The Conduct of Employment Agencies and Employment Businesses Regulations 2003 came into force in 2004 with a view to implementing a set of minimum standards for the conduct of the private recruitment industry in the UK. The regulations apply to both employment agencies and employment businesses providing temporary and/or permanent staff to end clients. Whilst they are primarily aimed at individuals, the regulations can also affect contractors.
Given that some individuals work through limited companies, an opt-out provision was introduced, to allow contractors to make their own decision as to whether or not they wish to be covered by the regulations.
In order for an opt-out to be valid, the contractor is required to sign the relevant form, and the end client must be informed accordingly, prior to entering into any contract for services.
Contractors can decide to opt-in even after having opted-out, but this can only take effect following completion of the assignment to the client they opted-out with.
Generally this opt-out form will be appended or provided alongside the contract with the recruitment agency.
If they opt-in, contractors will gain certain additional rights, such as the requirement for the agency to make payment to the contractor even if the client does not and the removal of contractual restrictions that mean the contractor cannot make direct arrangements for further services.
Regulation 12 of the regulations means that an agency cannot require a signed time sheet in order to make payment to the contractor. Although contractors will still have to prove they have actually carried out the services before being entitled to payment, this new rule prevents an agency being able to use lack of a time sheet signed by the end client as a reason for non-payment and any such provisions within contracts will be considered invalid and unenforceable.
Regulation 10 restricts the agency’s ability to prevent a contractor entering into direct contracts for services with the end client going forward. It is standard practice for contracts to include a restrictive covenant meaning that, where valid, the contractor is not permitted to provide services for the client for a period of up to 6 months, 12 months or more. Under the regulations however, the maximum period direct dealings can be prevented will be the longer of 14 weeks after the first working day and 8 weeks after the last working day.
Of course, one of the main considerations for a contractor is their IR35 status. There is a potential argument that in the event a contractor receives regulation protection, this could cause issues with IR35, on the basis that the regulations apply solely to workers under the control of the end client.
Given that control is an indication of employment, which is a test that essentially underpins an IR35 assessment, it could be argued that opting-in for contractors could be a negative from an IR35 perspective. Alternatively, since it is exercising good management values, it could be considered that taking a commercial decision which is in the best interest of the company is an IR35 positive.
It can be perceived that opting-outprovides for greater flexibility. The regulations impose certain obligations on the contractor including requiring the terms of the services to be confirmed in writing and vetting any sub-contractor to ensure they hold the relevant qualifications and experience prior to any contract being entered into. The increased admin and potential delays in commencing the services could be deemed by some contractors to be too time consuming and cumbersome.
An additional point to note is that the regulations do not allow you to “cherry pick”, meaning that you cannot pick and choose which parts of the regulations to opt-out of. The regulations are all or nothing, meaning that you either have to have full protection or opt-out in its entirety.
Although the regulations state that opting-out cannot be given as a condition for a contractor when entering into any form of contract/agreement, a decision will need to be made before entering into any contract, to ensure it is valid and can be upheld going forward.
Clearly, the opting-in or opting—out decision is a commercial one, which needs to be made by the contractor on an informed and individual basis.
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