Umbrella Companies - legal signatory requirement?

[Dan R Alt]

I have a client that is looking to engage a contractor who is using an Umbrella Company. We have drafted the contract to include confidentiality responsibilities for both parties, the contractor and the UC. When it has come to signing the contract, my client refused the initial signatory as it was from a Sales Administrator, requesting a Director of the business instead.

Subsequently, we have been told that the one and only Director registered at Companies House is not actively involved on a day-to-day basis with the business, so we must accept the signature of the Branch Manager. We have no way of formally confirming this person's title and position within the business, indeed he did sign the contract stating his title as Director, but has subsequently been referred to as Branch Manager and even General Manager.

My questions, therefore, is does the signatory from the UC have to be a registered Director for the UC to properly bound by the terms of the contract?

[LisaContractorUmbrella]

No not necessarily, as long as the contract is signed by an individual who is authorised to do so by the business then there shouldn't be a problem. The actions of the umbrella company do seem a little odd though

[TheFaQQer]

My questions, therefore, is does the signatory from the UC have to be a registered Director for the UC to properly bound by the terms of the contract?

As long as the person signing the contract has sufficient legal authority and sufficient capacity, then the company would be bound by the agreement.

ie. are they authorised to make the contract, and do they know what they are doing.

[Dan R Alt]

Thank you both, but how does one go about confirming the signatory's legal status?

[LisaContractorUmbrella]

Thank you both, but how does one go about confirming the signatory's legal status?

Off the top of my head I can't think how you would do it other than confirmation from the Director that this person is an authorised signatory but if the Director has no dealings within the company you're a bit stuck. I am co-founder of an industry group for umbrella companies - if you'd like to PM me the company name I will see if we hold any details on file that may help you out

[TheFaQQer]

Thank you both, but how does one go about confirming the signatory's legal status?

Strictly speaking, you don't have to - there are some important legal precedents which would come into play if there was a dispute.

Firstly, consider Hely-Hutchinson v Brayhead Ltd. In this case, the defendant tried to argue that their chairman, CEO and de-facto managing director did not have the legal authority to sign the contract. This was thrown out in the High Court and again on Appeal by Lord Denning MR - the court found that he had the actual authority to form the contract because the board had continued to allow him to act.

Secondly, consider Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, which is perhaps more relevant to the situation you describe. In that case, the articles of the company made it clear that the employee could NOT act on their own because they needed four directors to be a quorum. However, Diplock LJ ruled that

In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the "actual" authority of the agent. His information as to the authority must be derived either from the principal or from the agent or from both, for they alone know what the agent's actual authority is. All that the contractor can know is what they tell him, which may or may not be true. In the ultimate analysis he relies either upon the representation of the principal, that is, apparent authority, or upon the representation of the agent, that is, warranty of authority.

The representation which creates "apparent" authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually "actual" authority to enter into.

So, if the company has delegated authority (either explicitly or implicitly) to someone, they cannot just turn round and say "they didn't have the authority to do that", as long as there has been enough going on to persuade you that the person could form the contract.

IANAL

[Dan R Alt]

Thank you guys, very interesting. Turns out the contractor became quite concerned with what they were finding out too so have set up as a Ltd company now, but I would ultimately have struggled to be convinced that I had seen enough to trust this business if we had had to go down that route.

Again, thanks for taking the time to contribute.

[LisaContractorUmbrella]

Thank you guys, very interesting. Turns out the contractor became quite concerned with what they were finding out too so have set up as a Ltd company now, but I would ultimately have struggled to be convinced that I had seen enough to trust this business if we had had to go down that route.

Again, thanks for taking the time to contribute.

Any time If you are in a position to work with an umbrella company again have a good look around - some that claim to be umbrella companies are actually purveyors of tax avoidance schemes - a true umbrella company should operate full PAYE for its employees and should engage them under an overarching contract of employment

[cojak]

As an aside, we've seen this before (Compusource, anyone?).


The owners use a 'bought-in' director, thus enabling them to cover their tracks.

Any company employing such smoke and mirror tactics to cover their tracks have something to hide and usually it's YOUR money...