Limited company contractors encountering discrimination or harassment in the workplace from fellow contractors or their client’s employees have few options. That is because, as business-to-business services providers, they do not enjoy the same protection as employees.
In fact, according to Lawspeed’s head of employment law, Theresa Mimnagh, a limited company contractor taking action under equalities legislation via an employment tribunal or refusing to work alongside other workers because of discrimination would have to deal with the commercial repercussions, which could ultimately lead to a breach of contract, or make the contractor’s claim worthless.
“Whilst equalities legislation offers protection for all workers, you can’t discriminate against a limited company,” explains Mimnagh. “If a contractor chose to pursue a claim through an employment tribunal as an individual, because as a contract worker they have that right, it could call into question their status as a genuine business-to-business service provider.”
And whilst in theory umbrella company contractors should have a greater level of protection as employees of their umbrella companies, in practice there is little the umbrella company can do.
Negotiation is often the best, and only, option
The first step for a contractor enduring harassment or discrimination on their client’s site is to discuss the issue with the client project manager, with the aim of ‘shutting down’ any incidents before they escalate.
“Although discrimination and harassment are not acceptable in any workplace, the perpetrator may not realise they are harassing co-workers, or that their actions are having a negative impact,” says Mimnagh.
A quiet word with the client project manager, who can then have a quiet word with the offending co-worker, is frequently all it takes to defuse a situation. This typically also prevents escalation of the situation, ensuring that legal options are not considered necessary.
Walking away risks commercial repercussions
In practical terms, Mimnagh’s experience is that a large service provider that has workers who are being harassed can simply remove their employees from the end-client’s location. The business itself can walk away from the contract and can afford to deal with the legal fall-out.
But for small service providers, such as contractors working through their own limited company, this can cause commercial repercussions and even legal issues unrelated to equalities legislation. Mimnagh explains: “It is unlikely that there is a termination clause between the contractor’s limited company and the agency or end client which allows for termination on the grounds of the service provider’s employees being harassed.
“So if a contractor simply walked away and terminated the agreement on those grounds, their limited company would be in breach of contract for failing to supply the contractor’s services as specified.”
Mimnagh adds that there may also be an indemnity clause in the contract between the contractor’s limited company and the agency or client that protects the client by offering an indemnity against claims.
Taking action via an employment tribunal is high risk
The ‘nuclear option’ is for a contractor to take their discrimination or harassment case to an employment tribunal. But Mimnagh warns contractors against this option, because it is fraught with risk – not only of failure but also of other repercussions.
Contractors taking their clients to an employment tribunal for an alleged discrimination claim are likely to be terminated by their client
Theresa Mimnagh, Lawpeed
As Mimnagh explains: “An individual operating via limited company does have a right to bring a tribunal claim, usually on the basis that they are a contract worker and the end hirer is their principal. In legal terms a ‘Principal’ is a person who makes work available for an individual who is employed by someone else.
“Contractors may be reluctant to assert that work is made available for an individual,” she continues. “There may also be questions as to their status as a genuine contractor supplying services on a business-to-business basis. The repercussions could mean questions arise regarding disguised employment and IR35, which most contractors would wish to strenuously avoid because of the costly tax implications.”
It comes back to Mimnagh’s original point that it is not possible under equalities legislation to discriminate against a limited company.
Tribunals mean termination and reputational risk
“Contractors taking their clients to an employment tribunal for an alleged discrimination claim are likely to be terminated by their client,” adds Mimnagh. “The tribunal route also won’t help the contractor when they try to find a new contract and have to rely on a reference from the client they just tried to sue. The reputational risk is significant.”
If the harassment or discrimination by a client’s employee reaches the point where a contractor is physically threatened, then it may become a police matter.
Mimnagh concludes: “The equalities legislation provides protection for all workers, regardless of their status. However, the realities for contractors tackling discrimination and harassment in their workplaces are tough.”
It seems the safest and potentially least personally damaging approach is for limited company contractors to have a reasonable conversation with client managers in the hope of nipping any incident in the bud before it escalates.