agency. So if the PSC opts out, the agency can dictate who it can’t work with for a period of time after an assignment, and can impose a financial penalty clause if the contractor does.

Regulation 7: This restricts an agency from supplying a PSC to a client whose workers are on strike. Although this is less relevant at the moment, think about rail strike action for example. So if the PSC opts out, the agency can supply the PSC to replace striking workers.

Regulation 9: This restricts how the agency represents itself to clients and PSCs, so that it must not tell the client it’s an agency when it’s a business; and must not tell the PSC it’s a business when it’s an agency; or vice versa.

Regulation 10: This restricts the agency charging transfer fees to clients in temp to temp, temp to perm or 3rd party introduction scenarios. This won’t affect the PSC if it opts out, but it will affect the agency’s relationship with the client. It will make it crucial that this regulation is included in the agency’s contract with the client instead of relying on the Regulations to support it. Most agencies’ contracts will mirror this regulation, so that it is not affected if the PSC opts out.

Regulation 11: This restricts an agency entering into a client contract on behalf of a PSC without the contractor’s authority; and stipulates the contract details that have to be given, and when they’re given, to the client and the PSC. So if the PSC opts out, the agency isn’t bound by these provisions, which cuts down their obligations, but it could adversely affect a PSC by delaying how soon they get details of the assignment.

Regulation 12: This restricts an agency withholding payment to the PSC if the client doesn’t pay the agency or if the client doesn’t sign a time-sheet. This is an obvious drawback to a PSC if it opts out, particularly if it recently did any work for the likes of Monarch or Carillion; but it’s obviously in the benefit of the agency.

Regulations 14 & 15: These set out what the agency must tell the PSC before it introduces the PSC to a client, and whether the agency can vary them. This includes an undertaking to pay the PSC, and the timing of when the PSC is given financial details and notice provisions. Although a PSC will still negotiate and receive terms, if it opts out it loosens its rights; and an agency isn’t so tightly bound.

Regulation 17: These are the conditions that apply to what the agency must agree with the client and when, which won’t apply if the PSC opts out.

Regulation 18: This lists the information an agency must obtain from the client before introducing or supplying the PSC; eg: dates, type of role, experience, qualifications and expenses etc. Most of this information will be detailed in any client or PSC contract, but opting out will allow an agency to proceed further with introducing a PSC to a client before telling the PSC what the deal is.

Regulation 19: This prevents an agency introducing or supplying a PSC without first obtaining the contractor’s willingness to take the role, ID, qualifications, experience, etc. If the PSC opts out, it may not know to whom it has been introduced; and a client may not know if the PSC knows it has been introduced.

Regulation 20: This stipulates that an agency must ensure the PSC’s safety in the role before introduction or supply, and during the role. Whilst an agency is unlikely to endanger a PSC, if the PSC opts out, the obligations on it are far lower.

Regulation 21: This sets out the information about the PSC the agency must give the client and vice versa, including when and how. If the PSC opts out, this will probably mean less work for the agency.

Regulation 22: This applies to when information is provided about when professional qualifications are required of the contractor, or if the contractor will be working with vulnerable people. Personally I don’t think this provision should be available for opt out, but it is.

So a pretty long list of impacts on the contractor, the agency and the client if the PSC opts out of the Conduct Regulations.

But…

An agency cannot force a contractor to opt out. It has to be their decision. You cannot make the assignment contingent on them contracting out. And once that particular assignment has ended, I can contract back in again.

And,

The agency must give the notice to opt out to the client before the start of the assignment otherwise it won’t be effective.

It is also sometimes discussed whether contracting out means a contractor is outside of IR35. In short, no. The Conduct Regulations are separate to IR35, which may still apply even if the PSC opts out.

However, my personal opinion is that if a PSC has opted out, losing the protection of the Conduct Regulations further strengthens the contractor’s position as self-employed, as it is exposed to certain commercial risks (e.g. not being paid); and the PSC is therefore less likely to be the subject to a claim of false self employment.

As I said above, it’s up to the contractor whether or not to opt out, but I hope I have made it clear what impact it has on everyone if both the contractor and the PSC does. Opting out doesn’t mean waving goodbye to the Conduct Regulations altogether, no one but the contractor can opt out, it’s not forever, opting out doesn’t apply to the whole of the regulations, and opting out only reduces some of the agency’s and client’s obligations.

I specialise in providing commercial legal services to the recruitment sector and focus on a wide variety of contractual issues, prioritising dispute prevention before dispute resolution. If you would like any further information please do not hesitate to contact me.

By Lucy Tarrant