Forced to choose an Umbrella company is this legal

**centurian** · 24 October 2009, 08:43

This question gets asked every now and then. Put simply it's perfectly legal. It's a business to business transaction. As such, the agent can insist that they only deal with selected 3rd parties.

The odd thing is that you say you've "just started a new contract" - wasn't all this tied up and established before you started.

**daniel3v6** · 24 October 2009, 22:32

well I was working for one agency with an umbrella company and then they contract ended abruptly and basically I started a new contract the following monday. I expected to be able to still use my umbrella company but because they wern't on their "list" I couldn't. Im not 2 weeks in to the contract and still havent been paid as this hasnt been sorted.

I don't earn alot so i'm reluctant to pay for all the insurances related to starting a ltd company and its also its only a 3 month contract (possibly longer) so I don't want to pay for a years insurance.

**Brussels Slumdog** · 27 October 2009, 10:22

Approved list

Originally posted by daniel3v6 View Post

Hi,

I've just started a new contract with reed and they have an "approved list" of umbrella companies, I am very happy with the one I have now but they refuse to let me use them. Is this legal? can they corner the market like that?

Sorry if this has an obvious solution but im still quite new to contracting

thanks in advance

The reason I have been told is some agencies have an "approved list" is because they require the umbrella companies to provide certain insurance cover and have been Credit checked. Most will not deal with Channel Island companies

**Not So Wise** · 27 October 2009, 10:51

Originally posted by Brussels Slumdog View Post

The reason I have been told is some agencies have an "approved list" is because they require the umbrella companies to provide certain insurance cover and have been Credit checked. Most will not deal with Channel Island companies

While true, other main reason is kick backs. Most agencies gets percentage of umbrella's profits/margins for all work agency sends their way

And yes it is legal to refuse to do business with your current umbrella, any company can refuse to do business with another company for nearly any reason (some limited exceptions apply).

Most of the big agencies now have pref umbrella lists, so unless you want to be changing your umbrella each time you change contract best going Ltd

Umbrella's are being stupid by trying to tie agencies to them, sooner of later most contractors will realise the above and make the switch, short term gain for long term loss of their industry

**Brussels Slumdog** · 27 October 2009, 11:21

Originally posted by Not So Wise View Post

While true, other main reason is kick backs. Most agencies gets percentage of umbrella's profits/margins for all work agency sends their way

This argument holds true for overseas contracts when some of the management companies on their list are on the avoid list of most of the contactors from this forum.

**brollyman** · 27 October 2009, 11:22

Originally posted by Not So Wise View Post

While true, other main reason is kick backs. Most agencies gets percentage of umbrella's profits/margins for all work agency sends their way

It's actually VERY rare for an agency to receive a kickback from an umbrella company, indeed with many of the large agencies, it's actually an act of gross misconduct for any member of staff to receive an inducement from an umbrella company. The days of £50 per referral from an agency are pretty much over.

The main reason for agencies having an approved list is due to the influence of third parties such as Lawspeed and Professional Passport carrying out audits of umbrella companies and giving them a risk rating which is provided to the recruitment agency.

My firm is going through this process at the moment so I'll let you know how it works:

We want to get a share of the umbrella company contractors from Agency A. Agency A say they will only allow their contractors to use umbrella companies that have passed Third Party A's Service Provider Approval process as that will protect the agency from any potential Debt Transfer problems.

My firm then gets thoroughly audited by Third Party A and is given a risk rating. Assuming that we are found not to be a risk and are a pure umbrella, we are put on the Third Party A approved list which is then provided to the Agency.

The umbrella company pays many thousands of pounds to Third Party A for the audit but is then allowed to put a "Accreditation" on its publicity material and will appear on the approved lists of all of the agencies who use Third Part A's SPA process.

And this is the reason that many Agencies will only use companies that appear on their list.

This process has thrown up some strange situations....the largest Umbrella company has chosen to be audited by Third Party B rather than Third Party A and are therefore not able to look after contractors from some of the agencies who have consistently referred contractors to them for many years!

So it's not about back handers any more.....

Forced to choose an Umbrella company is this legal