If you introduce or supply individuals such as carers, tutors, therapists, interpreters or translators to clients, you could unwittingly find yourself within the scope of recruitment regulations.
Here, Simon Whitehead — Partner and lead of our recruitment and workforce solutions team — explores a landmark case that is having a significant impact on the recruitment industry and beyond.
A reminder of the legal framework
Many businesses and entrepreneurs continue to look at disrupting the recruitment industry. We are regularly approached by businesses that are either looking to circumvent the regulatory framework or are simply unaware of the existence of the regulations that govern the sector.
The outcome of the Judicial Review raised by Simply Learning Tutor Agency Limited (and others) in 2020 serves as a reminder of the regulations that need to be complied with and confirms the wide definition of ‘employment’ for the purposes of the EAA (Employment Agencies Act 1973). It provides much-needed clarity for those disruptors that are looking to use different business models to introduce work seekers to hirers.
In the Judicial Review case, the Court found that “tutor-introducing companies” who introduce self-employed tutors to parents were subject to the EAA and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the Conduct Regulations). As such, tutor-introducing companies are unable to charge work finders for work-finding services and must ensure compliance with the Conduct Regulations. Failure to comply would mean that the Employment Agency Standards Inspectorate could apply to the Employment Tribunal for an order that prohibits a person from carrying on (or being concerned with the carrying on of) an employment agency. The failure to comply with a prohibition order is a criminal offence.
Government tutoring investigation
Private tutoring is a booming business. In recent years, a host of companies have been established that operate by providing ‘introduction services’, where they introduce tutors to parents for a fee. Parents usually engage with the tutors directly on a self-employed basis, though sometimes the introduction service provides further ancillary services, such as ongoing administrative or payment collection services.
The Department for Business and Trade (known at the time as the Department for Business, Energy and Industrial Strategy) investigated some of these organisations and concluded that they fell within the scope of the EAA. This was significant due to the additional regulatory compliance that would apply. The businesses disagreed and ultimately brought a judicial review application to ask the Courts to make a declaration as to who was correct.
The question hinged on whether the relationship between the tutors and the tutor-introducing companies who supplied them fell within the definition of ‘employment’ under section 13 of the EAA. The tutoring businesses argued that the tutors were not caught by this definition, but the Secretary of State disagreed.
Legal definitions
Under section 13 EAA, employment is defined as including “employment by way of a professional engagement or otherwise under a contract for services.”
The tutor-introducing companies maintained that tutors could not come under this definition because they did not do anything that resulted in ‘employment’ of the tutors. At all times, the tutors were genuinely self-employed. They suggested that it was wrong to include contracts for services within the EAA definition of ‘employment’, relying on the Supreme Court’s judgment in Pimlico Plumbers & Another v Smith [2018] UKSC 29 by asserting that the tutors neither operated under a contract of service of the tutor-introducing companies, nor of the parents to whom they were supplied.
In particular, they argued that the purpose of their business was wholly different to that of an employment agency, which aims to find employment for workers. They also pointed out that they were not acting as employment businesses (which employ workers themselves and temporarily send them to work elsewhere) arguing that they were simply engaged in introduction and fee collection and as such should not fall within the scope of the EAA. In turn, this would mean that the tutor-introducing companies could escape regulatory oversight by the Employment Agency Standards Inspectorate and continue to charge fees to the tutors for work-finding services.
Unfortunately for the tutor-introducing companies, these arguments did not carry any weight with the presiding Judge, Helen Mountfield QC, who “found these arguments wholly unpersuasive, both as a matter of language and as a matter of purpose”.
The Judge held that the definition of ‘employment’ under the EAA did include these sorts of arrangements, as it was intended to be a wide definition that included “all arrangements through which a business supplies people personally to perform work to a third party, whether or not that is regarded as employment, professional engagement or self-employment under a contract for services as a matter of common law”.
Could you also be caught by these regulations?
The Judge’s decision means that the definition of ‘employment’ for the purposes of the EAA is much wider than the ordinary definition in employment law — which in turn means that a whole host of businesses who might have thought they were exempt from the regulatory and compliance requirements will not be.
If you are one of those businesses (or working with one of those businesses), it's important that the business models are reviewed urgently as the Employment Agency Standards Inspectorate is likely to rely on this decision to ensure regulatory compliance.
Although this case recognised and confirmed that each case is fact-sensitive, confirmation that the definition of employment in the EAA is to be interpreted widely may affect other areas of the gig economy. Again, if you are introducing workers or contractors to third parties (or working with companies operating like this) and are not currently ensuring compliance with the regulatory framework which applies to the recruitment sector, you need to review your position.
What has changed since 2020?
Since 2020, we have seen the principles from this case applied not only to businesses supplying self-employed tutors, but also carers, therapists, linguists and translators.
The Employment Agency Standards Inspectorate is actively looking into tutor-introducing companies to check that they are now compliant with the relevant regulations. We also understand that the Department for Business and Trade has recently warned businesses that supply linguists and translators to the public sector through the Crown Commercial Service that they may be in scope of the EAA and the Conduct Regulations, meaning that such businesses need to urgently review their operating models.
If you need help with any issues arising from this case or want to review whether your business model is compliant, complete our contact form below.
