Supply of labour regulations - will your business be caught

This year, many online businesses have welcomed an increase in clients due to the restrictions that have been imposed because of the Covid-19 pandemic. Increased demand for innovative solutions does, however, gives rise to increasing scrutiny of how such non-traditional business models should be regulated.

Businesses which supply labour (as opposed to services) are regulated by legislation including the Employment Agencies Act 1973 (EAA) and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (Conduct Regulations). These laws provide a framework of protection for both employers and workers by regulating the activities of intermediaries, such as recruiters.

The recent case in the High Court (HC) concerned nine tutoring companies, whose business is to introduce tutors to parents, who may then enter into contracts for services with the tutors to provide home tuition to their children. The companies were challenging a finding that they were labour suppliers and so required to comply with this legislation. 

Employment agencies and employment businesses

The question at issue was whether the tutoring companies fell within the definition of an “employment agency” or “employment business” as defined in section 13 of the EAA. In summary:

• an “employment agency” - more commonly known as a recruiter, agent, head-hunter or job-board - makes introductions to hirers who then engage work-seekers directly

• an “employment business” - more often referred to as a temping or staffing agency - supplies labour to hirers on a temporary or ongoing basis.

Further information on whether your business may fall within one of these categories can be found in our Inbrief on staffing solutions and the supply of labour.

The Employment Agencies Standards Inspectorate (EAS), which is responsible for enforcing the EAA and Conduct Regulations in the business community, had repeatedly warned the tutor companies that they were in breach of statutory regulation and faced prosecution. The tutor companies objected on the basis that the tutors in question were all self-employed independent contractors, so their business model did not meet the definition of either an “employment agency” or “employment business” as set out above. They then decided to bring an application for judicial review, seeking a declaration from the High Court to overturn the EAS’s determination.

High Court’s decision - what does “employment” mean?

The HC dismissed the companies’ application, ruling that the term “employment” in the legislation was very broad and included "employment by way of a professional engagement or otherwise under a contract for services". This meant that the definition covered persons who provide their services on a self-employed basis as an independent contractor, and the meanings assigned to “employment agency” and “employment business” should be interpreted accordingly. 

The HC’s expansive approach to the definition of “employment” in the EEA demonstrates a willingness to interpret existing legislation to meet the realities of innovative business models and the modern staffing market. The judgment also emphasises the protective purpose of the regulations and especially the need to protect vulnerable persons, in this case the children with whom the tutors would be working. 

Looking ahead – how we can help

The growth of self-employment in the staffing market shows no sign of slowing down. In addition, many businesses are focused on flexible staffing solutions and innovative service lines with a view to bouncing back from the impact of the pandemic. In the developing climate, it is important for companies to be aware of how changes to their business models may inadvertently move them into the highly regulated space of labour suppliers. Following the HC’s extremely wide interpretation of “employment”, businesses should regularly review their labour-supply arrangements to ensure compliance with the legislation outlined above.

At Lewis Silkin, we can:

• advise on whether business models are likely to fall within the regulatory regime, helping you to avoid any potential financial penalties, employee disputes or reputational or business implications

• review and update terms of business with both employment agencies and employment businesses, as well as terms of engagement for work-seekers

• provide advice and support for businesses undergoing an EAS audit or inspection.

Please get in touch with us or your usual Lewis Silkin contact if you require any assistance in this area.

Simply Learning Tutor Agency Ltd and others v Secretary of State for Business, Energy and Industrial Strategy – judgment available here

The Claimants lodged an appeal against the High Court’s decision in September 2020, which was subsequently refused on 28 January 2021.