Introductory companies – does being the ‘middleman’ make you an employment agency?

On 18 September 2020, the High Court gave its decision regarding the Judicial Review of Simply Learning Tutor Agency Ltd & Others v Secretary of State for Business.

This case involved the meaning of ’employment’ under the Employment Agencies Act 1973 (the “Act”).

Background
A number of tutoring introductory companies came together to claim that they were not “employment agencies” or “employment businesses” as defined in the Act and therefore they should not have to follow the regulations included in the Act.

If an organisation falls within the meaning of “employment” under s.13, it cannot charge work-seekers for work-finding services, prevent candidates from working elsewhere or withhold payments or wages.

In this case, the tutoring introductory companies believed that they did not fall within the definition because they were only introducing work-seekers to potential employers and the tutoring companies did not themselves do anything which resulted in the employment of tutors; many would remain self-employed after the introduction. These companies also charged for additional on-going services such as payment collection and administration services.

The court was not convinced of this argument and it was found that the term “employment” under s.13(1) of the Act was wide enough to include those candidates who go on to provide services as a self-employed, independent contractor. This interpretation of the Act means that it captures a broader class of people, specifically those organisations that supply labour.

The judge, in this case, provided a useful summary that “where a business holds itself out as a ‘middleman’ between a person who needs services and the person offering to supply them, the protective terms of the [Act] and the regulatory requirements of the Conduct Regulations will usually apply to the ‘middleman’ business for the protection of work-seekers, hirers and work-users”.

Comment
Whilst this case does not change the position of the law, it does provide firm clarification that businesses or agencies which offer “introductory services” will still be caught by the Act. This is particularly important now as there are many businesses looking at alternatives to traditional employment structures.

Many people are now looking for flexible, innovative ways of working, especially with the effect of the COVID-19 pandemic. We are seeing across multiple industries that more people are working in a “gig economy” meaning that there is an increase of individuals working independently by doing ad-hoc freelancing work, providing consultancy services or operating as an independent contractor.

Businesses who find work for work-seekers or who supply temp-staff to other organisations will need to comply with the Act, even if the worker is contracted on a self-employed basis after the introduction is made. Failure to comply with the Act or Conduct Regulations could be costly. Most notably, businesses in breach risk being charged an unlimited fine and even prosecution.

If your business:

• supplies labour to customers;
• introduces work-seekers to potential employers;
• facilitates work opportunities for the self-employed, independent contractors or consultants; or
• charges a fee/commission for making the introductions,

you may be caught under the Act and could be subject to regulation.

If you would like some further advice regarding this and to understand how you can protect your business through your contracts, please contact Rumandeep Dhariwal from our commercial team or a member of our employment team.

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