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Worker claims unpaid wages from agency despite “umbrella” payment company

BY Donald MacKinnon
Employment Law & HR

A worker has won a legal battle to have his employment relationship with an agency recognised, even though he was ostensibly engaged by an intermediary company who paid him. Such “umbrella company” arrangements have become more common in recent years and have blurred the lines of the traditional employer – employee relationship, making it difficult to clearly identify the employer and the individual’s employment status.

The way in which umbrella company arrangements generally work is that the employee or worker seeks work through an employment agency which sources work for the individual. Instead of being paid directly by the agency, they are paid by an intermediary company. The individual is often charged a management fee by the intermediary.

In this case, the claimant was charged £18 per week in a management fee and, after working for a couple of months, was asked to sign a contract which stated that he was neither a worker nor an employee. He refused to sign the contract and continued working for a further two months until he was dismissed after taking a holiday.

He pursued the agency in the Reading Employment Tribunal, seeking compensation for unlawful deductions from wages and for failure to pay holidays. However, he was unsuccessful on the grounds that he was not a worker of the agency and there had been no intention to create legal relations with the agency. He appealed that decision and was successful at the Employment Appeal Tribunal. The EAT found that the commercial reality was that there was a contract of some kind between the Claimant and the agency.

The case is the first appellate decision of its kind and gives much needed clarity for those entering into such arrangements.

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