Memorandum submitted by the Department
of Trade and Industry (V13)
1. The 1973 Act established a mechanism
under which those persons wishing to trade as either employment
agencies (which find work for work seekers with employers) or
employment businesses (which employ workers and hire them out
to act for and under the control of others) had first to obtain
a licence from the Secretary of State.
2. In January 1995 the licensing provisions
of the 1973 Act were repealed by the Deregulation and Contracting
Out Act 1994. At that time a new power (to prohibit unsuitable
persons from running agencies and businesses, for periods of up
to 10 years) was given to Employment Tribunals. This alteration
to the Act, whilst still allowing controls to be placed upon the
activities of unsuitable persons, has made market access for new
agencies and employment businesses easier and has encouraged high
quality individuals/small businesses to enter the recruitment
3. The original licensing arrangements sought
to establish the suitability of prospective operators by vetting
applicants and, through the requirement to publish details about
the prospective licensee, by alerting the public of his/her intention
to commence business. It did not, however, provide an effective
control. Only a small percentage (about 0.1%) of new applicants
or licence renewals were rejected. Although a significant number
of complaints concerned agencies/employment businesses who were
discovered to be operating without a licence, inspectors also
found breaches of the Conduct of Employment Agencies and Employment
Businesses Regulations amongst those with licences. Licensing
or registration schemes, particularly those where a fee is demanded,
are burdensome for business and public authorities alike and the
burden falls especially heavily on small enterprises. The introduction
of such schemes needs to be strongly justified. Better regulation
alternatives to a statutory registration or licensing scheme should
first be considered, particularly since there is evidence that
the number of agencies failing to comply with the legislation
has not increased (and the number may even have fallen) since
the licensing regime was repealed in 1995.
4. Registration schemes may, in some circumstances,
be appropriate where licensing is not. Such arrangements usually
require those intending to operate to notify an authority of certain
details before commencing business. This provides that authority
with knowledge of the existence of the enterprise and, in some
cases, enables the public or interested bodies to consult the
relevant register to see whether someone, who should have registered,
has done so. However, statutory registration schemes are not significantly
less burdensome than licensing. An effective register could only
be maintained if suitable sanctions were created to enable an
authority to prevent the business trading whilst un-registered,
and if mechanisms existed for removing persons from the register.
A statutory registration regime for a particular sector of the
private recruitment industry would not differ significantly from
the licensing system, which experience showed to have no positive
5. A proportion of persons acting as gangmasters
have continued to be found to be in breach of a range of legislation
that is enforced by the inspection bodies of a number of Government
Departments. It is considered unlikely that a statutory registration
scheme would prevent individuals, who currently operate illegally
and in defiance of existing legislation, from continuing to work
in that manner. Furthermore, experience has shown that workers
are reluctant to bring forward complaints against gangmasters.
This is because the workers may be intimidated or they are also
working illegally. Legislation already exists that should facilitate
prevention of illegal activities of gangmasters but this does
not seem to provide the whole solution.
6. The Conduct Regulations require that
both hirers and workers should be notified by the employment business
of its terms in advance of the worker's assignment commencing
and for this to be confirmed in writing. Workers must be given
a written statement before they start work. The statement must
set out the minimum rate of pay, any expenses payable, the kind
of work that they are required to do and their employment status.
Hirers must be told whether or not the workers are self-employed
and what to do if a worker proves unsatisfactory. Information
should be kept of the work in question together with details of
the workers supplied.
7. The DTI's Employment Agency Standards
(EAS) Inspectorate enforces the Employment Agencies Act 1973 and
associated regulations. The EAS Inspectorate comprises a small
team of regionally based inspectors who investigate complaints
concerning the conduct of agencies and employment businesses.
EAS Inspectors visit agencies/employment businesses to carry out
inspections of their records to check compliance with the legislation.
