Unions have long campaigned for agency workers to benefit from increased employment protection, while employers' organisations have stressed the importance to the UK economy of agency workers and the implications for business of imposing additional obligations on employers. Last summer, the Government, TUC and CBI reached a compromise deal to increase the rights of agency workers. Following on from this deal, the Government has now published their proposals (which it is intended would apply in Scotland, England and Wales) and has launched a three-month consultation.

The basic principle is that, after 12 weeks' work, agency workers should be entitled to equal treatment in terms of pay and "basic working and employment conditions", compared to their colleagues who have been directly employed or engaged by the hiring organisation (often referred to as the "end user"). To qualify for the protection, agency workers must be obliged to carry out the work personally, and would not be able to send a substitute to carry out work on their behalf.

But what does equal treatment actually mean? Under the proposals, agency workers would be entitled to equal treatment in relation to holidays, breaks, overtime, notice periods, etc. Equal treatment in relation to "pay" would include basic salary plus other contractual benefits directly linked to the work undertaken by the agency worker. This is likely to cover holiday pay, payment of overtime, shift allowances, unsociable hours premiums, and bonuses that are directly linked to individual performance. However, occupational social security schemes (such as sick pay and occupational pension rights) would be excluded.

Clearly, the equal treatment concept could prove expensive for employers who regularly engage agency workers, and may lead some employers to question the viability of continuing to engage agency workers in the first place.

End user companies may take some comfort from the proposal that primary liability for any failure to provide equal treatment to agency workers (other than in relation to "day one" rights) will lie with the agency. However, it is unclear how, in practice, an agency can be expected to be aware of the pay and working conditions that its customers offer to their employees. If the end user fails to provide accurate information, an employment tribunal could bring the end user into any tribunal claim and potentially release the agency.

The main cause for concern for employers who engage agency workers is the likelihood that agencies will inflate the cost to customers of engaging agency workers in response to the increased financial risk that they may face in placing them on longer assignments. In the oil and gas industry, agency workers are often amongst the most experienced workers in the industry and command high daily remuneration rates. If the cost of providing such workers to customers is inflated by agencies, the engagement of such workers could become uneconomic.

We may begin to see an increasing number of contracts with agencies being made through the medium of limited companies or personal service company arrangements, in order to avoid coming within the definition of "worker" under the proposals.

Agency workers may also find it harder to secure longer term assignments if employers seek to avoid additional costs and administration by only engaging them on shorter-term assignments. Will that lead to an "11 week churn", in which employers try to ensure that no agency workers clock up 12 weeks' continuous engagement? Such rapid turnover of staff would be an administrative nightmare for many and likely to impact adversely on standards of work or service to customers.

The Government must implement the Agency Workers Directive by 5 December 2011. Should the current proposals become law, they could blur the important distinction between an agency worker and "employee" and are sure to pose new challenges for businesses. For those wishing to input into the consultation, the deadline as currently scheduled is 31 July 2009.

Kim Pattullo is a partner specialising in employment law with leading UK law firm Shepherd and Wedderburn LLP.

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