Reform of Agency Working – Clamping Down on the Umbrellas

There are a lot of scams out there. Only the other day I fielded three automated calls in the space of an hour telling me that there were irregularities with my National Insurance number and I was about to get immediately arrested if I didn’t hand over my bank details to a mysterious phoneline. Suffice to say, I declined the offer, the police didn’t descend and at the time of writing I am still a free man.

Things like this are a massive pain in the backside but what is more infuriating is when scams are lawful and tolerated by the state. One immediately thinks of the various measures which rich people and multi-companies use to avoid paying tax, by registering themselves off-shore and stashing their money in tax havens.

A good employment law example is the use of umbrella companies. These mysterious organisations are often used by employment agencies to ‘employ’ workers on agency worker contracts. When the worker attends the agency on Day 1 they are given a contract to sign under which their employer is the umbrella company. From then on they are paid through the umbrella company but otherwise do not have any direct contact with it.

In fact, these companies are generally phantom bodies which exist simply to process fees and payroll. They do not intervene in employment matters and would not have the capacity to do so. The agency worker does not generally have any relationship with the umbrella company or even a central point of contact. Day to day issues relating to attendance, sickness or conduct are dealt with through the agency.

The advantage of umbrella companies from the point of view of employment agencies and the companies who use them is that it shifts liability to a third party and thereby creates a layer of obfuscation and confusion about who is ultimately responsible for issues such as the proper payment of tax, or sickness and holiday pay. When there is a dispute it is unclear whether the worker should complain to the agency, the umbrella, or the ‘end-user’ company where they are physically sited, with each likely to pass the buck onto the other.

This is a confusing and dispiriting situation to be in and all but the most committed of complainants are likely to give up. I have run tribunal claims against umbrella companies before and the first stage in proceedings is generally a complex preliminary hearing to establish who is legally responsible for the claim. This is likely to be well beyond the capability of the average agency worker who is generally poorly paid, not in a trade union and unlikely to be legally represented.

The Trade Union Congress (TUC) estimates that up to half of agency workers in the UK are employed by umbrella companies and is calling for a ban on their use.   The TUC has called for a legal obligation for employment agencies to directly employ staff they place, as well as making all companies in supply chains liable for upholding workers’ rights. According to the TUC president Frances O’Grady:

“Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries. Enough is enough. It’s time for ministers to ban umbrella companies, without delay.”

It is difficult to argue with this sentiment but this does not mean that positive change is likely to happen. A number of large companies use and benefit from these arrangements and have the ear of government ministers. Sadly the agenda of these companies is more likely to be focused on attacking the very limited protection for agency workers which currently exists rather than any kind of positive reform of the law.

This blog was prepared by Mark Alaszewski, employment solicitor at didlaw.