Restrictive Covenant

[cjonline]

Hi Guys, I have a question. I've been in dispute with my agency for a while over charges and now my contract is coming to an end (april 30th) the client wants to extend but is happy for me to go to another agency that they use as it benefits us both.

Now, the current agency has a 6 month Restrictive Covenant clause in the contract (see below) and I want to know if this will still stand even though the client company has now separated and created a new company.

ie. I originally signed contract for company A, but company A has now split in to Company B and C. I work for company C. These are now separate entities.

"10.1 The Supplier shall not, and shall procure that the Representative(s) shall not, whether directly or indirectly through any company, partnership or person (including but not limited to other employment businesses operating in competition with the Company), solicit nor enter into any contract for the benefit of the Client or the End Client, nor any subsidiary or holding company of the Client or the End Client (as defined in section 736 of the Companies Act 1985), to provide any services of the same or similar nature to the Services, during the Assignment Term and for a period of 6 months thereafter, without the Company’s prior written consent, which consent may be withheld in the Company’s absolute discretion or granted, subject to any conditions the Company may wish to impose.

10.2 The Supplier understands and accepts that the restrictions contained in Clause 10.1 are required to protect the legitimate business interests of the Company, and that the Company may at its option commence legal proceedings against the Supplier in the event of breach, and may also join to such proceedings any third party (including the Client, End Client or other employment business) that has encouraged, solicited or induced the Supplier to take such action or enter into any contract which gives rise to such breach.

In the event of the Engagement of the Supplier or Representative either (i) directly by the Client; or (ii) by the Client pursuant to being supplied by another employment business, during the Assignment Term or within 6 months of the termination or expiry of the Assignment Term, then the Supplier and Representative shall be jointly and severally immediately liable to pay a Transfer Fee, calculated as follows...."

Regards,
C

[malvolio]

Difficult to be definitive, but it depends to some extent if the client will still use use the existing agency. If there is no more work for that agency then the restriction won't have any effect since they are not losing any revenue (which is the whole point of having it there in the first place). IF there is an ongoing business then life is a little more difficult.

Either way I would ask the client to resolve this: they have the upper hand and if the agency is legally entitles to compensation for lost income then it is the client that should really pay it since they are the ones driving things.

Or ignore it and see what happens...

Then again if the client is a totally new company the previous agreement doesn't stand anyway. It does for your contact of course, but the contract terms quoted only relate to the existing business and its subsidiaries.

Whatever, it's really down to the client to resolve things.

[cjonline]

There is work, the client offered an extension to the original agency. They are not bothered if I stay with the agency.

There is penalties for my ltd company in the contract if I get caught out.. that's my concern. Up to 15k.

so, the client wont resolve it as they are happy to award me the extension with whoever I use.

C

[Scruff]

Check that Company A is still registered with Companies House website. It might be that they have been dissolved, or in the process of being struck off. In this instance, you have more options.

1. If your YourCo. contract is with Company A and you have never been informed that they have ceded the contract to Company B (this could have taken the form of an email from them to you, to which your consent, implied or given, would have been requested), then in the event that Company A has been dissolved, or struck off - crack on.

2. If you have received notification of contract cession to another Company and have not done anything about it - you have tacitly agreed o.b.c. of YourCo. Provided that Company A / C still has a contractual relationship with EndClient Co., then you will be bound by the terms of the original contract.

3. If you have received notification of contract cession to another Company and have not done anything about it - you have tacitly agreed o.b.c. of YourCo. If the relationship between Company A / C has broken down and the "upper agreement" has been terminated, then you will have to make a personal judgement call on behalf of YourCo. whether to enter into a new contract with the new reprsentative agency. You could go Umbrella for 6 months to mitigate this, since you will be employed personally by the Umbrella....

Ultimately, you need to establish the status of YourCo.'s original contract - it cannot be ceded retrospectively by Company A.

IANAL.

[cjonline]

Check that Company A is still registered with Companies House website. It might be that they have been dissolved, or in the process of being struck off. In this instance, you have more options.

1. If your YourCo. contract is with Company A and you have never been informed that they have ceded the contract to Company B (this could have taken the form of an email from them to you, to which your consent, implied or given, would have been requested), then in the event that Company A has been dissolved, or struck off - crack on.

2. If you have received notification of contract cession to another Company and have not done anything about it - you have tacitly agreed o.b.c. of YourCo. Provided that Company A / C still has a contractual relationship with EndClient Co., then you will be bound by the terms of the original contract.

3. If you have received notification of contract cession to another Company and have not done anything about it - you have tacitly agreed o.b.c. of YourCo. If the relationship between Company A / C has broken down and the "upper agreement" has been terminated, then you will have to make a personal judgement call on behalf of YourCo. whether to enter into a new contract with the new reprsentative agency. You could go Umbrella for 6 months to mitigate this, since you will be employed personally by the Umbrella....

