Opt in, opt out? What the agency regs are all about

Q: Why were the Agency Regulations (The Conduct of Employment Agencies and Employment Business Regulations 2003) introduced?

A: In the Explanatory Note to the Regulations, it states they were introduced to “make provision to secure the proper conduct of employment agencies and employment businesses and to protect the interests of persons using their services.”

The original DTI guidance to the Regulations states they were to “govern the conduct of the private recruitment industry and establish a framework of minimum standards that clients, both work seekers and hirers, are entitled to expect”.

In short, they were introduced to keep the private recruitment industry in line and to protect vulnerable work-seekers.

Q: Is there a specific type, or status of worker which the Regulations are aimed at?

A: They are primarily aimed at individuals seeking permanent or temporary work, although there are specific provisions which include limited company contractors/freelancers.

Q: How does it come about that (limited company) freelancers working through employment agencies are asked to opt in or opt out of the Regulations?

A: The opt out was designed originally to give a choice to highly skilled, professional personnel in the IT and finance sectors who wanted to operate as limited companies due to tax advantages but may not have wanted to be governed by the Regulations.

Q: Why might agencies request that the contractor/freelancer opts out? Are agencies legally entitled to try to influence a contractor’s decision to opt out, or in?

A: There are many reasons for requesting an opt-out. The Regulations limit attempts to restrict workers after the end of the contract which means that the agency is at risk of these individuals, their customers, working direct and cutting them out. In addition under an opt-in, the freelancer must be paid, even if the client does not pay or sign a time sheet.

Also the agency, where a worker has opted-in, is required to agree terms in writing before the contract. Plus, there is the potential administrative burden on the agencies placed on them by the Regulations to check suitability and to ensure this suitability is maintained after placement. However, agencies should not try to influence whether or not the freelancer opts out and cannot make this a requirement (see Regulation 32(13)), no matter how strongly they claim to the contrary!

Q: What are the tangible advantages of opting in to the regulations? And what protections or assurances could a contractor/freelancer benefit from if they opt in?

A: As mentioned, the Regulations require terms of any placement to be confirmed in writing, prevent any contractual term stating that the freelancer cannot work direct, and require payment to be made even if the client does not. These are just a few of the advantages of opting in that contractors report.

Q: What are disadvantages of opting in to the regulations? Or what are the perceived benefits of opting out?

A: Opting out gives greater flexibility. You do not need to ensure that the agency has sufficient information under the Regulations about your skills to place you in the first place which can be a cumbersome and time consuming process.

There is also an argument that if you do not opt out this may cause issues with regard to IR35 because the Regulations only apply to a worker who is under the “control” of the end user and by not opting out the freelancer/contractor is essentially saying that they are under control. Control is an indication of employment, a test for which underpins an IR35 assessment. Despite this, in my experience, opting out of the Regulations is agency driven, and in some cases a requirement so that the agencies can avoid the more problematic issues the Regulations cause. Make sure you read Part 2 of these FAQs for more detail on  opting-in/out and IR35.

Q: Are there any problems that might confront the freelancer subsequent to opting in or opting out?

A: If the opt out is provided after “introduction or supply” [of the work-seeker] it is not valid. It will only apply in respect of subsequent (new) contracts. In my experience, few agencies arrange for an opt-out to be signed before an introduction to the client - so many opt outs are worthless and the Regulations apply. Often however this is a problem for the agency and of benefit to the freelancer.


Answers, as told to Freelance UK, by David Buckle, head of the employment practice at Cubism Law.

 

10th December 2010

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