Under an Employer of Record (“EOR”) arrangement, a third-party provider assumes the role of the legal employer for an individual in a given jurisdiction, enabling the end client to benefit from that person’s services without establishing its own local entity. The global EOR market has expanded rapidly, driven by the increase in remote working and the pace at which technology-led businesses seek to enter new markets.
The model raises important questions for practitioners: who bears the obligations attaching to the employment relationship, and will the contractual architecture withstand scrutiny? This article analyses the principal legal issues from a UK perspective and concludes with a practical checklist.
Distinguishing the EOR Arrangement from Other Workforce Models
An EOR must be distinguished from similar models, each of which has a different regulatory and liability profile:
- Agency work: In the UK, agency workers receive day-one rights to collective facilities and vacancy information and, after a qualifying period, the same basic conditions as if recruited directly.
- Outsourcing: Here, the provider delivers a defined output, and its employees perform the work. It is the client who contracts for the service, not the individual.
- Professional Employer Organisations (“PEOs”): A PEO operates on a co-employment basis, with the PEO and client as joint employers. Unlike an EOR, the client must already have a legal entity in the jurisdiction. PEOs are more typically used in the US.
- Independent contractor engagement: The individual must genuinely act independently and in business on their own account. Misclassification through an EOR may compound liability.
- Employee leasing: A domestic model more commonly encountered in continental European jurisdictions, often involving specialised intermediaries. EORs may be subject to labour-leasing laws imposing licensing requirements, duration limits and criminal sanctions.
EORs in the UK: The Regulatory Framework
The UK regulatory framework is less restrictive than those of many European counterparts. No licence is required to supply labour, so EORs may engage individuals for a project, or even indefinitely. However, depending on its structure, the arrangement may nevertheless fall within established employment legislation or agency worker regulations (as set out below).
The Employment Agencies Act 1973 is the overarching framework for employment agencies and businesses, and regulations under it may create criminal offences. If an EOR falls within the definition of an “employment business” under the Act, certain regulatory obligations will apply.
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 impose obligations including key information documents, fee restrictions, record-keeping, suitability checks, industrial-action and advertising rules, and protection against detrimental action. An EOR that has not structured its arrangements accordingly may therefore be non-compliant.
The Agency Workers Regulations 2010 provide individuals with day-one rights to vacancy information and equal treatment regarding collective facilities and amenities. After 12 weeks in the same role, the individual is entitled to the same basic terms as a direct hire. The EOR, not the end-user, must provide them.
Practitioners should not assume that an EOR arrangement falls outside of this framework simply because it is not labelled as an 'agency' or 'employment business.' Whether the legislation applies will turn on the substance of the arrangement, and in particular, how the relationship is structured and the degree of day-to-day control exercised by the end client over the individual.
Principal Legal Questions for Practitioners
Q. Who is the true employer?
The central vulnerability of an EOR structure is that it may be “looked through”. If the documentation does not reflect the working reality, the end client may be found to be the true employer.
In James v Greenwich LBC [2008] EWCA Civ 35, the claimant had been placed with a local authority by a staffing intermediary over a considerable period. She worked under a services agreement with the intermediary rather than a direct employment contract with the authority. Notably, during a period of absence, the authority simply engaged a replacement through the same intermediary rather than holding the role open. The Court of Appeal declined to imply an employment relationship with the authority, finding that there was no mutual obligation between them and that the length of the placement alone could not create one. The relevant question was whether an implied contract was necessary to reflect the true nature of the working arrangement.
In Lutz v Ryanair DAC [2025] EWCA Civ 849, an individual was supplied to an airline through a separate employment business, MCG, which contracted with the individual and was named as the employer. MCG in turn had a services arrangement with Ryanair. Although it was Ryanair that managed the individual’s working activities on a day-to-day basis and exercised full operational oversight, the Court of Appeal upheld the contractual position. It held that the written terms should be accepted on their face and that a worker is entitled to pursue their claim against the entity that has held itself out as the employer.
In Bank of Africa UK PLC v Hassani [2026] EAT 27, the claimant held a senior position with a group entity in the UK, having been placed there on secondment from the overseas parent company, BMCE. Although the UK entity directed her work, oversaw her performance, and ultimately brought the secondment to an end, the EAT found that her employment contract had never left the parent. The secondment documentation made clear that she remained on BMCE’s books throughout. The tribunal confirmed that transferring an employment relationship from one employer to another requires a novation - that is, a fresh agreement with the consent of all parties - and cannot be achieved unilaterally.
Substance must match form. In Uber BV v Aslam [2021] UKSC 5, the Supreme Court said worker status is a question of statutory, not contractual, interpretation, and this was later followed in Addison Lee Ltd v Lange [2021] EWCA Civ 594.
Where the EOR’s role is limited to payroll, tax and HR, the client’s instructions, benefit from the work and day-to-day direction are especially relevant.
