24.04.17 Umbrella worker claims unlawful deduction from wages

The case involving Unite member and umbrella employee, Russ Blakely, is the first appeal to the Employment Appeal Tribunal by Unite’s newly formed Strategic Case Unit, which aims to focus on tackling false self-employment and sham contracts in all sectors, including construction.

Unite’s Strategic Case Unit will be dealing with cases and highlighting employers and supply chains where they believe companies are “shamelessly dodging worker rights” via false self-employment and other models.

Russ Blakely worked on an NHS funded hospital redevelopment in Berkshire as a pipefitter from 19 January 2016 until 20 May 2016. Mr Blakely was contacted by an employment agency, On-Site Recruitment Solutions Limited, who sourced him an assignment and stated that he would need to contact an umbrella company, Heritage Solutions City Limited, for payment.

Mr Blakely was engaged by Heritage Solutions City Limited via a Contract for Services and his payslips detailed a weekly margin and deductions for other costs such as employer’s NICs. During the period that Mr Blakely was being paid by the umbrella company, he paid £324 in management fees and £725.59 in employer NICs.

The Contract for Services set out that he was neither a worker nor an employee and so, he was not eligible for statutory rights such as auto-enrolment, holiday pay and sick pay. The contract also included an indemnity clause which was used to dissuade individuals from raising complaints or legal claims against the umbrella company. Mr Blakely refused to sign his contract.

Mr Blakely’s claim, supported by Unite, for unlawful deduction of wages by the umbrella company and for unpaid accrued holiday pay resulted in a total claim between £2,500 - £3,000. However, Reading Employment Tribunal dismissed the claim. Unite’s Strategic Case Unit appealed this decision on the 3^rd March 2017.

Aspire Comment

Ultimately, the awaited decision on this appeal will provide useful case law for future Employment Tribunals when dealing with claims involving agencies and employers that use umbrella companies.

It is important that the role of the umbrella company is clearly explained by the agency that refers a worker to them.  The fact that agencies often advertise a rate of pay inclusive of the costs of employment that need to be accounted for by the umbrella company leads to a frustrating and confusing world for contractors.  Plainly the umbrella company needs to make a profit on the operation of the contract and so, will take a margin from the contract sum.  It is the communication of this fact which seems to be lacking and, when you add misunderstanding over the employment status of an individual to this, legal challenges such as this one will occur. 

However, this does not mean that umbrella companies operate in an illegal manner as Unite imply and so, it is encouraging that the Employment Tribunal dismissed the claim. We will have to wait and see if the Employment Appeal Tribunal upholds the decision.

If you have any concerns about your engagement of self-employed individuals or your contractual terms, then please get in touch with the Aspire team to discuss how we can help.