Revised Conduct Regulations – opt out retained and reduced requirements for job boards

Mon, 8 Mar 2010 | By Bridget Wood

With many recruiters beginning to emerge from the impact of the recession, the recruitment sector could be forgiven for responding to proposals for regulatory changes with a collective sigh. However, despite the sentiment in the sector, changes to the Conduct of Employment Agencies and Employment Businesses Regulations 2003, the Regulations which govern the conduct of the private recruitment industry and set minimum standards for staffing companies, are planned to come into force on 1 October 2010 following the completion of the Department for Business, Innovation & Skills’ (BIS) recent consultation on the regulation of the sector.

Summary of key changes
· retention of the opt out
· reduction of regulatory burdens for online recruiters and agencies
· removal of requirement on agencies to agree terms with candidates and clients
· clarity in advertisements
· no reintroduction of a licensing regime
· introduction of a ’reasonableness’ test for transfer fees and extended periods of hire

Retention of the opt out
Company contractors have had the ability to opt out of the application of the 2003 Conduct Regulations since their introduction in 2004. This means that recruiters do not have to comply with the Regulations and the contractors lose the protections (such as the right not to be restricted from providing services via a competitor of the recruiter or to a competitor of the recruiter’s client) afforded by the Regulations.

In its consultation paper, BIS opened the debate on the potential removal of this opt out because there appeared to be evidence that vulnerable workers, particularly umbrella workers, were suffering a detriment through opting out.  Having spent years educating clients and contractors about what opting out means and developing elements of their business models which rely on the operation of the opt out (for example, the use of the restrictions described above and reduced administration),many recruiters feared the impact of the removal of the opt out. However, the consultation responses provided no significant evidence of the risk perceived by BIS and consequently the opt out is to be retained. Recruiters will be cheered by the retention of the opt out, but it is important to remember some key issues:

· timing
· inform the client
· no control.

Timing: notice of agreement to opt out of the application of the Conduct Regulations must be given by the company contractor and the individual consultant who will perform the services before the recruitment company introduces or supplies them to the client. Many recruiters find obtaining opt out notices at the right time an administrative nightmare. However, failure to obtain an opt out at the right time will make it invalid, potentially exposing the recruitment company to breaches of the Regulations (which are criminal offences). This might also prevent the recruitment company from, for example, placing client-required restrictions on the contractor or charging the client temp-to-perm and temp-to-temp fees.

Inform the client: remember that you must also inform the client of the opt out before you introduce or supply the contractor and consultant to the client.

No control: if the contractor does not work under the control of the client, the Regulations will not apply. This will be the case, for example, for highly skilled contractors. Most recruiters take a belt and braces approach and obtain opt outs even when the client does not control the contractor. However, particularly where an opt out may not be valid (because, for example, it was not given early enough), it is worth ensuring that opt out notices contain wording stating that the opt out does not constitute an admission that the Conduct Regulations apply or that the client controls the contractor.

This is a technical area and requires a detailed understanding of the relevant law and procedures. If you have any concerns about your current procedures for obtaining opt outs or are considering putting such processes in place, we recommend that you take appropriate legal advice.

Reduction of regulatory burdens for online recruiters and agencies
Many online recruiters and job boards challenge whether they must comply with the Conduct Regulations. However, BIS regards these online providers as being within the scope of recruitment sector legislation. In recognition of the nature of the role such providers play, BIS proposes that online recruiters, job boards and ’traditional’ agencies that place candidates in permanent jobs with employers will no longer be required to carry out candidate suitability checks.

BIS’s intention behind the proposed changes is to remove duplication and the burden on agencies of carrying out checks (such as entitlement to work in the UK) that often employers are required by law to undertake, as well as allowing the online sector to continue to grow and innovate.

Agencies that place employees in jobs where they work with vulnerable people, and recruitment companies that have contracts with temporary workers and contractors to perform services for clients on temporary assignments (called employment businesses in the Regulations) will still have to carry out suitability checks.

