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A Review of Licensing Arrangements for Labour Hire Firms
Report prepared for the National Union of Workers
Dr. Elsa Underhill
Deakin Graduate School of
Business Deakin
University December 2013
1
Contents
1. INTRODUCTION.............................................................................................................................2
2. KEY FEATURES OF MORE EFFECTIVE LICENSING SYSTEMS.............................................................4
2.1 Licensing systems which do not create barriers to entry do not offer protection to agency workers’ employment conditions...................................................................................................4
2.2. Licensing systems which incorporate agency worker specific employment practices are increasingly commonplace.............................................................................................................4
2.3 Licencing systems can create barriers to entry without improving employment standards, if other legal protections for agency workers do not exist.................................................................5
2.4 Penalties for breaches of licensing requirements have to balance penalties for non-compliance against incentives to circumvent licensing......................................................................................5
2.5 Licensing systems are increasingly imposing penalties upon host employers, as well as agencies........................................................................................................................................6
3. PRINCIPLES OF LICENSING ARRANGEMENTS, AS PROMOTED BY THE ILO........................................8
3.1 Benefits of licensing arrangements...........................................................................................8
3.2 Minimum requirements of an agency’s personnel....................................................................9
3.3 Licensing arrangements that exclude the provision of agency work from specified sectors.......9
3.4 Complying with employment related laws..............................................................................10
3.5 Providing information to workers...........................................................................................10
3.6 Reporting requirements.........................................................................................................10
3.7 Enforcement and sanctions....................................................................................................11
3.8 Administrative costs & processes............................................................................................12
3.9 Assurances on financial capabilities........................................................................................12
4. OVERVIEW OF LICENSING ARRANGEMENTS IN SPECIFIC COUNTRIES............................................13
4.1 Japan.....................................................................................................................................13
4.2 Singapore......................................................................................................................................17
4.3 South Korea...........................................................................................................................21
4.4 United Kingdom.....................................................................................................................25
4.5 United States of America........................................................................................................27
REFERENCES....................................................................................................................................30
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1. INTRODUCTION
This review of licensing arrangements for labour hire employers examines the general principles of
licensing for labour hire agencies, hereafter referred to temporary work agencies, and the
application of licensing arrangements in the Asian region (Japan, Singapore and South Korea), the
United Kingdom (UK) and the USA. It also draws upon the findings of the International Labour
Office’s guidance material on essential characteristics of licensing arrangements.
The objective of the review is to determine how effective various licensing arrangements have been
in improving employment conditions for temporary agency workers. This has proven to be a
complex task. The introduction of a licensing system would be expected to create barriers to entry,
thereby reducing the number of small and disreputable temporary work agencies, but data is not
available on the number of licensed agencies in the countries reviewed. A licensing system would
also be expected to result in penalties being imposed and licences revoked when licensing conditions
are breached; but this data is also not available. Nor have country-based studies been completed on
the effectiveness of licensing arrangements.
In the past decade, a significant number of countries have either introduced licencing arrangements,
or strengthened the requirements of existing licencing schemes. The former includes most EU
countries, where licencing has gone hand-in-hand with implementation of the EU Directive on
Temporary Agency Workers. The latter includes the Japan, Singapore and South Korea. The licensing
arrangements in these three countries were increasingly seen as ineffective. Public concerns about
the rapidly growing temporary agency workforce and their poor working conditions contributed to
legislative change to strengthen licensing systems. For Japan, additional pressures flowed from ILO
Committee of Experts Reports on Japan’s compliance with the convention on agency work. The
licensing systems for these three countries can be regarded as more mature systems which have
been amended to offer more effective protections for agency workers. Unfortunately, however,
most changes to their licensing systems have been introduced in the past two-three years, and have
not yet been evaluated by local observers (who are best placed to identify changes at a national
level). General observations can nevertheless be drawn from the ways in which these systems have
been amended to overcome weaknesses in arrangements. After reviewing the operation of licensing
arrangements in these countries, it has become clear that licensing is regarded only as a means to an
end, and not an end in itself. Its effectiveness is intricately related to the nature of the labour laws
which the licensing system supports.
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The report consists of four sections. In Section 2 the key features of more effective licensing
systems, distilled from the examination of the five country experiences, are summarised. Section 3
presents the main characteristics of agency licensing systems in general, based primarily upon
guidance material provided by the ILO. In Section 4 the licensing systems of Japan, Singapore, South
Korea, the UK and the USA are detailed. This includes short contextual information to better
understand the objectives of their licensing systems, the reasons for strengthening those systems
(where applicable) and commentary upon their effectiveness where available.
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2. KEY FEATURES OF MORE EFFECTIVE LICENSING SYSTEMS
A significant number of countries have introduced licensing systems for employers of temporary
agency workers, or amended existing licensing arrangements, in recent years. The key features
summarised here have been distilled primarily from recent changes introduced to overcome
weaknesses in pre-existing licensing systems. In this way, they provide information based on systems
which have been progressively refined and improved following concerns (often public outcry) about
the ineffectiveness of earlier systems.
2.1 Licensing systems which do not create barriers to entry do not offer
protection to agency workers’ employment conditions.
Barriers to entry can take several forms. They can include capital bonds, restrictions based on past
breaches of labour law, and minimum experience and training qualifications of agency personnel.
Licensing systems which only require the supply of key information from the licensee, such as
contact details, are ineffective in improving agency workers’ pay and employment conditions. In the
UK, for example, a licensing system was established in 1973 which involved little more than
administrative information from the agency, coupled with restrictions on fees charged to workers. It
did not create an effective barrier to entry, rather it was more akin to a simple business registration
process. The industry structure of temporary agency work in the UK subsequently developed in a
way similar to Australia – a large number of small-medium firms. Agency workers continue to have
employment and enforcement problems similar to that experienced in Australia.
2.2. Licensing systems which incorporate agency worker specific
employment practices are increasingly commonplace
Requiring licensees to observe specific practices in relation to agency workers provides additional
leverage for improving and enforcing protections for agency workers. Such requirements can include
restrictions on durations of placements, prohibitions on placing workers as strike-breakers, and
restrictions on synchronised placements (where the agency worker is only employed for the
placement). In the European Union (EU), and for countries which have ratified ILO Convention 181,
the requirements extend to a wide range of employment practices, including those related to
minimum wages and collective bargaining. These requirements are increasingly being incorporated
into the Acts which govern licensing, rather than the Acts governing labour law more generally. In
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the past 25 years, Japan, for example, has shifted from a general prohibition on agency work
through to freeing up practices and eventually reintroducing some of the earlier restrictions. Initially
agency placements were capped at 3 years duration, and agencies could operate across most
industries and occupations. Host employers found ways to get around the 3 year placement limit,
and agency employment grew rapidly. In response to public outcry (stable employment has a
stronger cultural base in Japan), and complaints by unions to the ILO, Japan has reinstated some of
the earlier constraints on agency employers, including requiring some categories of fixed-term
agency employees to be converted to permanent employment. As these changes only occurred in
March 2012, it is too soon to evaluate their effectiveness.
