Wake-up call to 'middleman' businesses introducing individuals to end-users

The High Court has handed down a significant judgment that will potentially affect all businesses, including platforms, which operate as 'middlemen' introducing individuals to end-users, purportedly on an 'arms-length' basis in which the worker often operates on a self-employed basis. This should prompt an audit of risk by relevant business models.

In judicial review proceedings, Simply Learning Tutors Agency Ltd and others v Secretary of State for BEIS [2020] EWHC 2461, the court has made a declaration that a business which operated as a middleman by introducing tutors to parents, fell within the ambit of the Employment Agencies Act 1973 (EAA 1973). In turn, this meant it was subject to the provisions of the Conduct of Employment Agencies and Employment Business Regulations 2003 (Employment Business Regulations 2003) which place significant regulatory burdens on those bound by them.

The tutoring agency argued that it could not be an employment agency or business. At the end of the day no one got employed, rather the agency was a mere middleman which simply introduced the tutors to parents and forwarded payments on to tutors.

Employment definition does not depend on traditional concepts

It is clear that reference in EAA 1973 (section 13) to "those employed by way of a professional engagement or otherwise under a contract for services" is not confined to traditional employees or workers but may also extend to the self-employed. The meaning of 'employment' within the EAA 1973 is "wide and compendious" and does not depend on a common law understanding of who is an 'employee'.

The judge held that the definition of employment in the Act was intended to include "all arrangements through which a business supplied people personally to perform work for a third party, whether or not that was regarded as employment, professional engagement or self-employment under a contract for services." The policy reasons behind the Act must be had regard to: to protect those seeking work, those receiving services and any vulnerable people (such as children) to whom services are provided.

The judge highlighted some of the onerous provisions contained in the EEA 1973 and Employment Business Regulations 2003, including:

• Restrictions are placed on the charge that may be made to hirers, and work-seekers should not be charged a fee.
• The terms of the contracts between employment agencies, employment businesses and work-seekers are regulated.
• Certain checks must be run on the identity and qualification of individuals where a business is operating as an employment business or agency.
• Work-seekers and hirers are entitled to prescribed information from the employment business or agency.

Businesses in breach of the regulations may be issued with a prohibition notice requiring them to cease operating. Breach of a prohibition notice is a criminal offence which carries significant fines. The Secretary of State also has the power to inspect such businesses to ensure compliance.

For more information about the EEA 1973 and the Employment Business Regulations 2003, and whether or not they apply to your business, contact our Employment team.