'IT contractor the loser of a botched bid to prosecute recruiter'

A limited company IT contractor whose recruiter withheld more than £15,000 was last night labelled as ‘the clear loser of a botched attempt’ by the business department to enforce the Employment Agencies Act (EAA) and Conduct Regulations.

John Butt, of IT firm Clearwater Consulting Ltd, must have hoped that business officials could make the charges stick against the recruiter, Contractor Networks Ltd (CNL), in line with the department’s allegation that CNL acted for him as an ‘employment business.’

That’s because under the EAA and Conduct Regulations, employment businesses are prohibited from imposing fees on workers, and from imposing detriment on workers in relation to what they do after they finish working through the employment business.

These provisions related to payment for work performed by Mr Butt via CNL for a client, Mouchel, which wasn’t paid, and despite his CNL contract having finished, its terms were cited by the agency to seek an additional £39,600 to allow him to ‘go direct.’

Such actions by the agency, which would be in breach of the EAA and Conduct Regulations, if the EAA and the Regulations actually applied, were alleged by the Department of Business, Innovation & Skills (BIS) to be imposing a restraint of trade on the IT contractor. BIS also made charges against Jason Howlett, a CNL director.

In court, the judge pointed out that Mr Butt and his company had agreed to opt out of the 2003 regulations, although this seems to have been ineffective because the agency failed to prove that it had notified the client of this at the outset (as the regulations require).

So the judge decided that ultimately, “the issue before me” is whether CNL meets the definition of an ‘employment business,’ as defined under the Employment Agencies Act.

But, contrary to BIS’s claim that Mouchel took “control” of the IT contractor and his company, the judge found that Mr Butt was not any time “under the control of other persons” -- an essential criterion of what constitutes an ‘employment business.’  

In fact, to be an employment business, the recruiter must be in a business “supplying persons, in the employment of the person carrying on the business, to act for and under the control of other persons,” states Section 13(3) of the act.

“It is the last part that is the crucial bit -- ‘under the control…’” reflected Egos, a legal firm specialising in contract law.

“This case looks, to us, like a botched attempt to enforce the provisions of the Employment Agencies Act and the Conduct Regs

“That’s because on the basis of what we have seen it’s questionable whether any evidence was produced [by BIS] to show the contractor was working subject to the predominant practical control of the client over what he did -- which seems to us to be what the law requires.”

The judge confirmed: “In the absence of Clearwater Consulting Limited or Mr Butt coming under the control of other persons, I am satisfied that [the] consultancy agreement does not fall within the realm of the Employment Agencies Act 1973 and that the company has not committed the offences alleged.

“It follows that the charges against Mr Howlett as director are also dismissed.”

Egos’ Roger Sinclair reflected: “In regards to the IT contractor at the centre of the case, he clearly and completely lost.

“My advice to other contractors is read your contract; understand it, and don’t sign it unless you’re prepared to be bound by every single provision of it and then, once signed, honour it -- just as you expect the other party to honour their part.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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