Warning for companies introducing workers to third parties

There are many businesses and entrepreneurs that continue to look at disrupting the recruitment industry. We are regularly approached by businesses either looking at circumventing the regulatory framework or just unaware of the existence of regulations which govern the sector.

The recent outcome of the Judicial Review raised by Simply Learning Tutor Agency Limited (and others) 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 Employment Agencies Act 1973 (the EAA) providing some much needed clarity for those disruptors who are looking to use different business models to introduce work seekers to hirers.

In this Judicial Review case the Court found that “tutor introducing companies” who introduce self-employed tutors to parents were subject to the EEA and the Conduct Regulations and, as such, were unable to charge work finders for work finding services and had to ensure their 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 prohibiting a person from carrying on or being concerned with the carrying on of an employment agency and any failure to comply with a prohibition order being a criminal offence.

Factual background

Private tutoring is a booming business. In recent years, a host of companies have been established that operate by providing “introduction services”. In other words, they introduce tutors to parents for a fee. Parents then usually engage with the tutors directly on a self-employed basis, although sometimes the introduction service provides further ancillary services. For example, they might provide additional ongoing administrative or payment collection services.

The Department for Enterprise, Innovation and Skills (BEIS) investigated some of these organisations and reached the conclusion these businesses fell within the scope of the EEA. This is significant because of the additional regulatory compliance that would apply to these businesses as a result.  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 tutors, who the company introduces to parents (but who provide subsequent services under contracts of services directly with the parents) fall within the section 13 of the EAA definition of “employment”. The tutoring businesses argued that the tutors were not caught by this definition, but the Secretary of State disagreed.

The Legal Arguments

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 argued that they did not do anything which resulted in ‘employment’ of tutors either by themselves or the end clients. They suggested it was wrong to include contracts for services (such as these) within the EAA definition of “employment”. They relied 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.

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 send them to work elsewhere temporarily. They argued they were simply an introduction and fee collection business.

As such, they argued they should not fall within the scope of the EEA. In turn, this would mean the tutor introducing companies could escape regulatory oversight by the Secretary of State for Business Energy and Industrial Strategy 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 argument 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”.

Conclusion

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 be relying on this decision to ensure regulatory compliance.

Although this case recognised and confirmed that each case is fact sensitive, the confirmation that the definition of employment in the EEA is to be interpreted widely may affect other areas of the gig economy and again, if you are introducing workers or contractors to third parties or working with companies operating like this and not currently ensuring compliance with the regulatory framework which applies to the recruitment sector then you need to review your position in light of this case.

Please contact Simon Whitehead or any of the Recruitment Sector team at Brabners if you need help with the issues arising from this case or if you want to review whether your business model is compliant.