Ultimately, you need to establish the status of YourCo.'s original contract - it cannot be ceded retrospectively by Company A.

IANAL.

Hi, Company A does still exist as only part of the company was extracted and merged with another company to create a new company. This new company is who I now work for, however my contract was never updated (not that I have seen)

1. I was never informed that my contract moved over, however company A still exists but I am not working for this company and neither is the agency anymore.

2. I didnt receive notification.

3. I didnt receive notification.

[northernladyuk]

Check that Company A is still registered with Companies House website. It might be that they have been dissolved, or in the process of being struck off. In this instance, you have more options.

1. If your YourCo. contract is with Company A and you have never been informed that they have ceded the contract to Company B (this could have taken the form of an email from them to you, to which your consent, implied or given, would have been requested), then in the event that Company A has been dissolved, or struck off - crack on.

2. If you have received notification of contract cession to another Company and have not done anything about it - you have tacitly agreed o.b.c. of YourCo. Provided that Company A / C still has a contractual relationship with EndClient Co., then you will be bound by the terms of the original contract.

3. If you have received notification of contract cession to another Company and have not done anything about it - you have tacitly agreed o.b.c. of YourCo. If the relationship between Company A / C has broken down and the "upper agreement" has been terminated, then you will have to make a personal judgement call on behalf of YourCo. whether to enter into a new contract with the new reprsentative agency. You could go Umbrella for 6 months to mitigate this, since you will be employed personally by the Umbrella....

Ultimately, you need to establish the status of YourCo.'s original contract - it cannot be ceded retrospectively by Company A.

IANAL.

Yes, kind of, but... if OP's Ltd is happily invoicing and being paid for work with Company C, it's hard to argue that the original contract doesn't stand. IANAL either.

[WordIsBond]

Does Company A (original client) own Company C (new client)?

nor any subsidiary or holding company of the Client or the End Client (as defined in section 736 of the Companies Act 1985),

This could be fun in that this section of the Companies Act was ruled defective by the High Court and has been repealed, but I doubt that would really help you a lot if A owns C. It would probably be deemed to be governed by https://www.legislation.gov.uk/ukpga...6/section/1159.

If A majority owns or controls C (as defined in that link):
You are almost certainly vulnerable to legal action on this, and the only safe way forward would be to negotiate an agreement with the agency where they get something for dropping out of the picture.

If A does not majority own or control C:
Your contract as written does not govern the relationship between you and C. You had a contract with the agency that governed a relationship between you and A.

There was an implicit but neither written nor spoken alteration in that contract when you started working for C and they started paying you for it. For the restrictive covenant to be deemed binding, the agency would have to argue that the entire contract (not just the service provision and payment but also the restrictive covenant) underwent that implicit alteration and that you agreed to that alteration. It will be harder for them to argue that since no notification was ever given. In all probability, you can ignore this covenant and argue it is something you were willing to agree regarding company A but not company C. How could they prove otherwise?

There is a risk in doing so, however. If you argue that not all terms of the contract were transferred into the company C relationship, they can turn around and say, "Yes, including payment terms." I'd be glad to argue that one, their actions have shown that they did consider the payment terms to be transferred. But I'd rather argue it having received the money than argue it trying to get money out of them. I would be very hesitant to start up in a separate contract while they still owed you money for this one. Get paid, then go forward, if you want to.

This is a messy situation, and because it is messy, it is going to be harder for anyone to successfully take legal action against anyone else. I would not want to be having to sue someone to get your last payment in this case.

You are much better off, IMO, going to the agency and saying, "Look, I've not signed a restrictive covenant in regard to Company C. You've got a really weak case to try and enforce a covenant re: Company A on Company C. But I'd rather not fight. Let's strike a deal." Offer them 25% of what the contract says they'd get, settle for a third when they say that's not enough, and get on with your contract without having to worry about legal action and without having burned bridges.

I am not a lawyer.

[Scruff]

Yes, kind of, but... if OP's Ltd is happily invoicing and being paid for work with Company C, it's hard to argue that the original contract doesn't stand. IANAL either.

Tacit acceptance...

[Scruff]

Hi, Company A does still exist as only part of the company was extracted and merged with another company to create a new company. This new company is who I now work for, however my contract was never updated (not that I have seen)

1. I was never informed that my contract moved over, however company A still exists but I am not working for this company and neither is the agency anymore.

2. I didnt receive notification.

3. I didnt receive notification.

Companies don't get "extracted and merged" in the legal sense.

As long as you knew about it and continued to work and be paid by the new company, then you have tacitly accepted the terms.