Contractors’ Questions: Is my IT recruiter an ‘employment business’?

Contractor’s Question: What degree of ‘control’ over a limited company IT contractor is required to be exercised by a client for the recruiter supplying that contractor to be classified as an ‘employment business’, as defined under Section 13 (3) of the Employment Agencies Act? And does a lack of control mainly explain why the business department was the loser, as well as the IT contractor to a lesser extent, in the BIS v CNL case?

Expert’s Answer: The BIS v CNL case was lost (on the  basis of the judgement that I have seen) because the department of Business, Innovation & Skills (BIS) failed to adduce evidence to show that, day-to-day, Mouchel (the client) told Butt (the IT contractor) what tasks needed to be done, even though that may well have been the case.

In the instance where an IT contractor is working through their own limited company, he or she has the right to opt-out of the Conduct Regulations, although not to opt-out of the provisions of the Employment Agencies Act (EAA) itself. The key to this lies in the definition of what an ‘employment business’ actually is, and it’s defined in section 13(3) of the EAA.

In fact, Section 13 (3) of EAA states an “Employment business means the business…….. of supplying persons, in the employment of the person carrying on the business, to act for and under the control of other persons in any capacity”

It is the last part – ‘under the control…’ that was the crucial bit in the BIS v CNL case, but also in the case of Accenture v HMRC, which the judge in the BIS/CNL case referred to.

It was argued in the Accenture v HMRC case, and the judge agreed, that:

  • ‘Control’ must mean less than the full form of control required to establish an employment relationship
  • ‘Control’ relates to day-to-day control over the staff in respect of ‘the activity contemplated by the supply agreement’, or ‘the matter in hand’
  • To assess ‘Control,’ it requires an “overall evaluative judgment to be made whether the predominant power of control of what the employee does has been transferred … to ‘other persons”
  • “Where control is divided between different persons, the natural meaning of ‘the control’ is the predominant practical control over what the person does”
  • the control” suggests that merely “any significant level of control” would not be sufficient.

In the Accenture v HMRC case, Accenture had accepted outsourcing some staff from Barclays and taken over employment of the staff, but Accenture effectively managed the staff and Accenture remained in control -- in predominant control -- over what the persons did.

Turning to the case you ask about (BIS v CNL), what surprises me is that the prosecution was brought without BIS being sure that they could establish that the worker was actually working under the control of the client, where control has the meaning that was clarified in the Accenture case.

I have to say that, based on the judgement in the BIS v CNL case, it doesn’t look like that was the position and it’s questionable that any evidence was produced that the contractor (Butt) was working subject to the predominant practical control of the client (Mouchel) over what he did. And if that was the case, then the prosecution was doomed to fail. One could go so far as to say that maybe BIS should have known better.

The expert was Roger Sinclair, legal consultant at Egos, a specialist in contract law.


Tuesday 11th Mar 2014
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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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