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FCSA challenges Lawspeed on umbrella contract clause

FCSA is disappointed that Lawspeed’s recently updated umbrella contract includes an unreasonable clause and has advised umbrella firms not to sign or accept the new terms.  The contract requires umbrella firm directors to personally guarantee against any risk arising from T&S expenses relief.  However, under the new legislation the only instance where a tax liability could be passed on to a recruiter is if they provide fraudulent information regarding the SDC status of a worker to the umbrella firm.  The provision of fraudulent information is outside the control of the umbrella firm, and therefore it is unreasonable to require umbrellas to mitigate against this risk.

Paul Chamberlain, Partner and Head of Employment and Pensions at Brabners LLP said: “The recent legislation changes, whether we like them or not, actually clarify the position with regard to tax risks in the supply chain, making a personal guarantee in the majority of cases unnecessary.  I could understand it being a requirement in contracts prior to April 2016, where the risks to agencies were much more wide-ranging and unpredictable, but now that the law has been clarified, the risks are obvious and easier to deal with if the agency does its due diligence properly.  Rather than a ‘one size fits all’ approach to these types of clauses, in any contractual situation we would recommend that both parties consider their respective exposure, how they ought best to work together to reduce or eliminate risk and, importantly, agree terms that accurately reflect their relationship.”

Robert Weekes, London Office Managing Partner at employment law firm Squire Patton Boggs said: “A personal guarantee in favour of the agency appears extreme in the context of the T&S rules.  Well drafted warranties and indemnities from the umbrella, together with due diligence should give the agency the protection it needs in relation to this legislation.”

Julia Kermode, CEO of FCSA added: “Not only is the clause wholly unreasonable, I am concerned about umbrellas unwittingly signing such terms, which is why we have alerted all FCSA Members and Associates to the issue.  For the same reason, we have decided to issue a statement outlining our position so that we might reach non-members.

“Umbrella firms with robust legal and compliance processes are unlikely to agree the terms, thus Lawspeed clients that do not amend this contract term will be precluded from the protection of working with the most reputable firms in the sector.  This could ultimately put the agency and its supply chain at risk.

“We are pleased that, as a result of our advice, our members have seen a number of agencies agreeing to negotiate the contract terms.  By working together for mutual benefit, agencies and umbrellas will continue to build true partnerships with supply chain compliance at their heart.”