Engaging temporary workers can be a costly business

Due to shortages in the labour market, and the flexibility it affords, businesses are increasingly using temporary workers supplied by employment agencies to fill gaps in their workforce.

The supply of temporary workers is usually governed by the employment agency’s standard terms and conditions, which often provides for payment of a transfer fee (also known as a temp-to-perm fee) if the hirer engages the temporary worker direct, or in other circumstances, within prescribed periods. 

Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 defines a transfer fee as “any payment in connection with the work-seeker (the temporary worker) taking up employment with the hirer or in connection with the work-seeker working for the hirer pursuant to being supplied by another employment business”. 

There are 3 scenarios that may give raise to a transfer fee being claimed by the agency: 

1. Temp-to-perm

If the hirer directly engages the temporary worker.

2. Temp-to-temp

If the hirer engages the temporary worker via a different agency. This often occurs where another agency has offered to supply the same temporary worker/s on more attractive terms.

3. Temp-to-third-party

If the hirer introduces a temporary worker to a third party who engages the temporary worker. This often occurs where the temporary worker has been engaged by a company connected with the hirer.

Limited protection for hirers 

Whilst Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 offers some protection for hirers, it is important to note that this Regulation does not ban the use of transfer fees, rather, it aims to restrict them. 

Regulation 10 provides:

• temp-to-perm fees and temp-to-temp fees cannot be enforced against a hirer unless the contract provides that, instead of paying a fee, it may by notice to the agency elect for an extended hire period, of such length as is specified in the contract, during which the temp must be supplied on terms no less favourable than those which applied immediately before notice was given. In short, this means that the contract must allow the hirer to elect for an additional period of hire instead of paying a transfer fee.

Further, the agency cannot charge a transfer fee, in any of the 3 scenarios referred to above, after whichever is the latest of either;

• 8 weeks from the end of the assignment; or
• 14 weeks from the first day of the assignment.

Transfer fees can be substantial.  It is not uncommon for such fees to be based on 25% of the temporary worker’s renumeration or 250 x the hourly rate payable by the hirer to the agency.  As can be seen below, in the case of numerous transfers, the cost can be enormous but, with careful consideration, can be avoided altogether. 

Transfer of Undertakings (Protection of Employment) 2006 (TUPE)

Hirers should also be aware of transfer fees in relation to TUPE transfers. The First Personnel Services Ltd v Halfords case has shown that hirers are not necessarily free from transfer fees if the transfer occurs by virtue of TUPE. First Personnel had inserted clauses into their agreement stipulating that transfer fees would be payable despite the situation being a TUPE transfer. Therefore, it was held that Halfords were liable to pay a transfer fee in excess of £550,000 because they had transferred staff to another agency. This constituted a ‘temp-to-temp’ transfer. 

To avoid paying the transfer fees, Halfords could have either elected for an extended period of hire or timed the transfer so as to avoid transfer fees altogether.

Key takeaways for businesses:

1. Take extra care and read the small print when entering into contracts with agencies and also when considering whether to engage a temporary worker other than through the introducing agency. Time it right!
2. Even better, try and negotiate more favourable terms at the outset;
3. Ensure everything is recorded in writing, especially any variations to the agency’s standard terms and conditions before any supply commences, and ensure that you comply with any “Variation” clauses;
4. If in doubt, seek advice.

This article was written by Richard Payne a Senior Associate in our Commercial Dispute Resolution Department and Yasmina Bugel.