Select Committee on Environment, Food and Rural Affairs Written Evidence

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  In January 1995 the licensing provisions of the 1973 Act were repealed by the Deregulation and Contracting Out Act 1994.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 industry.

  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to comply with the legislation has not increased (and the number may even have fallen) since the licensing regime was repealed in 1995.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 effect.

  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 problem—either evidence of a new type of improper practice or a concern about a particular agency—steps 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.


  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 no records.



  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 with licensing.

  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.


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 notice.

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 Tribunal.


  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

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