2.3 Licencing systems can create barriers to entry without improving
employment standards, if other legal protections for agency workers do not
exist
Not all agency licensing systems are intended to provide employment protections for agency
workers. In Singapore, the 2011 amendments to the licensing system introduced capital bonds and
minimum competency requirements. These would be expected to reduce the number of agencies
and improve the standard of services provided. However, the licensing system is intended primarily
to stem the large inflow of foreign workers brought in by illegal operators. It is not intended to
directly improve the employment standards of foreign agency workers who are still not entitled to a
statutory minimum wage. Their employment standards may gradually improve as the supply of
cheap foreign labour diminishes, but licensing itself does not include compliance with minimum
employment standard.
2.4 Penalties for breaches of licensing requirements have to balance
penalties for non-compliance against incentives to circumvent licensing
There are two aspects to this balancing of penalty arrangements. On the one hand, if penalties are
too low, they do not provide a disincentive to operating illegally. Up until 2011, penalties in the
Singaporean licensing system, for example, had dropped in real terms to levels which were regarded
as trivial. The 2011 amendments increased penalties for operating without a licence from S$5000 for
a first offence to up to S$80,000 (approx. A$70,200) and/or up to two years imprisonment. The
maximum fine for repeat offenders increased to S$160,000, and/or up to four years imprisonment.
Likewise, in Japan, the enforcement system rests upon education processes, or ‘correctional
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guidance’. With no clear evidence of a decline in violations of the laws, both the JTUC-RENGO and
the ILO have questioned the effectiveness of this process.
On the other hand, if restrictions are seen as excessive, organisations will operate outside of the
licensing system. The clearest example of this is in South Korea, where manufacturers have
responded to a ban on placements in manufacturing by creating in-house contracting arrangements.
In 2012, Hyundai admitted such an arrangement was in fact illegal agency work. Other companies,
however, continue to operate with in-house contracting rather than comply with regulations placed
upon licenced agencies.
A study of the effectiveness of different forms of penalties is beyond this review. However it is
interesting to note that in EU countries, monetary fines (typically 3,000 to 30,000 euros) are the
most common sanction. In the Netherlands, criminal sanctions were repealed in 2012 and replaced
with administrative fines, justified on the basis that known financial penalties offered a more
effective deterrent to fraudulent activities than criminal sanctions. In Belgium, by contrast, the risk
of loss of license is regarded as a fairly effective sanction when agencies breach employment laws
(Schomann & Guedes, 2012). It is likely that the effectiveness of different penalties is to some
extent culturally bound.
2.5 Licensing systems are increasingly imposing penalties upon host
employers, as well as agencies
Licensing systems which have undergone amendments in recent years have typically extended their
coverage to include penalties upon hosts. Penalties may apply when hosts knowingly use unlicensed
agents, or knowingly use agency workers in ways which breach the licensing requirements of the
agent with whom they have contracted. This represents a clear acknowledgement of the nature of
triangular relationships which underpin agency work.
Singapore introduced penalties for hosts in 2011, and the first advertised prosecution under their
new regulations involved a penalty imposed on the host for using an unlicensed agent. In South
Korea, hosts have been subject to penalties since licensing began in 1998, however amendments
enacted in 2010 introduced a new penalty whereby the host is deemed to be the employer of an
agency worker on a permanent basis (subject to the agreement of the worker) when the agency
employer has breached licensing requirements. One outcome of this it that the agency worker can
then take action against the host if discriminated against or terminated unfairly.
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A similar trend is evidence in the EU where a substantial number of countries have introduced fines
for hosts when a placement breaches labour laws, although whether this is based in the licensing
system is unknown. Belgium, for example, has introduced the same arrangement as South Korea
whereby the host becomes the employer and the employment contract becomes open-ended when
an agency breaches employment laws. The agency worker can then seek compensation from the
host employer (Schomann & Guedes, 2012).
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3. PRINCIPLES OF LICENSING ARRANGEMENTS, AS PROMOTED BY THE
ILO
3.1 Benefits of licensing arrangements
The ILO Convention 181 promotes the licencing or certification of temporary agency to mitigate the
risk of “malpractice and abuse of clients” (ILO, 2007, 14). A number of benefits associated with
licensing have been identified by the ILO.
First, governments can maintain records of temporary agency businesses, including contact details,
but also information about the type of services offered by agencies such as occupational, industry or
regional specialisations. Maintaining this information means government agencies can target
training, and information such as legislative changes, to the specific needs of agency employers.
Requiring agencies to continually inform the licencing agency of changes in ownership structures,
businesses addresses, the opening of new branches and the like are commonly implemented to
ensure effective monitoring of agencies (ILO, 2007, 22).
Second, the licencing process enables pre-screening of applicants for the relevant skills and
capabilities, and their experience in the job placement field (ILO, 2007, 14). Some licensing
arrangements, such as in Singapore, require agency staff to complete training before a license will be
issued. In Singapore, this requirement was introduced to lift the quality and standard of agency
operations in order to support Singapore’s reputation in the global labour market. Most countries
(and at least one State in the USA) also refuse applications from those with criminal records.
Third, when registers of licenced agencies are publicly available, users of agencies (both workers and
hosts/clients) can be assured they are using a legitimate agency (ILO, 2007). This is especially
important when host companies can be prosecuted for using non-licensed agencies, such as in
Singapore and South Korea.
Fourth, it facilitates transparency in the sector by identifying businesses operating in the sector and
their overall activities, such as number of placements (ILO 2007, 140). It should be noted, however,
there has been strong employer resistance (based on concerns of undermining competitive
positions) to a high level of information, such as number of placements, being publicly available
(DBIS, 2013, 19-20).
Whilst the ILO does not promote licensing as a means of creating barriers to entry (to do so would
be inconsistent with Convention 181), it is well recognised that a licencing system which places
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substantive minimum requirements upon agency employers is likely to have that effect. The
placement of a capital bond, for example, will deter those without capital from seeking a licence. In
the labour hire sector, with a large number of small – medium operators, creating effective barriers
to entry would be expected to reduce the prevalence of smaller operators who do not have the
capital to sustain a business or to meet minimum employment and legal obligations, and who
survive (at least in the short term) by being able to undercut those employers who do meet their
legal obligations.
3.2 Minimum requirements of an agency’s personnel
The most common minimum personal requirement of a person seeking to become a licence holder is
that they do not have past criminal convictions – either general or specific to labour and/or financial
misdemeanours. A conviction free background is regarded as a demonstration of the likelihood of
the applicant complying with licensing requirements which may themselves require compliance with
other laws such as labour laws (ILO, 2007, 17).
Demonstration of the capability to operate a licenced agency is also a requirement in some
countries, including formal tertiary or vocational qualifications in relevant fields such as human
resource management, accompanied by professional experience (ILO 2007, 19). In Singapore, for
example, the key operators (senior managers) are required to complete and pass a formal training
programme which predominantly covers a range of legal obligations (MOM, 2011). In Germany, the
agency employers’ industry associations have developed minimum standards which include
professional capabilities (such as proof of experience, knowledge of regulations and the local labour
market), adequate infrastructure (such as premises and data protection), and personal qualifications
(such as absence of criminal record). In Germany, these standards are voluntary, with compliance
promoted by the employer associations (ILO, 2007, 18).
