Contract Restriction Clarification

[1tcontractor]

Currently I am working as an IT Contractor in a company since past 8 months. My contract is going to finish in 2 days time and there is no more extension.

I have been offered a contract from another company which is not an associated company of my current client. Because I have an ex-colleague in that company, they approached me directly and they don't want to involve an agent.

The new company has some relationship with my current client. The nature of relationship is a little bit confusing.

My current client provides infrastructure to the other company and the other company provides software solutions to my current client and few other companies around the globe.

In my current contract there is a restriction block which says:

The service provider cannot enter into an agreement whether directly or indirectly, to supply services of a similar nature to the Client or a subsidiary or associated company of the Client or to the Client’s clients, other than through the Agency.

So the only confusing bit is "Client's clients".

My question is am I safe in this situation if I skip the agent.

Regards,

[Bluespider]

This is, as always, your decision to make as the Director of your Ltd Company.
The piece of your contract you listed usually forms part of a restrictive covenant placed in there by the supplying agency. It is their attempt to sew up the supply of you to the existing client and in this case any direct relationships they may have with other companies.
It is also classed as a restriction of trade under EU law and is in all likelyhood unenforceable. The agencies rely on it being too difficult or time consuming to disprove, therefore most clients/companies will reuse them to supply a resource rather than go down a legal challenge route.

I usually ask for it to be removed from the contract, citing the EU restriction of trade etc. Sometimes it is removed, other times left in there. When its left in its usually because the clientco has one or 2 preferred agencies and if i was returning it would be via them anyway.

That being said...

You are a contractor, you signed a contract... you should have read it before you signed it rather than getting to this stage and stressing.


Going direct, the agency will not have any visibility of what you are doing. they don't track every contractor and their current situation.

[1tcontractor]

Good advice BlueSpider,

Yes, I should have asked to remove at least this "Client's clients" statement from the contract before signing it because this statement is very broad/ambiguous.

The agency didn't introduce me to the new client so financially they didn't lose anything.

If you are a contractor at Microsoft then with respect to this statement you have already reduced your market by 70% because majority of the businesses are Microsoft's client.

So keeping all these things in mind, I think I should go directly and make sure this statement is removed from future contracts.

[LondonManc]

Would new ClientCo be a client of or a supplier to current ClientCo?

Either way, if current ClientCo are not offering any more work, I fail to see how they can stop you seeking work wherever you want.

[northernladuk]

The chance anyone will remove restrictive covenants from contracts is slim to nil. It's there to protect them so they aren't going to remove it just because you want it removed.

With a bit of thought this should be easy to unravel. First question. Does the agency have any dealings with the new client you are going to? I highly doubt it so if that's the case it's completely irrelevant. How can you go through the agent as per the restriction if they have no business dealings with them. That would be stupid. If your old agent is not on the PSL of the new company you are in the clear.

Secondly you need to check your Opt In/Out status as this has a bearing on handcuff periods.

Thirdly handcuff clauses/restrictive covenants can only be enforceable if they are fair and reasonable. If they've written such a blanket statement most courts will view this as too restrictive and throw it out. The fact you got the business direct and not via the agent would indicate there is no loss of business for the agent (if the first option did actually materialise). The agent cannot stop you working for other people just to be pig headed about it. They have to prove their business will suffer because of your actions. They will have to argue they would have got first dibs on this gig and that it would have been a revenue stream for them, which we don't know.

Fourthly you could just apply and hope they don't notice. They only way they will find out is bumping into you onsite or spotting your linkedin. If the handcuff was enforceable however and you get found out you could be in some very hot water. Personally I wouldn't use the 'They will never find out' approach to avoiding handcuffs. It won't end well.

Fifthly it doesn't always go to say you will get more money going direct. If the client pays the agency £500 to get a £450 contractor in (for example) then why should they pay the contractor £500. They are not getting the service that the extra £50 was for so don't assume you will get it. Payment periods can be much longer, up to 90 days and not being paid on time isn't uncommon so going direct isn't always that beneficial. Are you sure in this case going direct is really advantageous in this instance?

My question, however, is are you sure they are going to be taking you on direct? It's very rare that a client that uses and agency model to save time and effort is going to take people direct. They pay agencies to take this away from them so it's not common for them to also do it direct. Are you sure they aren't going to say 'Yes you are the man go speak to this agent to get in'?

I'd do a bit of homework on the new clients PSL for agencies, your opt in/out status and the exact nature of the intended engagement with the new client and see if anything becomes any clearer.

[1tcontractor]

@LondonManc

New ClientCo and current ClintCo are clients of each others. Current ClientCo provides infrastructure and business intelligence to new ClientCo and they develop software for the current ClientCo. The new clientCo is a multinational company.


@northernladuk

Please find the answers to your question in order:

Answer #1: Same agency already have a contractor working in new ClientCo who also knows me. But since last few months the new ClientCo is only hiring new contractors without agencies.

Answer #2: I did Opt Out and the period is 12 months.

Answer # 5: New ClientCo is going to pay me exactly the same amount of money I am getting from current client. So I am not getting the benefit of bypassing the agent. I accepted the offer only because there will be no gap and I need 3 weeks off in December which the new ClientCo has no issue with.

Yes they are surely going to take me directly. They have sent me the contract to sign. Reason is the manager in that company is my ex-manager. So he knows me and its without any interview as he knows what I can do.

[northernladuk]

So if it's same money as you are on currently through an agent why not ring the agent, tell him you've found a gig and you want him to take no more than 5% and the rest to you. You could actually get a rate rise out of this and not be in a pile of trouble.

Your only get out here is if they have stopped using the agent anymore. If they still Inna contract with them it could get hairy. What I forgot to mention in my long post is that all the legallaties aside if they agent decides to throw his teddy out it can get ugly. Clients may not want to get caught up in it and just bin you or force you through the agent. They may put up some resistance but they are under no obligation to fight on your behalf. If the agent is still on site you are in a bit of a tricky situation.

[SueEllen]

How big is this multinational?

If the company was like BT in their market then no restrictive covenant covering clients of clients could ever be legally enforceable simply because everyone in that market will have some involvement with them, and so it's a restraint of trade.

Also how long is the handcuff for?

If it's for a long time regardless of the size of the client's client then it's a restraint of trade and that clause/subclause is not enforceable.

Forgot to say what payment terms have you got? Where is the finance department located? If the payment terms are short and the finance people are in the same building then it maybe worth ignoring the agent. However if neither of them are true then the agent has his/her use.

[1tcontractor]

My current client and new client they both are in same building but on different floors. They both have permanent offices in more than 20 countries and work for Governments.

Finance department of new client is not in the same building, its just IT department and payment terms are longer as expected in a direct contract i.e. monthly timesheet and payment after 30 days.

I will try to negotiate with the new client tomorrow to involve the agent without compromising on my rate.

[Bluespider]

If they still Inna contract with them it could get hairy. What I forgot to mention in my long post is that all the legallaties aside if they agent decides to throw his teddy out it can get ugly. Clients may not want to get caught up in it and just bin you or force you through the agent. They may put up some resistance but they are under no obligation to fight on your behalf. If the agent is still on site you are in a bit of a tricky situation.

This.

That is the real danger of a restrictive covenant/handcuff. Most of them are unenforceable but rarely will a clientco be willing to go through the hassle of lawyering up and pursuing it. Its far easier/cheaper to bin you and find a compliant resource.