The Trades Union Congress (TUC) has lodged a formal complaint with the European Commission against the UK government for failing to implement the Temporary Agency Workers Directive properly, leading to tens of thousands of agency workers being paid less than permanent staff doing the same job.
The TUC complaint says that the UK government's flawed implementation of the EU Directive has allowed the abuse of the so-called 'Swedish derogation' - where employment agencies routinely pay agency workers far less than permanent staff doing the same job.
The TUC has gathered evidence from workplaces where agency staff are paid up to £135 a week less than permanent staff, despite working in the same place and doing the same job.
Under the UK's regulations, agency workers are entitled to the same pay and conditions as permanent staff doing the same job after 12 weeks. However, a Swedish derogation contract exempts the agency from having to pay the worker the same rate of pay, as long as the agency directly employs individuals and guarantees to pay them for at least four weeks during the times they can't find them work.
In Sweden, where these contracts originate, workers still receive equal pay once in post and 90 per cent of normal pay between assignments. However in the UK workers have no equal pay rights and are paid half as much as they received in their last assignment, or minimum wage rates, between assignments. Agencies can also cut their hours, so they may receive as little as one hour of paid work a week.
Evidence gathered by the TUC shows that Swedish derogation contracts are used regularly in call centres, food production, logistics firms (lorry drivers working out of retail warehouses), and some areas of manufacturing.
The Temporary Agency Workers Directive was implemented in the UK in 2011 as part of Europe-wide legislation to give equal treatment to agency workers. At the time, business lobby groups warned that the legislation would lead to heavy job losses. But as with the minimum wage, their predictions proved to be completely wrong, and the number of agency workers has increased despite the recession. Agency working in the UK has increased by 15 per cent since the recession, faster than any other form of employment.
The Directive said that countries must prevent the misuse of Swedish derogation contracts. The TUC believes it has evidence that the UK government has failed to provide adequate protection for agency workers and that the right to equal pay is being widely flouted. Swedish derogation contracts should therefore be banned, says the TUC.
The number of workers on Swedish derogation contracts has grown rapidly since 2011. Around one in six agency workers are now on these contracts, according to a report from the Recruitment and Employment Confederation.
Employer organisations are often keen to praise the flexibility of these employment contracts but the reality for many thousands of workers is job insecurity, a lack of basic rights at work and, in the case of many agency workers, pay rates far below that of colleagues who have permanent contracts, says the TUC.
The TUC believes that the growing exploitation of agency workers on Swedish derogation contracts, along with the rise of zero hours contracts and involuntary temporary work, show that behind improving employment statistics lies an increasingly insecure and vulnerable workforce. Unless the government acts to protect workers, the jobs market will continue to be dogged by low-wage, insecure jobs, says the TUC.
TUC General Secretary Frances O'Grady said: "The recent agency worker regulations have improved working conditions for many agency workers without causing job losses. Yet again business organisations have been proved completely wrong in claiming that decent rights at work cost jobs.
"However, the regulations are being undermined by a growing number of employers who are putting staff on contracts that deny them equal pay. Most people would be appalled if the person working next to them was paid more for doing the same job, and yet agency workers on these contracts can still be treated unfairly.
"When even Conservative MPs complain about the 'Swedish derogation' you know it is time for the government to toughen the law. That's why we are calling on the European Commission to investigate the problem and take steps to prevent the abuse of agency workers in the UK.
"Swedish derogation contracts are just one more example of a new growing type of employment that offers no job security, poor career progression and often low pay. People are often unable to plan and budget from one month to the next, energy bills are a struggle and home ownership is a pipe dream."
She concluded: "The government should ignore the inevitable bleating from business that will follow the TUC's complaint and finally do something to help ordinary workers."