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Confirmation from the High Court that Independent Contractors are covered by the Recruitment Industry Regulatory Regime

Posted on 08 February 2021

Most established staffing companies are well aware and accept that independent contractors (self-employed individuals and company contractors) can be covered by the recruitment industry regulatory regime and are able to benefit from the protections afforded to work-seekers by the Employment Agencies Act 1973 (the Act) and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the Conduct Regulations). However, this was confirmed in an interesting case heard by the High Court in the latter half of 2020.

Nine "tutor introducing companies" applied to the High Court for a judicial review of the Department for Business, Energy & Industrial Strategy's (BEIS) decision that businesses like theirs must comply with the recruitment industry regulatory regime. The companies introduce private tutors to parents who then pay an introduction fee if they decide to hire a tutor for their children. The hired tutor provides their tuition services directly under a self-employed contract for services with the parents. The parents pay the tutor's fees into a client account held by the "tutor introducing company" and the fees are transferred to the tutor from the client account. The "tutor introducing companies" did not consider their businesses to be employment agencies within the scope of the recruitment industry regulatory regime because, in their view, the parents' engagement of the tutors as self-employed individuals meant that relevant definitions in the Act were not satisfied.

"Employment agency" and "employment" are defined in section 13 of the Act. An "employment agency" is defined as "the business (…) of providing services (whether by the provision of information or otherwise) for the purpose of finding persons employment with employers or of supplying employers with persons for employment by them". The definition of "employment" includes "employment by way of a professional engagement or otherwise under a contract for services" and provides that "'worker' and 'employer' shall be construed accordingly". "Contract for services" is a term used in employment law to describe a self-employed contract (as opposed to a "contract of service" which is a term used to describe an employment contract).

The High Court refused the companies' application for judicial review and instead made a declaration that the definition of "employment" in section 13 of the Act includes natural or legal persons (which means individuals or entities like companies) who provide their services on a self-employed basis as an independent contractor. The High Court's declaration means that the "tutor introducing companies" must operate within the rules as an "employment agency" and comply with the Act and the Conduct Regulations.

This must be the correct approach, not only on a literal interpretation of the definitions in the Act, but also given the purpose of the recruitment industry regulatory regime, which is to protect candidates, hirers and vulnerable people, like children. The imposition of a restrictive definition could have had potentially harmful consequences, for example, if a business is not obliged to carry out the checks required by the Conduct Regulations on tutors intending to work with young children.

Established bricks and mortar businesses are likely to be aware of the need to comply with the recruitment industry regulatory regime. However, newer businesses which only host online platforms or apps to help employers and work-seekers find each other should, in particular, take heed of the High Court's declaration. Some operate in ignorance of the potential application of the recruitment industry regulatory regime. Others are aware, but consider that their hosting role is insufficiently active to bring the business within the scope of this regime or, as here, that the way the work-seekers are engaged removes the business from scope. However, as can be seen from the definition of "employment agency", simply providing information on a website or app puts a business into the realms of this regime and the measures for protection it requires, and the broad definition of "employment" captures most types of work-seekers. Our experience in this area shows that BEIS generally prefers to help businesses comply with the recruitment industry regulatory regime. However, businesses should be aware that the potential consequences of non-compliance include being barred from running the business for several years and prosecution for the criminal offence of failure to comply with the Conduct Regulations. Compliance is therefore crucial.

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