It won't be long before Contractors will not be the only ones suffering from recent legislative changes. The draft of the proposed new agency regulations has recently been published, and these (if finalized in their present form) will cause significant change to the ways agencies can carry on business - and, I fear, major changes to the industry as a whole. 'No man is an island' applies.
These proposed regulations under the Employment Agencies Act 1973 ('1973 Act') will replace the current regulations, which have been in force since 1976. They can be found at http://www.dti.gov.uk/er/agency/newregs.htm .
To understand the regulations (difficult!), it is first necessary to grasp the terminology used; 'employment agency' in fact means the business of introductions in return for a fee, where the hirer pays for the work direct - as generally happens with permanent placements; and 'employment business' means supplying 'persons' in the 'employment' of the employment business, to act for and under the control of someone else - hiring in-and-on, where payment is routed through the agency (s13, 1973 Act). Thus for Contractors, what we think of as 'agencies' are in fact 'employment businesses', within the meaning of the Act and the Regulations.
And it gets more complicated: 'employment' includes engagement under a contract for services (s13, 1973 Act), and 'person' includes a company (Interpretation Act 1978).
So far as this industry is concerned, it appears that when the regulations come into force, the main areas of impact are likely to be as follows:
1 The regulations clarify potential confusion in the Act and in the earlier regulations (made before use of limited companies became the norm - and indeed before this industry existed in anything like its current form) and make expressly clear that they will apply where the 'work-seeker' is a company, engaged to provide services (regulation 32) - subject only to the issue of a degree of control by the hirer (s13, 1973 Act).
2 Restrictions on Contractors (ie on going direct, or on going to the Client through another agency) will become unlawful and unenforceable (regulation 6). An agency's only recourse will be against the Client.
3 So far as Clients are concerned, the maximum length of such a restriction will be 14 weeks from the first day working under the contract, or (if later) 8 weeks from the last day - unless there is to be a change of agency, in which case the maximum length will be 4 weeks after the last day (regulation 10)
Restrictions operating so as to prevent Contractors changing agencies or going direct are at present subject to the body of law relating to restraint of trade - they are permissible and enforceable, to the extent only that they go no further than is reasonably necessary for the protection of legitimate commercial interests of the agency imposing the restriction. That is to be judged according to a background of case law, built up over the years.
Such restrictions tend to be unpopular with Contractors; however, they are at present part of the fabric of the industry - which as a whole 'works'. The body of case law currently governing such matters seeks to set a balance between the interests of all - Agencies, Clients, and Contractors. To my mind, that balance is (broadly speaking) in the right place. These changes will significantly shift that balance in an ill-considered way. They may help Clients, but at the expense of agencies losing business, possibly to the extent that a significant number may find it uneconomic to continue in business. And that would be a real loss, from which the industry as a whole would suffer.
These proposed changes, introduced under the guise of attempting to provide 'protection' for those using agencies, are likely to in fact cause significant changes in the industry, resulting in serious harm to those they claim to be setting out to protect.
Unlike in the case of IR35, it would be true to say that there has been a significant period for a consultation process. However, 'consultation' does not to my mind simply mean inviting others to comment; it also means listening to those comments, taking them on board, and revising proposals accordingly. Here, whilst the government has invited comment, it seems in many important areas to have ignored that comment.
The government shows a determination to proceed with these changes, whether or not the industry either wants or needs them, and despite the fact that by making the changes they will be significantly changing the legislative background against which an industry currently works effectively. The draft regulations, if brought into effect, will infringe that most basic maxim: 'if it works, don't fix it'.
The only way I can reconcile that in my own mind is to conclude that it is the government's intention to damage the Contracting industry. The government's 'impact assessment' in relation to IR35 stated that it was expected that some 60,000 companies would close as individuals switched from contracting back to employment. I am left wondering whether or not these regulations too are but another part of a process designed to try one more to create a nation of employees, all obediently paying taxes under PAYE, rather than one where the entrepreneurial spirit is fostered and encouraged, and where individuals have more control over their own lives and careers. No account is taken of those who have chosen contracting as a career. These changes may have been appropriate in the 1970's - but now, 30 years on, the world has changed.
9th
March 2001
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