8. The DTI also operates a telephone Helpline
to which agency workers can report concerns and/or complaints
about the operation of an agency or employment business and where
agency workers can seek advice about their rights and protections
offered to them under the law. Workers can make complaints anonymously
(their names are kept from the agency or employment business concerned)
if they wish.
9. In addition, where the DTI becomes aware
of a potential problemeither evidence of a new type of
improper practice or a concern about a particular agencysteps
are taken to address it. For example, the DTI recently became
aware of allegations in Portuguese newspapers about the treatment
of Portuguese agricultural workers in the UK. Contact was made
immediately with the Portuguese Government to offer help in ensuring
that Portuguese agricultural workers en route to the UK are fully
aware of their rights under EU and British law and know where
to go to present any evidence of improper practice or abuse.
10. In cases where an agency/employment
business has breached the legislation before or has caused serious
harm to its users through disregard for the protective provisions,
the Inspectorate may prosecute the agency/employment business
in a magistrates' court. On conviction the agency/employment business
could be fined up to £5,000 for each offence. The Inspectorate
can also apply to an Employment Tribunal to make an order to prohibit
a person from carrying on an employment agency or employment business
for up to 10 years on the grounds that the person concerned is
unsuitable because of misconduct or any other sufficient reason.
STANDARDS (EAS) INSPECTORATE
11. We believe that gangmasters first came
to the attention of EAS Inspectorate in 1989 following complaints
concerning their operations from employment agencies (rather than
complaints from workers). Prior to that time gangmasters' activities
were mainly involved in supplying workers to farms. However, they
then extended their operations to supplying packing houses, which
put them in competition with certain employment agencies for the
first time. Following investigations by the EAS Inspectorate,
it was found that some gangmasters fell within the scope of the
Employment Agencies legislation and were operating as employment
businesses. Visits to gangmasters were undertaken to seek to enforce
the licensing requirements and it became common practice for one
gangmaster to give the inspectors details of other gangmasters.
We are aware of one case where the Inspectors prosecuted one operator
for trading without a licence.
12. As the industry became increasingly
aware of the work of the Inspectorate and the Employment Agencies
legislation, complaints from workers were received and began to
increase. These complaints largely related to non-payment of wages.
(There are however, and have never been powers under the Act which
would allow the Inspectorate to require redress and payment of
wages). Subsequent investigations revealed widespread breaches
of the legislation. Inspectors found that most gangmasters kept
13. The Government believes that temporary
agency workers deserve appropriate employment protections, hence
its decision specifically to extend the National Minimum Wage,
Working Time Regulations and Public Interest Disclosure provisions
to this group of workers. Agency work provides a useful path into
the labour market for the unemployed. It can increase labour market
flexibility in ways that benefit both businesses and workers alike.
It can also offer workers, who want to control or vary their patterns
of work, greater choice than permanent work.
14. The DTI is currently reviewing the Conduct
of Employment Agencies and Employment Businesses Regulations 1976.
We have undertaken three major consultation exercises on our proposals.
These proposals are designed to strike a balance between the interests
of employment businesses, the rights of workers, the needs of
employers and labour market flexibility.
15. However, the DTI has no plans to re-introduce
licensing or to bring in a form of registration, as it is considered
that neither would result in an effective regime. Agencies' conduct
is still regulated by law and there is an effective mechanism
in place for investigating complaints, prosecuting agencies/employment
business, where appropriate, and prohibiting unsuitable persons
from operating in the industry.
16. The trend in legislation on employment
agencies is moving towards a focus on the contractual and, to
some extent, statutory rights of agency workers and corresponding
duties of agencies.
17. The EU Commission proposed the draft
agency workers' directive in March 2002. The European Parliament
completed its first reading of the proposal, which concerns temporary
agency workers, in November 2002. In response, the European Commission
issued a revised draft directive, which takes account of the Parliament's
amendments. The proposed directive deals with the basic contractual
employment rights of agency workers relative to those of permanent
staff, aiming to ensure equal treatment for agency workers and
remove unjustified restrictions on the use of agency workers.