Overall this is good news for online providers for which compliance with the requirement to undertake such checks is virtually impossible. However, the ’traditional’ agencies will probably continue to carry out these checks because this is what clients expect from their service.

Removal of requirement on agencies to agree terms with candidates and clients
Currently the Regulations require recruitment companies that place candidates in permanent jobs with clients (called agencies in the Regulations) to agree terms with candidates before seeking roles for them and before introducing candidates to clients. These requirements will be removed in 2010. However, employment businesses will still have to agree terms with candidates before looking for temporary assignments for them and with clients before introducing temporary workers to them.

Clarity in advertisements
From October 2010, recruitment companies will no longer have to state in advertisements whether the services they are advertising are those of an “agency” or an “employment business”. Instead the recruitment company will have to state whether a position is “permanent” or “temporary”. Candidates (and recruiters) are far more likely to understand these terms.

No reintroduction of a licensing regime
BIS considers that reintroducing a licensing regime would be an unnecessary additional regulatory burden for the recruitment industry. BIS intends to focus instead on prioritising effective enforcement of the Regulations.

Recruitment companies and individuals that fail to comply with the recruitment sector legislation are committing criminal offences and the penalties can be high, including being prohibited from running a recruitment business for up to 10 years. Our experience is that BIS’s enforcement body, the Employment Agency Standards Inspectorate (EASI), often takes a pragmatic view on minor procedural breaches and will give an infringing recruitment company the opportunity to become compliant within a certain time period before taking any further action.

The EASI must by law investigate all complaints made against recruitment companies and sometimes the EASI selects recruitment companies at random for a compliance audit. None of the recruitment companies we have helped when being investigated by the EASI have been prosecuted, and so let us know if you need advice on an investigation or would like us to audit your business to ensure compliance were you ever to come under the EASI’s radar.

Introduction of a ’reasonableness’ test for transfer fees and extended periods of hire
Regulation 10 regulates how recruitment companies charge ’transfer fees’, including temp-to-perm and temp-to-temp fees, and the client’s alternative to payment of these two types of fees of an ’extended hire period’. In a separate consultation on the implementation in the UK of the Agency Workers Directive (see this link for further information on implementation of the Directive: http://www.bllaw.co.uk/PDF/RR_AWD_what_do_the_proposals_mean_0509.pdf), BIS concluded that these fees and the alternative of an extended period of hire of the relevant worker or contractor should both be required to be “reasonable”.

We would not normally recommend that you amend your terms and conditions ahead of the introduction of final legislation. In addition, these fees and periods are usually agreed between the recruitment company and the client, they reflect industry practice and generally cover the loss of the ability to earn a margin that the recruitment company will suffer as a result of the worker or contractor providing services directly to the client or via another recruitment company: one would thus expect the fees and extended hire periods to be deemed reasonable. However, it can do no harm to tighten relevant provisions in client contracts now. This would include, for example, adding an acknowledgement from the client that the transfer fees and hire periods are reasonable.

This type of provision will, ahead of any amendment to Regulation 10, assist in ensuring that these clauses comply with the general law on unlawful restraint of trade which requires provisions of this nature to go no further than is necessary to protect the recruitment company’s legitimate business interests and must therefore be reasonable in order to be enforceable.

Conclusion
Many providers of online job boards will be disappointed that BIS is maintaining its view that job boards are regulated by the recruitment sector legislation. However, the burden of compliance for job boards has been significantly reduced. BIS recognises that the online world is constantly evolving and intends to continue to monitor the situation and maintain a dialogue with online providers.  

Overall the proposed amendments to the Regulations are good news for recruitment companies, particularly the retention of the opt out and reduced burdens for permanent recruiters.

If you would like more information on the proposed changes to the Regulations and their likely impact on your business, please do not hesitate to contact us.

Bridget Wood is recruitment partner at law firm Blake Lapthorn