Q. Co-employment and joint liability?
Even if the EOR is the legal employer, the client may retain exposure for discrimination (as principal or agent), working time (where its directions determine hours) and health and safety (where it controls the workplace).
Q. Governing law and jurisdiction?
Regulation turns on where the individual is based, not the client’s headquarters. EORs must comply with local labour-leasing rules, and breaches can be criminal.
Austria, Belgium, France, Germany, Italy, Luxembourg, Mexico, Spain and Switzerland are highly restrictive, whereas the UK, Australia, Canada, Denmark, Finland, Poland and Sweden are moderately so.
Business Protection and Structural Risks
A number of business-critical issues require careful structuring:
- Intellectual property (“IP”): IP created by the individual belongs, by default, to the EOR as the legal employer. Specific assignment provisions in favour of the end client are essential.
- Confidentiality: A separate agreement with the individual is often advisable because the EOR contract may not suffice.
- Post-termination restrictions (“PTRs”): The enforceability of post-termination restrictions and confidentiality protections in EOR employment contracts is a largely untested area of law and such restrictions may not be enforceable by or on behalf of the end client. Possible routes include EOR enforcement to protect the client’s legitimate business interests, client enforcement as a third-party beneficiary or assignee, or a side agreement. However, UK courts have not authoritatively tested any of these routes, and each carries risk.
- Share options/equity incentives: Plans may need tailoring for EOR workers. Good- and bad-leaver terms may not work where the issuer is not the employer and tax-advantaged schemes may be unavailable. EOR terms often exclude equity, and practical or tax complications may emerge later.
- Immigration: UK EORs cannot sponsor migrant workers because the sponsoring entity must be the organisation which controls the individual’s day-to-day activities.
- TUPE: It is unclear whether EOR workers transfer under TUPE on a business transfer (including an asset sale) or a service provision change. As the individual is employed by the EOR, not the end client, it may be unclear whether they are assigned to the organised grouping that transfers.
- Permanent establishment: The use of an EOR does not eliminate permanent establishment risk. Tax authorities will look behind the arrangement to the substance of the end client’s activities.
When Disputes Arise
Because the relationship is tripartite, contentious issues can be difficult. Performance management, discipline and dismissal are formally the EOR’s responsibilities but usually driven by client instructions. The EOR must rely on the client’s reasons for termination, raising questions about redundancy and unfair-dismissal exposure, and termination costs may exceed expectations.
The service agreement should require cooperation, with the EOR ordinarily seeking a full indemnity.
Discrimination claims may also name the client where the contested conduct originates with its managers.
Recent UK reforms extend joint PAYE and NIC responsibility up the contractual chain: if an EOR fails to account, the client may be pursued as the relevant party above the intermediary, regardless of knowledge. This is a strict-liability regime. The functional test asks whether an intermediary employs or purports to employ workers providing services to an end client, irrespective of the label.
EOR users should therefore undertake staffing-agency-level due diligence, including checking registration, obtaining payroll and remittance records, and securing indemnities addressing HMRC recovery. Practitioners should identify the proper respondent and determine the client’s control over litigation, particularly where both parties were involved.
Where employment spans countries, obtaining the EOR’s HR records, personnel files and payroll data may be difficult if held abroad, especially where data protection laws restrict cross-border transfer of employee personal data. Works council consultation, local severance and interpretation of the EOR/client indemnities also require attention.
Practical Checklist
Practitioners reviewing or inheriting an EOR arrangement should consider the following questions, which apply to EOR arrangements generally, including where the individual is based outside the UK:
- Does the EOR have a legal presence and any necessary licence?
- Does the EOR comply with applicable labour-lending or leasing laws?
- Will the EOR comply with local employment law, including minimum wage, holiday, working hours and pension obligations?
- Will the EOR meet local tax and social-security requirements?
- Is there a risk of joint liability for PAYE and NICs under the reformed umbrella company and labour supply chain rules?
- If the organisation has direct employees in the same country, could EOR staff claim comparable pay and benefits?
- Are effective IP assignment provisions in place?
- Are confidentiality protections adequate, and is a separate agreement with the individual warranted?
- Are PTRs enforceable, and by whom?
- Do equity or share incentives need adaptation, and has the EOR agreed to facilitate them?
- Can the EOR sponsor work permits if required?
- Does the service agreement provide for termination cooperation and appropriate indemnities?
- Could the arrangement trigger a permanent establishment?
- How would the arrangement be treated in a corporate transaction, including on a TUPE business transfer (including an asset sale) or a service provision change?
- If a dispute arises, who is the appropriate respondent, and what control does the client have over litigation?
Conclusion
EOR arrangements occupy a developing area of employment law. The case law demonstrates that tribunals in this jurisdiction will scrutinise substance over form, and contractual labels alone will not determine the outcome. Practitioners must assess the allocation of risk across the tripartite relationship, the enforceability of protective provisions, and the regulatory framework in each relevant jurisdiction. With EOR-related disputes expected to increase, rigorous analysis is essential.
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