3.3 Licensing arrangements that exclude the provision of agency work from
specified sectors
A number of countries (both with and without licensing systems) prohibit the operation of private
employment agencies in specific sectors. These are predominantly based upon workplace health and
safety considerations, such as the prohibition on supplying labour to the construction sector in
Spain, and in Germany. In South Korea, agency worker are prohibited from a number of industries,
10
as well as specified tasks deemed too hazardous such as dusty work associated with
pneumoconiosis.
3.4 Complying with employment related laws
The ILO, unsurprisingly, recommends that a condition of licencing be that licensees comply with the
employment regulations. Member states of the EU, following the introduction of the EU Directive on
Temporary Agency Workers, have commonly introduced licensing arrangements to facilitate
compliance with and enforcement of the relevant temporary agency worker laws, even though the
EU Directive does not set out a licensing requirement (Schomann & Guedes, 2012). As outlined in
section 2, licensing requirements are increasingly moving towards including specific employment
related practices. They are also explicitly including obligations with respect to non-discriminatory
practices by agencies and hosts. Relatedly, most licensing arrangements prohibit the placement of
workers as strike-breakers and in workplaces where industrial action is being taken.
3.5 Providing information to workers
The ILO outlines the importance of providing information to workers, particularly foreign workers for
are migrating for employment “It is important for potential migrant workers to know what awaits
them in the country of destination” (2007, 31). The ILO Convention 188 also requires government to
“combat unfair advertising practices and misleading advertisements, including advertisements for
non-existent jobs” (2007, 31).
3.6 Reporting requirements
Few governments require agencies to provide reports to the licensing body once licensed. More
commonly, they are required to keep records on workers which can be shown to the agency on
request, and to re-apply for licenses on a three-yearly basis. In countries where the recruitment or
placement of foreign workers is more widespread, such as foreign domestic workers, employment
agencies may have to provide copies of the employment contracts of workers to the relevant
authority for approval. The responsible authority may even be the employment attaché attached to
the embassy in the country of worker placement. Emigration clearance may also be conditional on
contracts of employment meeting specified standards (ILO, 2007, 29).
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3.7 Enforcement and sanctions
The ILO observes that any licensing or certification system needs to “be properly enforced, be
objective, transparent and able to assist agencies in delivering their services appropriately and
adequately” (ILO, 2007, 5). Whilst most licensing authorities lie within the broader government
department responsible for employment issues, some governments have developed separate
authorities to monitor licencing arrangements. The latter, the ILO argues, has the advantage of
potentially involving social partners (such as employers, unions, NGOs) in the monitoring process,
thereby enhancing the legitimacy of the process. In Singapore, a new government agency was
created in 2011 to licence and monitor licensees. This was regarded as a way of demonstrating the
seriousness of their revised licensing arrangements.
Workers who have been victims of illegal conduct by agencies (such as lost wages, underpayment,
discrimination, unfairly dismissed etc.) should also have an avenue by which they can lodge a
complaint easily and inexpensively, particularly as many are vulnerable to dismissal (ILO 2007, 37).
Finally, to be meaningful, licencing arrangements require sanctions which are sufficiently punishing
to deter agencies from breaching license requirements. The Singaporean experience demonstrates
the need to keep financial penalties at a rate sufficiently high to deter misconduct. In 2011,
penalties were increased substantially, justified in part by the substantial profits to be made by
illegal agencies (MOM, 2011). The ILO (2007, 37) reminds regulators that financial penalties ought to
also include restitution to the workers harmed by agencies’ operations (ILO, 2007, 37).
The range of sanctions for non-compliance varies from providing advice on how to correct
misdemeanours in the case of minor infractions, to cancelling licences in the case of repeated
misconduct. Cancellation of a license has become a common potential sanction in the European
Union where cancellation can be invoked when agencies breach the requirements of the Temporary
Agency Directive (Schomann & Guedes, 2012, p. 9). Suspension of licences offers a less extreme yet
potentially punishing response to repeat offenders (ILO 2007, 36).
The Japanese experience demonstrates the limitations of relying purely on education and advice to
those who breach licencing arrangements. In 2006, 6,281 cases of violations of the worker dispatch
laws were reported, and in 2011, 9,280 instances of written guidance material were provided.
Notwithstanding the provision of administrative guidance, violations had not declined (ILO, 2010).
Japan ratified the ILO Convention on agency work in 1999. Following complaints from the Japan
Community Union Federation to the ILO that the convention was not being observed, a tripartite
committee was s formed by the ILO to examine the allegations, to which the Japanese government
12
was obliged to respond. The ILO has since requested further reports and explanations from the
Japanese government, including information about the remedies invoked for violations, statistics on
violations and remedies, and an evaluation of the adequacy of such remedies. These are yet to be
presented to the ILO (ILO 2013a).
3.8 Administrative costs & processes
Most licensing arrangements require an annual fee to be paid, which can cover the administrative
costs of the licensing scheme and, depending upon the amount, can also provide some proof of the
‘financial capacity’ of the agency to enter the market (ILO, 2007, 15). The ILO however cautions that
if the fee is regarded as excessive, businesses will be encouraged to operate illegally, making the
sector harder to regulate whilst enabling non-registered operators to compete against those
meeting registration requirements (2007, 16).
3.9 Assurances on financial capabilities
Financial capability of an agency is “an important criterion to assess its business conduct” (2007, 16).
Either payment of a bond, or proof of having a minimum capital base can provide proof of sound
financial capabilities. A bond payment can also be used to safeguard against failure to comply with
regulatory requirements (where bonds are confiscated in cases of misconduct), and as a source for
wage payments when the agency has underpaid workers.
Some countries, such as Singapore, require agencies to pay a bond which varies according to factors
such as size of the agency, based on average number of annual placements (MOM, 2011).
Depending upon the size of the fee and bonds, a variable bond can create barriers to entry for small
low volume suppliers, whilst also accommodating small and medium sized operations. (ILO, 2007,
15). However, the number of placements may be difficult to estimate, particularly if the agency is
experiencing substantial growth or unexpected declines in volume. Other governments have based
their bond calculations on a multiple of the annual minimum wage (ILO, 2007, 16).
An alternative to a bond payment may be proof of a minimum capital base or the provision of a bank
guarantee. As the ILO points out, “Proof of financial capability serves to demonstrate that the agency
has the ability to provide the necessary logistical and financial resources to operate its placement
business and to sustain it, as in the case the case of a failure of its activities, without damaging the
interests of the affected employees” (ILO, 2007, 17)
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4. OVERVIEW OF LICENSING ARRANGEMENTS IN SPECIFIC COUNTRIES
This section provides an overview of licensing arrangements in five countries: three Asian
neighbours (Japan, Singapore and South Korea), the UK and the USA. In providing these accounts, it
is necessary to provide some contextual information to enable a better understanding of the nature
of their licensing arrangements. As noted in the introduction, there have not been studies of the
effectiveness of these licensing arrangements and the data to commence such an assessment is not
publicly available. Also, for some countries, there is very little publicly available information in
English beyond the existing laws. The writings of researchers in those countries indirectly hint at the
effectiveness of licensing arrangements, but do not specifically address the question. Hence the
extent to which evaluations could be substantiated is variable.
