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Top Tips When Using Recruitment Agencies to Supply Contractors

on Tuesday, 21 February 2017.

The UK flexible labour market, which is one of the strongest in the world, plays a vital role in supporting UK businesses.

It allows UK businesses to quickly scale their workforces up and down to meet demand. It also allows UK businesses to bring in highly-skilled and specialist staff on a short to medium term basis to undertake specific projects.

Most businesses access the UK's flexible labour market by using recruitment agencies to supply them with contractors (either agency workers or independent contractors). However, if you are considering using a recruitment agency, there are a number of points you should be aware of before you start working with them.

Four of the key points are:

  1. Responsibility for the Contractors' Work, Conduct and Deliverables
  2. Intellectual Property Rights
  3. Confidential Information
  4. Employment Status Claims

Responsibility for the Contractors' Work, Conduct and Deliverables

the agency's terms of business will normally exclude the agency's liability for the contractor's work, conduct and deliverables. Whilst this is understandable because the agency is not on site supervising and managing the contractor, it does leave the hirer exposed because the hirer does not have a direct contract with the contractor. Therefore if something goes wrong (e.g. if the project is delivered late or the work is defective), the hirer has no remedy.

Therefore, you should always check the agency's terms of business to see if the agency is responsible for the contractor's work, conduct and deliverables. If the agency is not responsible, the options are: (i) ask the agency to accept responsibility and amend the terms of business as appropriate; or (ii) speak to your insurers and obtain insurance to cover the risks.


Intellectual Property Rights

If you engage a contractor to work in an IP rich role (e.g. software development), it is extremely important that you make sure all the IP rights in the contractor's work and deliverables are properly assigned to you.

Normally the agency's terms of business will purport to assign the IP rights to the hirer. However, these clauses are often poorly drafted which may mean the IP rights are not properly assigned to the hirer. If the IP rights are important to the hirer's business or commercially valuable, the failure to properly assign them would represent a material risk, with potentially very expensive consequences.

To cover off this risk, the best approach is to ask the contractor to sign your own standard IP assignment under which all IP rights will be assigned from the contractor to you upon creation.


Confidential Information

Your contractors will inevitably have access to your confidential and commercially sensitive information in the course of their duties.

Normally the agency's terms of business will contain confidentiality clauses. However, these will not normally extend to the contractor which means that if the contractor misuses the hirer's confidential or commercially sensitive information, the hirer will not have any contractual protection.

To cover off this risk, you should ask the contractor to sign your standard non-disclosure agreement to protect your confidential and commercially sensitive information.


Employment Status Claims

A key benefit of engaging contractors is that they are not employees. Therefore, you do not have to deduct and pay income tax and National Insurance contributions and they do not have employment rights (please note they may have other rights such as agency workers' rights).

However, there have been cases where contractors have tried to bring employment claims against hirers (e.g. unfair dismissal) or where HMRC has tried to claim, for the purposes of income tax and NI, that contractors are actually employees of the hirer.

To manage this risk, it is important to make sure your terms of business with the agency contain indemnities under which the agency agrees to indemnify you against any employment-related claims brought against you by the contractor and against any claims for unpaid tax and NI brought against you by HMRC.

Please note that these are four key risks for hirers. There are other risks and issues that should be considered when using a recruitment agency to supply contractors, and we would be delighted to talk through those issues with you.


For legal advice on using recruitment agencies to supply contractors, please contact Chris Mooney on 020 7665 0916.

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