Recruiters threatened by Employment Agencies Act

Of particular relevance to the IT sector are proposals to prevent recruitment agencies from putting limitations on the relationship between some contractors and its clients.

Under current legislation, contractors who are registered as limited companies are not covered by the same laws as other general temporary staff. This means that recruiters can manage the relationship between these contractors and its clients more carefully. For example, an agency can ask a contractor to sign an exclusivity agreement stating that they will only work with named clients through that agency.

If the EAA is implemented in its current form, these agreements would become illegal. Limited company contractors would be free to negotiate with an agency’s client for a separate contract at any point. Agencies would then lose fees they would otherwise have earnt from a contractor placement.

Although this might benefit contractors themselves, Fiona Coombe, Head of Legal Services of the Recruitment and Employment Consortium said that the effect on agencies would be less positive.

‘Agencies generally place limited company contractors into longer assignments, as it takes around 12 weeks to recoup the cost of finding them a placement,’ she said.

With the new arrangements, there would be no way of ensuring that a contractor remains working for the recruiter over the term of an assignment, resulting in an income shortfall.

The REC supports leaving limited company contractors outside the scope of the regulations. ‘The regulations are there to protect employees who can’t protect themselves. Limited company contractors are knowledgeable business people who don’t need that sort of support,’ said Coombe.

Despite the concerns of the REC, a spokesman for the DTI feels that the changes are necessary. ‘The EAA overhauls a number of areas that haven’t been reviewed for more than 25 years. It’s time these were re-addressed.’ he said. ‘The new Act will give businesses more flexibility.’

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