Here’s the rub, umbrellagate could cause chaos

Following my article on 31st March, concerns around attempts to whip up support for a group claim against umbrella companies remain. The allegation is that agencies are breaching regulations in referring workers to umbrella companies on a PSL, and umbrella companies are making unlawful deductions of NICs. The lead player appears to be Umbrella Reclaim (UR), and since the ramifications of its allegations could be highly negative, further comment is warranted.

Under Regulation 5 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003, it is unlawful for an employment business to make the provision of work-finding services conditional upon the use of another service (e.g. an umbrella) ‘with whom … it is connected’. This Regulation has been relied upon to support statements about the inappropriate/unlawful use by agencies of umbrella PSLs.

However, the word ‘connected’ is defined in Regulation 3 and means certain family connection or shared director responsibilities. It specifically does not mean connected ‘in any way’. Referral to R.5 therefore is misleading without this explanation. So, for example, the Solicitors operating the UR group action website may want to change their blog to include this explanation, to ensure that workers could not be misled into believing that having a PSL means that the agency is connected to the umbrella and is therefore acting unlawfully by referring workers to a PSL member. Apparently some 1200 workers have already registered and been asked to stump up funds/register on that basis since UR’s launch last year.

From my experience, most agencies are not ‘connected’ to an umbrella company on a PSL, although of course some may be.

For group actions an investigation to assess the merits of each case in advance of requesting funds would not go amiss. In comparison no funds at all are requested in advance by the Solicitors running the various group diesel car claims. I alluded to this in my article of 31st March and it appears that UR has taken note as it has now uploaded an claims eligibility checker on its website. The checker is accompanied by a video that features a fictional umbrella worker ‘Dave’. The video maintains that “Dave, like a lot of people has been subject to unlawful deductions”. The implication is that it is a fact that a lot of umbrella workers are subjected to unlawful deductions. Are they, and is that right? No evidence is referred to.

The video goes on to say that if you answer ‘yes’ to the question “Do you suspect you have been deprived of any holiday pay entitlement? then “you will have a claim” (bold added by me for emphasis) and so you should register with UR. Is this misleading? In all my years in the legal business I have never seen a holiday pay claim based on a suspicion; a case is based on fact not surmise and these kinds of cases are always fact specific. There still remains no proper eligibility check as part of UR’s registration process.

Make of the above as you will, but these statements are clearly intended to support UR’s arguments for a group claim, so inducing workers to register.

Without wishing to labour the point UR also seems to encourage workers to keep their identity secret so that their umbrella employer has no idea that a claim might be coming. Under the heading “Complete Anonymity” it says “We appreciate that many workers will not wish their umbrella companies to know that they propose to seek the recovery of moneys from them”, and “we intend to keep their identities confidential until the last possible minute” UR seems to imply ‘say nothing to your employer’. Is this really good advice? Remaining silent could prejudice every worker who fails to do the one thing that every employee should do when they have a grievance around unlawful deductions. That is to take it up with their employer, noting that in some cases the legal time limit for a claim may run out 3 months after the act complained of leaving the worker with little potential for a Tribunal claim. Public policy dictates that employers and employees should resolve disputes wherever possible without reference to the courts; hence the ACAS Code on disciplinary and grievance, coupled with the discretion for the Employment Tribunal to adjust awards when this is not used.

However, here’s the real rub. Umbrella companies are not manufacturers of diesel cars fitted with defeat devices (NOx emissions cheating systems), who are good for the money and whose attempts to fool the regulator and diesel car buyers may warrant group action. Volkswagen isn’t going to stop making cars. Everyone in this industry knows (and lawyers should know if a claim is to be launched) that umbrella companies have few reserves. Any sizeable claim against an umbrella employer risks its collapse. So by all means bring a group action if one can ever get off the ground, and then see how many other contractors will end up unpaid to one extent or another in the fallout. This could include all the other umbrella workers working through that company, the workers who brought the claim in the first place, all staff employees of the company, who incidentally will lose their jobs. Whilst there is statutory protection for unpaid employment income, it it is limited and the delay in getting payment from the government may be significant. To top that, there will likely be considerable direct and indirect confusion in the supply chain from top to bottom, as word of the claim gets out.

These risks and consequences should be considered when giving advice since they are eminently foreseeable. Is UR really hoping to negotiate and win a 25% fee against this backdrop? Or are they just happy with the registration fees? ‘Umbrellagate’ may turn out to be correctly named ‘dampsquibgate’ for the claimants, but cause chaos in the process.

In my opinion those workers genuinely concerned about unlawful activity by umbrella companies and agencies should not fall for the group claim ruse and those that have stumped up the admin fee should ask for it back. All should be made aware that they can obtain free advice from ACAS and the Citizens Advice Bureau. Referral to the department of BEIS and/or HMRC, one or other of which may be willing to investigate, is also free. Noting that issuing proceedings in the Employment Tribunal requires no fee to be paid, single genuine cases can easily be pursued. None of these steps would result in the potential consequences I have highlighted.

In conclusion everyone should be wary of organisations that promise the earth and/or a quick fix to what are often difficult and fact specific legal issues. This kind of allegation (that a group claim exists), made seemingly without any real evidence or foundation (unlike dieselgate) is merely an example of incorrect allegations surrounding the new IR35 rules and their potential consequences. Recruitment businesses have had to act to comply because that is the law, and it does no good at all to whip up emotions unnecessarily. So called ‘experts’ jumping onto this ‘umbrellagate’ bandwagon may well have set themselves up for a fall as hype should be seen for what it is.

None of this is to say that everything should be left as is. There have been many calls for regulation of the umbrella industry which has long served the recruitment sector, but also, because of the actions of some, has long concerned many including recruitment businesses. Perhaps the sooner regulation is brought forward the better for all concerned.

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Controversy about employer’s NIC deduction by umbrellas unjustified