Could illegal working in a supply chain expose your clients to liability?

Megan O’Hara, employment law partner at Thackray Williams, examines the right to work reforms and the potential compliance risks for property and construction clients.

From 1st October 2026, new right to work reforms could expose property developers, contractors and other businesses to liability for illegal working within certain supply chain arrangements, creating a compliance risk that may have implications for funding, due diligence and business operations.

What has changed and why should advisers pay attention?

For many years, right to work obligations focused primarily on an organisation’s direct employees. However, reforms being introduced from 1st October 2026 extend responsibility in certain circumstances to organisations where work and services are provided by individuals through more complex contractual arrangements. The changes reflect the reality that many businesses now rely on contractors, subcontractors and outsourced service providers to deliver projects and services.

While many mortgage and finance brokers are unlikely to be directly affected, the reforms create a compliance risk for a range of property and construction clients. Understanding the broad principles can help advisers identify when clients may need specialist legal advice.

Which clients are most likely to be affected?

The greatest impact is likely to be felt by businesses operating through complex labour supply chains. This includes property developers, housebuilders, main contractors, specialist subcontractors, facilities management providers and property management companies that rely on multiple contractors to deliver services.

For example, a property developer may secure finance for a residential scheme and appoint a principal contractor to deliver the project, who then relies on a network of specialist subcontractors and labour suppliers. Under the new rules, liability may not always rest solely with the organisation directly employing the worker concerned. Depending on the contractual arrangements, responsibility may extend further up the supply chain.

Particular attention should also be paid to arrangements involving subcontracting and labour substitution. Where workers can be replaced by substitutes, businesses may need processes to ensure the individual carrying out the work has the right to work before undertaking the role.

Exactly where liability arises will depend on the contractual arrangements and how services are delivered in practice, making it important for affected businesses to review their operating models carefully.

What should advisers be asking clients now?

Advisers do not need to become experts in right to work compliance, but they can help clients identify potential risks by asking a few practical questions.

First, does the client understand who is carrying out work throughout its supply chain, and where responsibility for compliance sits? Second, are existing contractor and supplier agreements still fit for purpose? Third, could the client demonstrate compliance if the Office investigated illegal working within a project or service delivery chain?

These questions are particularly relevant for clients operating in construction, development, property management and facilities management, where multiple layers of contracting are common. Where uncertainty exists, specialist legal advice may help identify gaps and strengthen compliance arrangements before issues arise.

The reforms do not automatically create liability for every organisation that uses contractors or outsourced services. However, they do place greater emphasis on understanding who is carrying out work, how services are delivered and where responsibility sits within contractual arrangements. With penalties of up to £60,000 per illegal worker, advisers who can help clients identify potential risks early will be well placed to add value and direct them towards appropriate specialist advice where needed.

Megan O’Hara is an employment law partner with Thackray Williams