Clarity regarding the Swedish Derogation Model

Wednesday 23rd January, 2013
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It has been 15 months since the Agency Workers Regulations came into force in 2011 and thanks to the ruling delivered by the Employment Tribunal in the Bray & others v Monarch Personnel Refuelling (UK) ltd only last December, we finally have some clarity on the application of Regulation 10, also known amongst practitioners, as the 'Swedish Derogation Model'. This refers to the worker forfeiting his right to equal pay which he would be entitled to after working for a hirer for a qualifying period of 12 weeks (Regulation 5), in return for 'pay between assignments'.

To qualify for this exemption or derogation from equal treatment provisions of pay (and holiday pay), the agency needs to offer a permanent contract of employment to the worker before the start of the first assignment and must contain a statement to the effect that on the lapse of the 12 week qualifying period, the agency worker will not receive the same rate of pay as that given by their hirer to a comparable direct employees.

What came under the scrutiny of the Employment Tribunal (ET) was precisely the meaning or rather the correct interpretation and application of the opening words of Regulation 10 (1) (a):-
"The contract of employment was entered into before the beginning of the first assignment under that contract and includes terms and conditions in writing relating to....."

In very brief terms the basic facts of the case were as follows:-

Monarch Personnel Refuelling UK limited (the respondent) supplied agency workers (tanker drivers) to a long-standing client, BP. The agency workers, including the claimants worked alongside BP direct employees. With the exception of only one of the drivers, all had been repeatedly assigned to work for BP over the last two years. BP direct employees were paid a premium over that paid to agency workers which premium was carefully monitored by the union on site. BP was in a dilemma because if it increased the agency workers pay to comply with Regulation 5 it believed it would face pressure from their own unionised workforce to restore the differential over the agency workers.

Having taken advice BP's decision was to terminate current assignments of agency workers, and to offer fresh assignments under a 'Swedish derogation' contract. Following a series of one-to-one discussions held by and between the respondent and the claimants, all claimants were notified in October that the current assignments under the existing contract will terminate on the 30th of November and that the new assignments will commence on the 1st of December under a new contract.

The Claimants began the new assignments but subsequently brought claims against the respondent arguing that they were entitled to equal pay because the contract was not compliant with Regulation 10 since it was entered into after the beginning of their first assignment with BP which had begun months before. The ET considered the following questions:-

What is an 'Assignment'?

An assignment is not the entire continuous period during which agency workers had been hired out to BP. It is a defined is period of time. There were a number of assignments which made up the total period working for BP.

The tribunal accepted that the first assignment under the contract, i.e. the Swedish Derogation contract, began on the 1st December.

When was the Swedish Derogation contract entered into?

All claimants were given the contract terms before 1 December and it was made very clear to them that come 1st December they will be working under new terms, namely the Swedish Derogation Model. The new assignment was offered on this basis.

The tribunal found that the Swedish derogation contract was entered into at the latest:

  • on the date they signed it where before the first assignment or
  • when they showed up for work on 1 December, since it was made clear that they would not have been able to continue working for BP without agreeing to the new terms.

What is 'that contract' for the purpose of Regulation 10?

The ET gave clear guidance on this, namely that it simply refers to the contract of employment in force at the time of the first assignment. What is important is that it has to be entered into at the time of or before the first assignment. Whether it is an existing contract, a variation or a new contract doesn't make any difference, as long as the contract contained the specific provisions required in Regulation 10. Hence, the introduction of a Swedish derogation model does not need an entirely new contract but that existing contracts can be varied to satisfy the provisions laid down under Regulation 10 before the start of the first assignment under the Swedish Derogation terms.

The tribunal further rejected a claimant's argument that Regulation 10 should apply to agency workers who are moving between hirers and that the Swedish derogation cannot be superimposed onto an existing employment relationship between an agency and agency worker during the course of an agency worker continuously working for one hirer. Regulation 10 should therefore not be confined to fresh offers of agency work but can be applied to existing agency work situations.

Given the widespread debate that the Agency Work Regulations caused in the employment industry, the interpretations provided in this case have provided some comfort and direction on the engagement of agency workers by Agencies and others involved the supply chain of contractors.

To conclude, the key messages that came to the fore with respect to the Swedish Derogation Model are the following:-
(i) Review contracts and check that the terms are compliant with the specific provisions of Regulation 10 of the Agency Worker Regulations
(ii) Make sure that the agency worker clearly understands that he would be waiving his right to equal pay. The recommendation would be to have one-to-one meetings ahead of the start of the assignment.
(iii) Keep your paper work in order and therefore be clear when current, new or next assignments start and end. It is pertinent that all documents are properly dated and that contracts are entered into at the right time.
(iv) If in doubt, before you switch to the Derogation Model, it would be best to leave a break between the current assignment and the first assignment on the Swedish derogation terms. This will give you time to get the contract of employment signed under the new terms before the beginning of such assignment
(v) Clearly explain the rate of pay between assignments which would be 50% of the highest wage earned in the previous 12 weeks, subject to the national minimum wage.
(vi) Lastly, bear further in mind that the contract of employment may only be terminated upon the agency worker receiving at least four week's pay.



Given the widespread debate that the Agency Work Regulations caused in the employment industry, the interpretations provided in this case have provided some comfort and direction on the engagement of agency workers by Agencies and others involved the supply chain of contractors.