4.1 Japan
The regulation of agency work has undergone a tumultuous process since the mid-1980s in Japan.
Initially prohibited, limited licensing was introduced in 1986, successively freed up throughout the
1990s and 2000s, and eventually restricted (in part) again in 2010. The Japanese approach
demonstrates how weak enforcement processes can undermine the intent of licensing systems.
Temporary agency employment was prohibited in Japan until 1986, when the Law Concerning
Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working
Conditions for Dispatched Workers, Law No. 88 of July 5, 1985 (hereafter The 1985 Act) was enacted.
With the long-standing practices of life-long employment, and the importance of work to
demonstrating adulthood, removing the ban on temporary agency employment has been described
as “a turning point in the Japanese history of labour policy” (Fu, 2013: 314-15). Others, however,
argue that black market illegal agency work had already commenced, and lifting the ban provided a
mechanism for regulating such work (Araki, 1994).
In Japan, labour hire workers are known as ‘dispatched’ workers – because they are dispatched from
a temporary agency. They are employed primarily under two arrangements. Under the first, known
as ‘regularly employed/open-ended contract type’ (also specified worker dispatching), agency
workers remain employed by the agency between placements with client. The second arrangement
involves termination of employment when the placement ends, known as ‘registration-type’ (also
general worker dispatching) employment (JIL, 2011/12). The latter is akin to casual labour hire
workers in Australia whose employment exists only whilst placed with a host.
14
The 1985 Act provides for licencing of agencies, and varying degrees of restrictions on the use of
agency workers. To gain a licence and agency must:
Provide standard business details;
Provide a business plan which includes the number of dispatched workers, the fee for
worker dispatching, and any other matters pertaining to worker dispatching as prescribed by
Ministry of Health, Labour & Welfare Ordinance;
Have “sufficient ability to properly manage the employment of dispatched workers of the
undertaking concerned”, including managing confidential personnel files (The 1985 Act, Art.
7).
The Minister must also obtain the opinion of the Labour Policy Council before granting a licence.
Licences are initially granted for 3 years, and renewed every five years subject to the agency
complying with licensing requirements.
Once licenced, the agency is required to maintain detailed documentation of their placement
process. This includes number of workers placed, their location, working hours, OHS arrangements,
and identify who is responsible for their supervision at the host workplace and the like (Art. 26).
They are also prohibited from discriminating against agency workers when cancelling contracts,
including discrimination on the basis of race, gender and union activities (Art. 27).
The grounds for disqualification for licence include a prior conviction within the previous 5 years for
breaches of laws relating to labour; relating to organised crime groups, physical violence,
immigration controls; various insurance laws including workers’ compensation and pension
insurances; being bankrupt; and being a minor.
The 1985 Act initially specified 16 occupations in which temporary agency work was allowed (mostly
but not exclusively professional occupations) (Araki, 1994). The number of occupations was
successively broadened in 1996, 1999 and 2004. By 2004, the prohibition was limited to port
transport services, construction work, security services, and some professional groups (such as
lawyers and accountants) (JIL 2011/12).
The 1985 Act also placed a limit on the maximum period of placement of a dispatched worker. In
1996 this was set at 3 years and in 2004 the limit was removed entirely for some occupations. The
ban on placements in manufacturing, lifted in 2004, allowed placements for a maximum of one year,
increasing to three years in 2007. The ban on temporary agency workers converting to host regular
employees, included when the Act was first enacted in 1986, was lifted in 2000 (JIL, 2011/12).
15
Agency work grew rapidly once legalised in 1986, growing from an estimated 8.7 thousand workers
to 198.3 thousand (2.2% of the workforce) by 2008. Like other countries, the number of agency
workers fell as the GFC impacted across the economy (to 157.6 thousand or 1.7% of the
workforce)(JIL, 2011/12). Fu (2013) argues that temporary agency work is most common amongst
females in white-collar clerical work, although it is also the case that the most common industry in
which workers are placed is manufacturing (based on 2007 data, JIL 2011/12). Reflecting their high
level of insecurity, the number of workers placed in manufacturing fell by 200,000 between 2008
and 2009 following the GFC. A new word was subsequently added to the Japanese vocabulary in late
2000s – ‘Haken-giri’ – to describe the substantial laying off of dispatch workers, a phenomenon
which received substantial public attention (JIL, 2011/12).
A number of writers have commented on the extent to which these laws have been ignored or
evaded in Japan. The three year limit on a placement, for example, after which the client must
employ the worker directly as a permanent employee, is avoided through clients changing the job
title or moving the agency worker to another division of the organisation (Fu, 2013).
In 2006, there were 6,281 official cases of violations of the worker dispatch laws. The Japanese
government “generally provides correctional guidance” when the Worker Dispatch laws are
breached (ILO, 2013b, 3). In 2008, the JTUC-RENGO reported to the ILO that notwithstanding the
provision of administrative guidance following a violation of the Worker Dispatching Laws, violations
had not declined (ILO, 2010). They also stated that the law does not penalise employers (hosts) who
illegally receive workers from agencies; nor are penalties are applied in relation to discriminatory
practices in relation to vocational instruction and guidance. Violations continued to grow. In 2011,
there were 9,280 instances of written guidance provided. (ILO, 2013b 3).
In this context, and notwithstanding opposition from the Japan Staffing Services Association (the
major employer association for agency employers) and from Nippon Keidanren (the Japenese
Business Federation), amendments to the Worker Dispatching Act were proposed in 2010 and
agreed to two years later in 2012.
The 2012 amendments re-introduced a qualified prohibition on dispatching workers in the
manufacturing industry (registratio–type workers, who are most vulnerable, can still be placed in
manufacturing); required agencies to take steps to convert particular categories of dispatched
workers from fixed-term to open-ended contracts; and agencies had to consider the wages and
other employment conditions of like workers at the client firm when determining the wages and
conditions of workers which they were placing (to promote equal pay and conditions). The
16
amendments now prohibit day worker dispatching in principle for a term of 30 days or less
(exceptions are allowed); and deem clients to have offered employment contracts to dispatched
workers when illegally dispatched workers are accepted by clients that are aware of the illegality.
(ILO, 2013b 2).
This ‘reregulation’ of agency work has been explained by Fu (2013) as resulting from a groundswell
of public opposition to agency work following strong media coverage of its most negative aspects.
Also, because Japan has ratified the ILO Convention 181 on Temporary Agency Work, Japanese
unions have had an avenue to complain when the laws have been persistently breached and the
penalties were not deterring illegal behaviours. Hence in 2012, notwithstanding the 2012
amendments, the Japan Community Union Federation returned to the ILO, alleging that the laws
were still not consistent with the requirements of the Convention 181. The allegation was
concerned, in part, with the removal of the prohibition on supplying ‘registration-type’ workers to
the manufacturing industry, and whether both suppliers and receivers of dispatched workers had
responsibility for ensuring non-discriminatory practices in the 2012 amendments. The Japanese
Government is required to respond to these allegations before the ILO in 2014 (ILO 2013a).