Article 4 of the Directive, requiring a review of restrictions,
is about facilitating agency work. The trend towards individual
rights, enforceable against the party designated as the agency
worker's employer, represents a move away from intensive regulation
of the activities of employment businesses and employment agencies.
Moreover, the proposed Directive does not require or deal specifically
18. The Government is not opposed in principle
to the proposed Directive on but are keenly aware of the potential
impact on UK agencies and agency workers of a directive that takes
no account of conditions in the UK labour market. The Government
is pressing very hard for the UK's legitimate concerns to be recognised
and remains concerned that the directive risks decreasing the
attractiveness of agency workers to user companies, which might
reduce the number of jobs available.
DTI HAS AN
National Minimum Wage
19. DEFRA is responsible for enforcement
of the Wages Orders made under the Agricultural Wages Act 1948,
which set minimum rates of pay and terms and conditions of employment
for workers employed in agriculture. DEFRA Wages Inspectors respond
to complaints and can take cases to the criminal court or to seek
payment of arrears of wages through the civil courts.
20. If gangmasters employ workers to undertake
non-agricultural work they will then be covered by the national
minimum wage. This was introduced in April 1999 by way of the
National Minimum Wage Act 1998 and is enforced by Inland Revenue
on behalf of the DTI. Casual workers, temporary workers and agency
workers are all covered by the legislation. The Revenue provides
information, inspection and enforcement services. They operate
a national Helpline, which deals with enquiries about the minimum
wage from workers, employers and third parties.
21. Revenue Compliance Officers investigate
all complaints that the minimum wage is not being paid as well
as inspecting employers who are thought to be at risk of not complying
with the legislation. Compliance Officers can act on behalf of
a worker where they identify that a business is not paying the
minimum wage by taking the case to an employment tribunal or civil
court. Workers have the option to enforce their right to the minimum
wage by taking their case individually. The Low Pay Commission
in its Fourth Report stated that evidence showed that most employers
are complying with the legislation and that the Inland Revenue
Compliance Teams are working hard to enforce the minimum wage.
Deductions from pay
22. The right to make deductions from workers'
pay or receiving payments from them is restricted by the provisions
of the Employment Rights Act 1996. An employer cannot make a deduction
from an employee's pay unless the deduction is required by law
(eg tax, national insurance, court orders); the deduction is authorised
by a term in the worker's contract; the worker has agreed in writing,
in advance, to the deduction being made; the deduction is a repayment
of overpaid wages or expenses; or the deduction is required because
the worker took part in industrial action, such as a strike.
Termination of employment
23. If an employer employs a person continuously
for one month or more, the employer is required by the Employment
Rights Act 1996 to give that person at least one week's notice
of termination of employment. Depending on the terms of the contract,
notice can be worked or the employee may receive pay in lieu of
Written statement of employment particulars
24. A worker employed by an employer for
a month or more is entitled to receive a written statement giving
details of their employment. The written statement must cover
a number of matters including hours of work and rates of pay.
The statement must be provided not more than two months after
the person started work.
Working time and holidays
25. The working time regulations introduce
a number of basic rights and protections for workers. They include
a limit of an average 48 hours a week which a worker can be required
to work (workers can choose to work longer if they want to but
must sign a written agreement to this effect); a right to 11 hours
rest a day; a right to a day off each week; a right to an in work
rest break of 20 minutes if they work six hours or more and a
right to four weeks paid leave per year. Workers employed in agriculture
have a more generous holiday and rest break entitlement under
the Agricultural Wages Order. HSE enforce the working time limits
for the agricultural sector. Rest and annual leave entitlements
can be pursued by individuals making a claim via an Employment
26. The various pieces of legislation listed
in paragraphs 23-25 are enforced by an individual worker/employee
bringing a complaint to an Employment Tribunal.
27. The ACAS help line (0845 747 4747 )
is also available and able to answer a wide range of queries on
individual employment rights.
2 June 2003