Proposed JSL Law Sparks Legal Concerns Over Umbrella Choice

Proposed Joint and Several Liability Legislation Raises Concerns Over Umbrella Company Choice

A potential shake-up in the UK’s employment sector is looming as lawmakers consider extending Joint and Several Liability (JSL) to cover umbrella companies and end clients. While the aim is to clamp down on tax avoidance and non-compliance in the labour supply chain, experts warn the proposed legislation could have far-reaching consequences—particularly around contractor rights and agency practices.

What Is Joint and Several Liability?

JSL allows HMRC to hold multiple parties in a supply chain liable for unpaid taxes, even if they weren’t directly responsible for the wrongdoing. Extending this principle to umbrella companies would make agencies and even end clients accountable if a non-compliant umbrella fails to meet tax obligations or engages in malpractice.

A Shift in Pressure

In theory, this move could help clean up a sector that has long been plagued by tax avoidance schemes and dubious employment practices. But in practice, it’s already sparking fears that agencies will respond by forcing workers to use only their “preferred” or “approved” umbrella companies.

These preferred providers are often described as “compliant,” but the criteria used for such assessments are rarely transparent. In many cases, they may be influenced by commercial relationships or incentives, rather than objective due diligence or legal robustness.

Breaching the Conduct Regulations?

A recruitment agency that requires a contractor to use a specific umbrella company—or to opt out of conduct regulations—as a condition for work, would directly breach established UK legislation. The key provisions are:

• Regulation 5 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 prohibits agencies from making their work-finding services conditional on the provision or use of other goods or services. This explicitly includes payroll services provided by umbrella companies.
• Regulation 32(13) also states that an agency cannot make an offer of work conditional on the contractor opting out of the Conduct Regulations.

By default, contractors (including those working via umbrellas) are “opted in” to these protections unless they choose otherwise in writing, prior to an assignment starting. Therefore:

• Agencies cannot lawfully insist that a contractor use a particular umbrella firm.
• Nor can they require the contractor to opt out of protection to obtain or retain an assignment.
• Attempting to do so may result in enforcement action by the Employment Agency Standards Inspectorate (EAS), and open the door to legal or regulatory challenges.

While agencies may maintain a preferred supplier list (PSL) for due diligence purposes, this must be framed as a recommendation, not a requirement. Any suggestion that a contractor must use a specific umbrella or face exclusion from roles is very likely unlawful under current regulations.

Legal and Operational Risks for Agencies

Agencies trying to de-risk their own liability under the proposed JSL framework may inadvertently increase their risk exposure in other ways. By coercing contractors into using specific umbrellas, they could face:
• Legal action from contractors who understand their rights.
• Regulatory scrutiny for breaching conduct regulations.
• Reputational fallout from contractors and clients alike.

Moreover, a rigid stance on umbrella choice could limit talent acquisition, as experienced contractors may simply walk away from restrictive arrangements.

A Call for Balanced Reform

The industry agrees that reform is necessary—particularly to root out tax avoidance schemes that tarnish the reputation of legitimate umbrella providers. But legislation must be carefully balanced to avoid unintended consequences. Protecting the integrity of the labour supply chain shouldn't come at the cost of contractor autonomy and agency compliance with existing laws.

In the meantime, agencies would be wise to review their umbrella policies, ensure they respect contractor choice, and seek legal advice before implementing restrictive practices that could fall foul of the law.