The Japanese licensing system illustrates the integration of regulating agency placement practices
with the licensing system – such as limits on the duration and location of placements. However, it
also illustrates how very weak enforcement (in the form of guidance rather than penalties) does not
deter illegal practices. The introduction of the new penalties in 2012, whereby the host becomes the
employer of the agency worker when it knowingly accepts an illegally dispatched worker, may
provide a stronger incentive for hosts to comply with the laws, thereby discouraging illegal agency
employers. The enforcement of this process has yet to be evaluated. There is no evidence to date of
agency firms being disqualified from holding a licence following breaches of the 1985 Act; such
disqualification would seem unlikely given the evidence concerning government responses to
violations alleged before the ILO.
17
4.2 Singapore
A licensing system for employment agencies has been in place in Singapore for several decades. As a
small island country, Singapore faces severe limitations on its local labour supply and relies heavily
reliance on the importation of foreign workers. In 2011 foreign workers made up 37% of the
workforce, or around 1.2 million workers (Connell et al. 2013). In recent years, their presence has
increased rapidly. Only 5 years earlier, they made up 30% of the workforce. It is the agencies which
import workers that the agency licensing system is primarily intended to regulate. Many of the
workers come from low wage countries in the region, and perform semi and unskilled work. Whilst
the Singaporean government has actively encouraged foreign labour, it has also sought to control
temporary migration to ensure immigrant workers do not become long-term immigrants. Writing in
2006, Yeoh observed that “State policy has remained firmly committed to ensuring that unskilled
and low-skilled foreign workers are managed as a temporary and controlled phenomenon” (2006:
29). Until recently, this occurred through government control of the number of work permits; limits
on the number of foreign workers through a ratio of foreigners to locals; and through a foreign
worker levy. The work permit system, for example, enabled the Singaporean government to cancel
permits during economic downturns. Likewise, the foreign worker levy would be increased during
economic downturns, thereby encouraging employers to turn to local labour (Yeoh, 2006).
In the 2000s, however, as the number of imported workers increased, so did the number of agencies
with questionable practices, such as charging workers exorbitant fees for their service. In 2006, for
example, 866 employers were prosecuted for not providing proper accommodation for their foreign
workers and another 66 were fined or imprisoned for false declarations in relation to foreign
workers (Connell et al., 2013). The recent rapid growth in foreign workers, coupled with their
vulnerability and extreme exploitation, created sufficient public concern that the agency licensing
legislation was substantially amended in 2011, with the enactment of the Employment Agencies
Amendment Act 2011 (Connell et al. 2013).
The current licensing requirements apply to agencies supplying workers to jobs in Singapore, and
overseas. Applicants for a licence must meet the following requirements:
All individual employment agency licensees and key appointment holders (such as
managers) are required to complete and pass a Certificate of Employment Agency course
before they are allowed to operate (40 hour course). Others are required to attend a
simplified version of the course (32 hours) before conducting employment agency work
18
(MOM, 2011). The course covers legislation related to employment agency operations,
including the Employment Act. Agencies already holding a licence can apply for an
exemption based upon earnings of placed workers (high earners) and not having an adverse
track record.
Payment of a security deposit is required, with the amount dependent upon track record
and volume of placements (ranging from S$20,000 to S$60,000; approx. A$17,500 –
A$52,500)
All key individuals are to be registered with MOM
Licensees and their personnel must be of good character and have a good track record.
Those with a criminal record involving dishonesty or people trafficking; undischarged
bankrupts; and former directors/managers of agencies whose licences have been revoked
are prohibited from conducting employment agency-related work. Exceptions can be
approved by the Commissioner for Employment Agencies. (MOM, 2011b, 7)
Agencies involved in suppling foreign workers are required to meet additional certification
obligations, conducted by the Association of Employment Agencies (Singapore) or CaseTrust (MOM,
2011, 1).
Other administrative requirements include that the name and licence number of the employment
agency be included in all advertisements and written documents of the agency; and any changes in
key personnel at a licenced agency have to be advised to the Commissioner for Employment
Agencies. Once licensed, the agency is listed on a public website, enabling hosts and workers to
verify the license status of the agency.
Several activities of agencies are regulated. These include minimum service standards for relations
between agencies and employers, including a dispute resolution process; and maximum fees
charged to workers (although this appears to also include the fees associated with transporting and
arranging employment for these guest workers). However, the minimum wages of foreign workers
supplied through agencies remain unregulated and their heavy dependence upon their employer for
accommodation leaves them especially vulnerable (Connell et al., 2013). A license is required to be
renewed every three year.
In 2011, a new separate body, The Commissioner for Employment Agencies was created to enforce
the licensing system. The Commissioner has the power to suspend, revoke and reinstate agencies.
Licensees can also be fined, and their financial security deposit forfeited (MOM, 2011, 3). A demerit
point system also exists.
19
Penalties for operating without a licence include fines and imprisonment. A first offence can result
in a fine of up to S$80,000 (approx. A$70,200) and/or up to two years imprisonment. The maximum
fine for repeat offenders doubles to S$160,000, and/or up to four years imprisonment (MOM, 2011,
p.2). Penalties apply to both unlicensed agencies and licenced employment agencies which make
“employment-related applications on behalf of unlicensed employment agencies” (MOM2011, 2).
Unlicensed agencies can also be penalised for other breaches of the Employment Agencies Act and
its regulations, such as providing false information regarding a job placement. The penalties are
described as being in proportion to the potential profits which unlicensed agencies could make from
the alleged kickbacks received from employers and exorbitant fees charged to workers (MOM, 2011,
2).
In 2011, to further stem demand for illegal operators, penalties were introduced for hosts that
knowingly engage unlicensed employment agencies. A first offence penalty is up to S$5000
(A$4,400) per person engaged, S$10,000 for subsequent offences and/or up to 6 months
imprisonment. Those using employment agencies are now required to exercise due diligence in
checking whether an agency is licensed before contracting with it (MOM, 2011, 2).
The Ministry of Manpower publicised their first prosecution of a host on their website in March
2013. An individual was fined S$2000 (A$1760) for engaging an unlicensed agent to submit an
employment pass (required for the importation of labour) application for a relative (MOM, 2013).
Most of the current licensing requirements were introduced as amendments to the existing licensing
Act in 2011. The stricter requirements were introduced following the 2011 election when the ruling
People’s Action Party won the election but lost five seats to the Worker’s Party. The Worker’s Party
had campaigned heavily on the need to reduce the number of foreign workers (Connell et al., 2013).
