The Employment Rights Bill (“ERB”), which was first published on 10 October 2024, has been amended this month following public consultations and debates within the House of Commons. The ERB remains draft legislation, so it could well be amended further before it eventually passes into law.
The latest updates which impact umbrella companies and agencies in particular are summarised below.
New Definition of Employment Business
One of the notable amendments to the ERB is the revised definition of an ‘employment business’. This definition forms the basis of the Conduct of Employment Agencies and Employment Businesses Regulations 2003, commonly known as the ‘Conduct Regulations’. The new definition will include an employer of a person who is supplied to act for, and under the control of, a third party. Existing case law has already established that “employer” in this context includes where the individual is self-employed or otherwise engaged under a contract for services (i.e a worker).
This broader definition ensures that umbrella companies are brought within the definition of an employment business and are subject to the same regulatory requirements as traditional recruitment agencies.
Regulation
Bringing umbrella companies within the definition of an employment business means they will fall under the remit of the Employment Agency Standards Inspectorate (‘EASI’), which will later be amalgamated into the new Fair Work Agency (‘FWA’). The EASI/FWA will oversee the enforcement of the Conduct Regulations on umbrella companies, aiming to address concerns about workers being deprived of their rights and ensure consistent regulatory compliance across the sector.
Umbrella companies will need to ensure that their practices align with the Conduct Regulations, including maintaining accurate records, providing transparent contracts, and ensuring appropriate treatment of workers. This may involve additional training for staff, updating internal processes, and investing in compliance management systems.
No opt-out
Another implication of bringing umbrella companies within the definition of an employment business is that most umbrella workers will no longer have the option to opt out of the Conduct Regulations. ‘Corporate work-seekers’ (i.e workers who provide their services through a company) have the option to opt out of the Conduct Regulations, and as things stand umbrella companies are deemed to be corporate work-seekers for this purpose. However, if umbrella companies are to become employment businesses, rather than corporate work-seekers, then umbrella employees will no longer be able to opt out of the Conduct Regulations because there will be no company in the chain between the umbrella and the worker. Only limited company contractors (PSCs) will retain the ability to opt out of the Conduct Regulations.
Right to Guaranteed Working Hours
In October last year, the Government opened a consultation regarding a proposal to extend the scope of the draft new legislation on guaranteed working hours to cover agency workers (who were originally excluded from scope when the ERB was first published). The Government issued its response to the consultation this month and immediately published amendments to the ERB, extending the right to be offered guaranteed working hours to agency workers on zero-hours or low-hours contracts, as well as the right to be provided with reasonable notice of shifts and shift changes and to receive compensation for shifts which are cancelled or curtailed at short notice.
Under the proposed new legislation, agency workers will have the right to be offered a contract with guaranteed hours based on the average number of hours which the agency worker has worked over a specified period. It is still to be determined how long the reference will be, although 12 weeks seems likely. Additionally, this right will only apply where the worker has a zero-hours or ‘low-hours’ contract and it is not yet known what low-hours means for this purpose. Umbrella companies will be hoping it means fewer than 336 hours, since most umbrella companies already guarantee 336 hours of work a year which would take them out of the scope of this new legislation.
The latest amendments to the ERB clarify that the responsibility for providing reasonable notice of shifts will be shared between the end client and the ‘work-finding agency’. As things stand, the definition of work-finding agency is different to the (extended) definition of employment business mentioned above and seems to exclude umbrella companies, but it is possible that the Government will look to standardise these definitions. The obligation to provide compensation for shifts which are cancelled or curtailed on short notice will fall on the work-finding agency, although they will be permitted to seek to recover any such compensation from the end client through their terms of business.
These changes will necessitate robust and clear communication and coordination between all parties involved in the employment arrangements from umbrella companies to end clients, as the parties will need to collaborate closely to forecast and manage workforce requirements to reduce the risk of any party in the chain falling foul or the requirements and/or being required to pay compensation to workers.
Conclusion
The amendments to the Employment Rights Bill represent a significant shift towards enhancing worker protections and ensuring fair treatment. For umbrella companies, the amendments introduce additional compliance requirements and operational challenges. However, these changes also present an opportunity for well-run umbrella companies to position themselves to agencies and end clients as trusted and compliant partners.
Umbrella companies should keep a close eye on the progress of the ERB as it continues to be debated and amended. It is still too early to start making changes to documents or processes, as key details of the new legislation are missing, but it is recommended that all parties in the labour supply chain begin discussions now about what future arrangements may look like and how the parties can work together to increase compliance and reduce risk.
