Outsourced HR Professionals Might Be Their Client’s Agent

When you started your outsourced HR business, you likely didn’t want to be legally and financial responsible for your client’s decisions.

Nevertheless, case law demonstrates how, as an outsourced HR professional, you need to be very careful:-

• with the contractual terms that you offer to your clients; and
• in the practical, day-to-day application of your services.

The Case

In Handa v. The Station Hotel (Newcastle) Limited and others [2025] EAT 62 (2 May 2025) from the Employment Appeal Tribunal:-

• an employed director complained of financial impropriety to his employer, which was possibly whistleblowing (technically known as ‘protected disclosures’);
• other staff members complained that the employed director was bullying and harassing them;
• an outsourced HR professional investigated the complaints and recommended a disciplinary hearing to consider the employed director’s conduct;
• another outsourced HR professional from a separate practice conducted the disciplinary and, after considering the evidence (taking advice from the employer’s solicitors) found that the employer would be “justified” in dismissing the employed director for gross misconduct;
• the employer itself dismissed the employed director based on the second outsourced HR professional’s findings;
• the employed director brought employment tribunal claims against his employer and the two outsourced HR professionals, claiming that both outsourced HR professionals were the employer’s agent and had subjected him to a detriment because of his whistleblowing.

The Agency Relationship

As an outsourced HR professional, you will know that it’s easy for an employee to bring allegations against you, because you’re often in direct contact with them.

It’s also easy to become someone’s agent, but it often takes something more than purely providing services under a contract.

Vitally, an organisation will usually give its approval for an agent to make decisions on its behalf.

An agent may be – but not always is – a ‘fiduciary’, which means someone who acts in a position of trust for someone else’s benefit.  Trustees, company directors, financial advisers, business partners, and solicitors are all fiduciaries, meaning that they could be (but not necessarily are) agents of those they are representing.

This is because they might affect that person’s or organisation’s relationships with third parties.

Simply doing something that is intended to benefit someone who relies on it, whether through a contractual relationship or a simple discussion, does not create an agency relationship in and of itself.  Because the law of agency gives an agent joint legal and financial responsibility with those they represent, there usually must be something more involved than simply fulfilling the terms of a contract.

For example, if either of the outsourced HR professionals in Handa had dismissed the employed director themselves, they likely would have been the employer’s agent and jointly responsible with the employer for that.

So they weren’t the employer’s agents?

No, they weren’t the employer’s agents in dismissing the employed director.

However, they could have been the employer’s agents in other respects.

For example:-

1. If an outsourced HR professional performs crucial aspects of the employer’s role in its relationship with its employees, the outsourced HR professional is likely to be the employer’s agent.  For example, if you conduct a grievance or disciplinary process for an employer, you could be the employer’s agent during that process.  Likewise, if you process an employer’s payroll, likely gathering information directly for its employees to do this, you could be the employer’s agent.  The reason for this is that, if you weren’t there, someone in the employer’s business would have to do it instead.
2. Whilst a fiduciary relationship could indicate that you are an agent, it is not the only thing that determines whether an outsourced HR professional will be an agent.  What really matters is doing something more than just providing services under a contract.
3. Where the authority to conduct processes like an investigation or a disciplinary hearing comes from will also be important.  If the outsourced HR professional conducts those processes with little or no input from the employer, they will likely be the employer’s agent.
4. If you are purely there for the employer, controlling how things are handled, then you will likely be the employer’s agent.  This could have arisen in two situations in this case and likely did in a third situation.  The first outsourced HR professional recommended that a disciplinary hearing took place; he left the decision to the employer, but if he had made that decision, he would likely have been the employer’s agent.  The second outsourced HR professional heard the disciplinary, reviewed the evidence and recommended that the employer would be “justified” in dismissing the employed director for gross misconduct.  Had she dismissed the employed director, she would likely have been the employer’s agent.  Additionally, the employer’s solicitor was advising her on her recommendations, which showed a close connection to the employer, rather than complete independence, which pointed towards her being the employer’s agent.
5. The employee’s perception of the situation matters, but it must be logical.  For example, the employed director in this case claimed that he had been poorly treated by the employer because the employer was angry about his whistleblowing, but that did not explain why he thought the outsourced HR professionals were the employer’s agents.

How to Avoid Being Your Client’s Agent

Things go much further than simply the terms of your contract with your client.

Your contract with your client for providing outsourced HR services is still important and you might wish to include statements in it to the effect that you are not your client’s agent.

However, that is only ever going to be a starting point and your actions whilst you are performing your outsourced role will be equally important as, if you act like your client’s agent, you likely are their agent.

Moreover, you do not have to be an agent over all of your client’s affairs, but just some of them.

This case is an important indication of the things to do and not to do as an outsourced HR professional.