Public debates about whether foreign workers were taking the jobs of Singaporean youth also
flourished in the first half of the 2000s (Yeoh 2006). The primary justification for the extensive
regulations was thus the growth in unlicensed employment agencies which both competed unfairly
with licenced agencies and lacked professional practices.i Accordingly, in his second reading speech,
the Minister of State for Trade & Industry and Manpower referred to the seven-fold growth in
employment agencies since 1984, with over 2500 agencies operating in 2010. Complaints about
licensed and unlicensed agencies had also risen, underpinned by a belief that the penalties imposed
upon illegal or errant employment agencies had become too low to be an effective deterrent. A first
time offender, for example, could be fined S$5000 yet “foreign workers are willing to pay agency
fees of between S$3000 to S$10,000 in order to land a job in Singapore, selling land or taking up
loans to pay these fees” (Shyan, 2011, 2). The amendments were also intended to further protect
20
vulnerable workers through updating the cap on fees which agencies could charge to workers.
Attention was drawn to “foreign workers from rural villages, they also suffer from information
asymmetry and often have no say in choosing their Singapore EA [employment agency]” (Shyan,
2011, 4).
Finally, and again citing the second reading speech, the regulations would enhance the reputation of
Singaporean labour market opportunities in the eyes of potential foreign workers. “Employers will
benefit from the greater certainty and transparency in the recruitment process. The new regulatory
framework will facilitate labour market efficiency and raise the standard of recruitment practices in
Singapore. This will in turn entrench Singapore’s global position as a choice destination for
experienced and skilled workers. Finally, by enhancing the professionalism and accountability of the
industry, the stricter licensing, registration and certification requirements will instil greater
confidence in the industry and boost its reputation.”(Shyan, 2011, 5).
The Singaporean licensing system, being intended primarily to capture the importers of foreign
labour, seeks to improve the skills and professionalism of agencies and exclude dubious or dishonest
operators. It does not include requirements with respect to the nature of placements, such as
limitations on duration of placements. Nor does it emphasise responsibilities of agencies or hosts
with respect to labour law compliance – this is most likely explained by the lack of labour law
entitlements which foreign workers have in Singapore. The Singaporean government is seeking to
promote its enforcement practices through publishing prosecutions on the MOM government
website – but to date only one such prosecution has been listed. Because of the unique nature of
the Singaporean labour market, and their heavy reliance on foreign workers rather than agency
workers as they exist in in Australia, the Singaporean approach is most relevant with respect to
illustrating the kinds of barriers to entry which can be enabled through licensing. It does not seek to
promote compliance with minimum terms and conditions of employment.
21
4.3 South Korea
The regulation of temporary employment agencies in Korea began with the enactment of The Act on
the Protection etc. of Dispatched Workers 1998 (hereafter the Dispatched Worker Act), which
legalised temporary agency work and provided for the licensing of agencies. Initially proposed in
1993, the original bill was objected to by unions that opposed legitimising temporary agency work,
and by employers who believed the bill was too limiting on agency practices. It was only after a
severe financial crisis in 1997 that the bill was passed by the National Assembly (Chun, 2013). Once
legalised, the number of agencies and agency workers increased rapidly. The number of agency
workers in Korea is difficult to ascertain, with estimates ranging from around 75,000 through to
760,000 in 2007 (Kim, 2010; Eun 2010).
In the first year of operation, 789 agencies became licensed (1998); by 2009 the number had almost
doubled to 1,367. According to Kim (2010) most agencies in Korea are small, with the average
number of workers per active agency being 75 (2009), and the average number of clients 10.3 (Kim,
2010). This comparatively small agency industry is explained by Kim (2010) as being related to the
restrictions on occupations in which agency work is allowed, a lack of professionalism by agencies
(including the absence of marketing skills), excessive price competition, and misperceptions by hosts
such as the need to ensure agencies provide necessary training to workers. Eun (2010), however,
portrays a contrasting picture of a very extensive temporary agency industry, and one which has
been the subject of public debate and controversy, especially following a three year dispute over the
illegal dispatch of workers to Koscom and Kiryung Electronics in the late 2000s. These differing
perceptions may be explained by the controversies over what is illegal agency work vis-à-vis in-
house contracting. The latter has emerged as a prime means of evading the Dispatched Worker Act.
The Act governing the licencing of agency workers has been amended a number of times, most
recently in 2010. The 2010 amendments appear to have strengthened protections for agency
workers, and were introduced following concerted campaigning by unions and NGOs. Agency
workers have developed strong links with NGOs in Korea because of the constraints upon them
joining unions.
The Act sets out the requirements of those seeking a license, and includes extensive requirements
with respect to the nature of placements. Some key provisions of the minimum requirements for
gaining a licence are:
22
An applicant must not be a declared bankrupt; have not had a conviction in the past 2 years
that involved imprisonment but not prison labor; have not been convicted in the past 3
years for violating various employment laws including the act related to agency work; nor
have had their registration cancelled within the past 3 years (The Act Article 8).
The agency must supply a minimum number of host employers, a requirement introduced to
prevent in-house agencies from being established by organisations seeking to avoid direct
hire employment (Art. 9; Chun, 2013).
The requirements imposed on licenced agencies with respect to their practices include restrictions
upon the occupations and industries where placements are allowed. In 1998, 26 occupations were
allowed (an arrangement similar to Japan). This has since been extended to 32 occupations/
industries. Restrictions remain on placements in manufacturing, construction, stevedoring, those
deemed to be harmful or hazardous, and others deemed unsuitable on the grounds of worker
protection (The Act, Article 5). The allowed occupations are predominantly white-collar and
technical/professional positions. One outcome of this restriction, explained below, has been the
proliferation of in-house contracting in the manufacturing industry to evade the Dispatched Worker
Act (Eun, 2010).
The Act also includes a two year limit on the duration of placements (The Act, Article 6). In 2006, the
Act was amended to provide for agency workers becoming permanent employees of the host once
the two year limit was reached. However there is a general belief that this results in hosts switching
to another dispatch worker rather than hiring the same worker on a permanent basis (Kim 2010).
When first legalised, there was no provision for dispatch workers to be receive the same wages and
conditions of employment as their equivalent directly hired workers. In 2006, the regulations were
amended to include a provision prohibiting discrimination against dispatched workers. An extensive
list of items which must be included in a contract between the agency and the host is also specified
in the Act. These include number of agency workers, details of their jobs, reasons for using agency
workers, supervisors who will be responsible for controlling the agency workers, OHS, and a range of
pay and employment conditions. The host is also required to inform the agency of the pay and
conditions of their own employees performing similar work, to demonstrate a lack of discrimination.
Requiring clarity between the parties on these issues is in the interest of both the agency and the
host. If any of these conditions breach labour laws, the contract is void, and both parties are liable
for unlawful treatments of workers (Chun 2013).
23
A license can be cancelled for a range of reasons. These include gaining the licence under false
conditions; failing to meet the licensing requirements with respect to convictions; breaching the
conditions on dispatching workers (such as duration and occupation of placement) and the like.
Once a license has been cancelled or suspended, the government can remove billboards and other
public signage of the agency and post notices indicating the business is illegal (Article 19).
Penalties for operating without a licence or breaching the Act can be severe and are in addition to
cancellation of a licence. A fine of up to 20 million won (A$21,000) or up to 3 years imprisonment
can be imposed. These apply to both agencies and hosts who receive workers under conditions
which breach the Act (Art. 43). From 2010, should a contract be voided following illegal actions by
the agency, the host, with agreement from the agency worker, becomes the employer of the agency
worker. A failure to take over the employment of the worker can lead to a fine of 30 million won
(Chun 2013).
