‘Swedish Derogation’ Contracts to Come Under Scrutiny in 2018

What is a ‘Swedish derogation’ contract?

A ‘Swedish derogation’ contract is the popular term that has come to describe a specific type of agency worker contract which complies with regulation 10 of the Agency Workers Regulations 2010 (AWR). In relation to certain employment conditions, the AWR provide agency workers with the right to receive at least equal treatment with what they would receive if they were engaged directly by the client they are supplied to work for, to do the same job.

Regulation 10 of the AWR gives an exception to this principle of equal treatment in relation to pay. It states that agency workers who have a permanent contract with their agency (an employment contract with full employment rights), which provides for them to be paid between assignments, are entitled to equal treatment regarding some employment conditions but not pay. This was believed to be based on a practice used in Sweden – hence the name Swedish derogation.

Why has it come under fire?

Since the AWR has come into force, the use of ‘Swedish derogation’ has often been referred to as a ‘loophole’ or a case of agencies not complying with the law. The reality is that the use of the contracts is expressly permitted under the legislation.

However, this year we expect there to be a spotlight on Swedish derogation contracts for the following reasons:

• Sir David Metcalf (the Director of Labour Market Enforcement) gave evidence to the joint BEIS and DWP Select Committee last year and amongst other things said about the ‘Swedish derogation’: “Either we enforce it or we abolish it. It's not enforced at present. Basically workers sign their rights away but they never get the pay between assignments.”

• Towards the end of last year, the two select committees referred to above (DWP and BEIS), released a joint report together with a draft bill which includes a proposal to end the use of ‘Swedish derogation’ contracts.

• In Good work: the Taylor review of modern working practices, which was published last October, Matthew Taylor recommended that: 'The Government should repeal the legislation that allows agency workers to opt out of equal pay entitlements. In addition, the Government should consider extending the remit of the EAS Inspectorate to include compliance with the AWR.’

• It was expected that the government would issue its response to the Matthew Taylor review last year but this was delayed and the response is now due to be issued sometime in January this year. We expect to see a series of consultations announced including one about the ongoing use of the ‘Swedish derogation’.

For a detailed explanation of ‘Swedish derogation’ contracts, please see the January/February edition of the Legal bulletin. The REC will keep members informed with updates on Swedish derogation contracts. We encourage members to also check our legal news feed.