Temp Directive 'difficult to enforce'

Barry Roback, Chief Executive, JSA Services Limited, the UK's leading specialist accountants for IT contractors, warns that the latest proposed piece of Brussels legislation could play havoc with the market for temporary workers.

If contractors want to retain the emotional and financial benefits of independence, they must acquaint themselves with sufficient knowledge of both tax and employment legislation to ensure they do not get trapped in the EU/Treasury pincer movement, warns JSA.

It is regrettable, but many of our mainland European cousins find the concept of self-employment – particularly in the freelancer sector - hard to grasp. The French, in particular, appear to have turned it into a bureaucratic nightmare. Derived from the Napoleonic concept of master/servant, many Europeans still find it hard to believe that someone might actually choose to work outside a PAYE system. This is reflected in the fact that private pensions are relatively rare in most EU countries since everyone expects the state to provide generously.

The latest piece of proposed legislation from Brussels - the EU Agency Workers Directive - is part of this overall trend to blur the lines between permanent and temporary staff and which could have a significant impact on white collar professionals. The legislation is still under debate, but it may well be on the statute book in the not so distant future.

Exclusion

This directive has already been the subject of much debate. It attempts to give temporary staff the same rights as permanent workers after only six weeks in 'employment'. The UK government, which originally opposed the proposals, has now given its tacit approval but is fighting for a number of amendments and exclusions before enactment. Most notable of these is to delay the effect of legislation by six months from the contract start date and the exclusion of limited company contractors from the legislation.

Many agencies predict that the legislation will dramatically increase the cost of recruiting temps, fearing amongst other things that some companies may be tempted to change their agency staff every six weeks.

Some agency chiefs say that instead of some temporary jobs being a platform into permanent positions, temps will constantly be reassigned, as clients will not want to take the risks involved with offering permanent employment rights to a temp, wiping out these opportunities altogether.

Fears have also been expressed that temps would be entitled to the same benefits including pay, fringe benefits and possibly pension and share option rights as comparable permanent employees. They would also be entitled to redundancy and unfair dismissal protection like that enjoyed by permanent employees.

Concern

This has led freelancers – who do not want these rights – and clients – who do not wish to give these rights – to be caught in no-man's land in the middle, fearing that the rights which are aimed at protecting exploited workers could catch them.

Another area of concern is the type of mechanism that would be necessary to give temps pension rights equivalent to those enjoyed by comparable permanent workers. This could be a very difficult issue for end users still operating final salary pension schemes, and it is likely that major users of temps may well be forced to reduce benefits for 'comparable' permanent employees.

JSA advises that despite all these proposed additional benefits, under the draft legislation, temporary staff would still be able to leave their post without notice whilst still being entitled to the same benefits as their permanent counterparts, such as sick pay, holiday, employment rights and financial rewards.

Pros and antis

JSA said: As always with any piece of proposed legislation, the pros and anti's always take extreme positions. In reality, the position of high-end contractors, particularly those operating as limited companies, is unlikely to change, particularly if they currently escape IR 35. This is because limited company contractors will probably not fall within the protection of TAWD anyway. Even if the UK Government does not successfully insist on an express exclusion of limited company contractors, the practical difficulties of drafting legislation which effectively covers limited company contractors will be very difficult to achieve.

"Probably the most difficult part of the proposed legislation to enforce will be the comparator mechanisms. This has already been tested and found wanting by the European Court of Justice regarding the similar Part Time Workers Directive legislation, in which part timers must be paid pro rata the same as their full-time colleagues doing equivalent jobs. In a recent case brought by the Dutch, The European Court said it was very difficult for an employer to identify a permanent worker whose job was strictly comparable with that of a part time employee.

"So what action should contractors and agencies now take? The answer is probably not a lot at this stage. Limited company contractors can probably breathe a sigh of relief and forget all about it - although nothing is certain where Brussels is concerned. Nonetheless, all contractors need to be aware of the increasing difficulties of defining

"self-employment", even if they do not fall under IR35. They should always look carefully at any contract offered, particularly since a recent Court of Appeal ruling in the case of Brook Street v Dacas has to some extent already pre-empted some of the proposed directive."

Case

This case involved an agency worker, who worked for the same client for four years, after which she was dismissed. She claimed unfair dismissal, both from the agency who had placed her there, and the client for whom she had worked. The original tribunal found she was employed by neither, so she appealed against the ruling that she was not employed by the agency. After much consideration, the Court of Appeal decided that there was no implied contract of employment with the Agency. But, had they been asked to, they would have ruled that the client was deemed to be the employer.