Controversy over the use of dispatch workers, particularly those disguised as in-house contractors in
large manufacturing plants, has existed in Korea for many years. In 2012, Hyundai admitted it was
using 3000 illegal dispatch workers whom it would convert to direct hire employees. They were not
in-house contractors as Hynundai had claimed over an eight year period of contested employment
status. The Supreme Court had, in 2010, deemed their practices to be illegal, as well as the Ministry
of Employment and the Labor Relations Commission. According to The Hankoreh news service,
Hyundai Motor has been becoming isolated due to its illegal practices. Lining up against
the automaker were those from political world, labor experts, civil society, the Minister
of Employment and Labor and of course labor activists. As one of South Korea’s biggest
businesses, Hyundai was labelled a “workplace carrying out illegal practices” and its
corporate image took a hit (The Hankyorek, November 14 2012,www.hani.co.kr).
Whilst the Hyundai admission may have been expected to contribute to a wider shift away from
using in-house contracting as a means of avoiding the dispatched workers regulations, recent
commentary suggests otherwise, with disputes continuing over the use of in-house contracting (The
Hankyoreh, August 22 2013). In-house contracting continues to be a prime mechanism for avoiding
the regulation surrounding dispatched workers. Most Supreme Court findings in relation to illegal
dispatch workers have involved challenges to in-house contracting arrangements in large
manufacturing firms (Eun, 2011), and a government investigation of in-house contracting found that
between 2004 and 2006, 507 of 2720 companies were breaching the dispatching laws (The
Hankyoreh, August 22 2013).
24
The actions of Hyundai in 2012, in converting the illegal dispatch workers to directly hire workers,
may point to a preference for employers hiring their own employees rather than drawing upon legal
dispatch operators – when they no longer have access to in-house contracting. This may in part be
attributed to the extent to which hosts share responsibility and liability for agency workers under
the Dispatched Workers Act (Eun, 2011). Also, in 2013, the Korean government announced it would
transfer dispatched and other irregular workers in the public sector onto permanent direct hire
arrangements by 2015 (Korea Labor Foundation, 2013), to demonstrate the Government’s
commitment to improving conditions for non-standard workers.
How effective is the licensing system in South Korea? The licensing system does not appear to offer
significant barriers to entry, although the need for substantial documentation on contractual
arrangements, as well as the minimum number of hosts, may deter some from entering the industry.
Whilst the regulations seek to prevent hosts displacing permanent workers with agency workers,
through the 3 year limit on placements, host employers are said to have found ways to circumvent
the limitation. Also, as the Hyundai case illustrates, there are substantial evasion practices which
undermine the intent of the licensing system. The restrictions on using agency workers in
manufacturing appear central to this evasion. Whether the licensing system protects the
employment standards of legal dispatch (agency) workers, placed in other industries and
occupations, cannot be determined. The failings with respect to evasion in large manufacturing
workplaces dominate English-language writings and information in this area, with little attention
paid to operators in other areas.
25
4.4 United Kingdom
In the United Kingdom (UK), the regulation of temporary agency employers occurs under the
Employment Agencies Act 1973, supplemented by the Conduct of Employment Agencies and
Employment Businesses Regulations (2003), and the Gangmasters (Licensing) Act 2005. The Agency
Workers Regulations 2010, introduced to implement the EU Directive on agency work, does not
include a licensing requirement.
The Employment Agencies Act 1973 originally included licensing requirements but these were
abolished in 1994. As Neal (2013) points out, successive conservative governments have contributed
to the deregulation of the UK labour market, and this is reflected in the low level of regulation
concerning temporary agency work. Compared to some EU countries (France, Belgium & the
Netherlands), the temporary agency sector in the UK is fragmented, characterised by a large number
of small – medium sized agencies. In this way, the industry structure is similar to that found in
Australia; and like in Australia, calls by larger agencies and unions for government action to eradicate
the fringe disreputable elements are common (Neal, 2013, DBIS, 2013).
Only the Gangmasters (Licensing) Act 2005 still provides for licensing of employers, and that Act was
introduced under extreme circumstances following the deaths of 23 migrant cockle pickers hired
through gangmasters. The Act provides for the establishment of the Gangmasters Licensing
Authority (GLA), which is responsible for licensing gangmasters operating in a limited range of
industries, mostly related to agriculture, shellfish and fishing. Both unlicensed gangmasters, and
those that use unlicensed gangmasters can be punished under the Act. The GLA has adopted a risk
based approach to inspection of gangmasters at the application stage and once the licence is issued.
In other words, only those regarded as high risk are likely to subject to inspection (ILO, 2007, 35). It
is, however, a criminal offence to use, or operate as an unlicensed gangmaster (Neal, 2013).
Other employment agencies are regulated under the Employment Agencies Act 1973 and the
Conduct of Employment Agencies and Employment Businesses Regulations (2003). These regulate
the practices of recruitment and temporary labour agencies, but neither involve licensing
arrangements. The current legislation includes some specific requirements upon the way agencies
place workers, such as prohibiting charging workers fees for placements, carrying out background
checks on workers prior to placements, and not providing temporary workers to replace workers
during industrial action (although enforcement of the latter has been problematic: Neal, 2013). It
also designates agencies as the party responsible for paying wages of placed workers. Both the Act
26
and the Code are currently under review by the UK Department for Business, Innovations & Skills
(DBIS), with the objective of reducing the level of regulation of agencies. Some submissions have
suggested strengthening the existing regulations through the inclusion of licensing requirements,
however the government has announced that it will not be introduce such arrangements (DBIS,
2013; Neal 2013).
In the absence of licensing arrangements, the major industry association for employment agencies in
the UK, the Recruitment & Employment Confederation (REC) has promoted self-regulation through
the issuing of member standards. These require agencies to provide the REC with documents
showing they comply with the Conduct of Employment Agencies and Employment Businesses
Regulations (2003). The documented practices are largely consistent with those required under the
EU Directive, although equal pay is not included. The REC has also adopted a Code of Professional
Practice and a Code of Ethics and Professional Conduct which members are expected to abide by.
These codes cover conduct such as ‘Respect for Work Relationships’, ‘Respect for Honesty and
Transparency’ and ‘Respect for Laws’. Breaches of the code are investigated by the REC and
penalties include a compliance order, a warning, and expulsion form the association
(http://www.rec.uk.com).
A survey conducted by the DBIS, as part of their review of agency regulation, found that only 50% of
respondents (a mix of 286 legal representatives, employment agencies and trade unions) thought
trade association codes of practice helped to maintain standards. A high number of respondents
(number not specified) thought that such codes needed to be underpinned by legislation (DBIS,
2013, 21). Also, 45% of DBIS’s survey respondents thought prohibition orders, preventing operators
from continuing their business, should be included in a new enforcement regime (DBIS, 2013, 24).
The DBIS report notes comments from some respondents “that employment agencies and business
that give the industry a poor reputation need to be eradicated…more use need to be made of
prohibition orders and they also need to be better publicised to act as a deterrent” (DBIS, 2013, 24).
The EU Directive on Temporary Agency Work has imposed new minimum employment standards on
agency employers in the UK, but in other respects, agency employers operate in a relatively
unregulated market without the restrictions associated with licensing.
27
4.5 United States of America
The USA has long been noted for its strong reliance on market forces rather than regulation of the
labour market and employment conditions. In many states, the concept of employment at will still
exists, whereby ‘permanent’ employees can be dismissed without notice. This may have dampened
employers’ needs for a more flexible form of employment, such as agency work, but it has not
eliminated such a need. By the mid 2000s the contingent workforce (including agency and on-call
workers) was estimated at around 2.3% of the total US workforce; it fell during the recession of the
late 2000s, but has returned to a steady increase since 2010 (Luo et al. 2010; Goldman, 2013).
Temporary agency work in the US is often called labour leasing, whereby the worker is leased to the
host employer. Leased employees are usually regular employees of the lessor, and are leased to
another employer for less than 12 months (Goldman, 2013). Other types of agency work are known
as ‘payrolling’ arrangements, where the agency supplies employees to a host, whilst remaining
responsible for the payroll of those workers (Davidov, 2004). The latter most closely resembles long
term labour hire placements in Australia. Depending on the degree of control exercised by the host
over the agency worker, or leased worker, the concept of joint employment may apply - where
employment related liabilities (such as hiring, termination and compliance with wage rates and
overtime pay) are shared between the employer and the host.
In the USA, laws governing employment are developed at both the Federal and State level. At the
Federal level, the National Labor Relations Act (NLRA) is the primary source of regulation for
employment and employment relations. In the main, there are no licensing requirements for
temporary agency employers, and no specific regulations tailored to the temporary agency industry.
Instead, those regulations which exist tend to specify the rights (or lack of rights) of agency workers
across a range of employment issues, such as collective bargaining and voting in elections
undertaken to determine whether a workplace will have union representation (Goldman, 2013).
Temporary agency workers are not distinguished in OHS laws, however a number of states exclude
casual employees (thereby also temporary agency workers) from access to workers’ compensation
benefits. In states where such an exclusion does not apply, responsibility for workers’ compensation
insurance varies between lying with the agency, the host employer and in some cases, is shared
(Goldman, 2013). These restrictions on agency workers’ rights enhance their attractiveness to
employers over direct hire workers.
28
Otherwise, the regulation of temporary employment agencies is sparse. The limited regulation of
employment agencies at the federal level relates to agencies involved in supplying migrant and
seasonal workers, and a general prohibition on government employment agencies referring workers
to jobs where permanent workers are on strike (Title 20 US Code of Federal Regulations, Reg. 652.9).
In all other respects, employment agencies and temporary agency employers are regulated at State
level. Some states have followed Federal laws in also prohibiting placements during strikes, whilst
others require an employment agency to advise a worker if they are being referred to a unionised
company with a collective agreement; and when they are being placed with an employer where a
dispute is in progress (Goldman, 2013). None of these requirements are associated with licensing
requirements.
There are very few licensing arrangements for temporary employment agencies in the USA. Agencies
instead may be required to obtain a license under general business regulations, akin to the way
businesses in Australia register to obtain an ABN. Business licensing is a State, not Federal level
process, allowing state difference although these are irrelevant to the question of licensing and
temporary agency businessesii. In those states that require employment agencies to be licensed,
such requirements usually apply to recruitment agencies, not temporary employment agencies.
One exception is New Jersey. Here, licensing requires temporary employment agency operators to
pay a bond of US$1,000 (unless the business has a net worth of greater than UA$100,000), and
register the premises from which they operate, but in other respects the requirements are limited to
specifications around the transportation of workers. They are “intended to improve the safety of
vehicles used by temporary help service firms to transport employees to or from the work site.”(Ch
45B Personal Services; 13:45b-12.1). If the agency also operates as an employment agency, licensing
requires evidence of the operators’ good character, prior experience in the personnel industry (at
least 6 months), and passing an examination assessing their knowledge of the licensing
requirements. Once licensed, the agency is required to maintain detailed records in relation to
workers placed with clientsiii. Breaches of the licensing requirements can result in revocation and
suspension of the license. New Jersey also includes specific requirements for agencies working the
health sector. The narrow focus of the New Jersey requirements upon temporary employment
agencies (compared to employment agencies more broadly defined) suggests the regulations were
introduced in response to specific problems which have arisen in relation to the transportation of
workers, and in the health sector.
No other states appear to have developed licensing requirements specific to temporary employment
agencies. In Wisconsin, for example, there are licensing arrangements for employment agencies
29
which charge fees to workers for finding them suitable employment. These licenses involve payment
of a US$5000 bond payment, evidence of ‘suitable quarters to operate the business’, and the
operator must have their character assessed at a public hearing.iv But the Wisconsin requirements
do not extend to temporary employment agencies. To avoid ambiguity over coverage, the States of
Michigan and Washingtonv for example, explicitly exclude businesses supplying temporary workers
from licensing requirements. In Florida, employee leasing companies are required to be licensed (a
mostly technical process, which includes requirements in relation to workers’ compensation) but
temporary employment agencies are not. vi
During the 2000s, when temporary agency work grew most rapidly, there were no new significant
regulations over employment or labour introduced at the federal level (under the Bush
administration) (Katz and Colvin 2013). Nor was there debate about the need for licensing
arrangements tailored to temporary employment agencies. It is notable that to a significant extent,
States that require licensing of recruitment agencies specifically exclude temporary employment
agencies from the regulatory net. Instead, regulations imposed on employment agencies are
intended “to protect prospective employees from fraud or incompetence of employment
agencies”.vii It appears that licensing arrangements intended to regulate the practices of temporary
agency businesses are inconsistent with the free-market ethos prevalent across the USA.
30
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i www.mom.gov.sg/foreign-manpower/employment-agencies ii For example, see http://www.portal.state.pa.us/portal/server.pt/community/business_related_boards/13772 (Pennsylvania); http://www.ny.gov/ (New York); http://www.cityofchicago.org/city/en/depts/bacp/provdrs/bus.html (Chicago, Illinois). Checks were also conducted on Alabama, California, Florida, New Jersey, Rhode Island, Texas, Washington, Wisconsin and New York. Others can be tracked through: http://www.sba.gov/content/what-state-licenses-and-permits-does-your-business-need iii http://www.state.nj.us/lps/ca/ocp/regulate.htm, Chapter 45B Personnel Services.iv http://dwd.wisconsin.gov/er/labor_standards_bureau/licensed_private_employment_agencies.htm v http://ww w . m ic h iga n .gov/stat e l i censese a rch/0,1607,7-18 0 - 24786-81073--,00.html (Michigan); http://www.dol.wa.gov/business/employmentagency/empagency.html (Washington)vi http://www.myfloridalicense.com/dbpr/pro/emplo/faq.html vii http://www.employmentagencies.uslegal.com/regulation-licensing-agencies
