Restrictive covenant

[dreammeister]

Hi everyone,

I have been an IT contractor for the last 12 years and have decided now to start branching out and providing staff directly to companies acting as a recruitment agency/consultancy.

I have been working for the same client through the same agency since July 2010 and am currently on a 6 month contract. My bosses boss at my client site has asked me whether I can provide staff directly since I know a lot of other contractors in my field. I have sent him a few CVs and he is now ready to progress things and add my Ltd company to the PSL.

I have been reviewing my own contract with my recruitment agency and I seem to have what's known as a restrictive covenant relating to me providing services directly to the client.

The wording is as follows, where my ltd company is the supplier and I am the representative: "The Supplier and the Representative shall not during the contract term or thereafter for a period equivalent to the period of this agreement (but not being less than 3 months nor more than 12 months) either directly or indirectly (whether under a contract of services or contract for services or through any third party) provide any services to the Client or End User except by contract through AGENCY NAME unless the Supplier shall first have paid to AGENCY NAME a fee of 20% of the total renumeration including the value of benefits attributed by the Inland Revenue agreed to be paid or provided by the Client or End User for the relevant period of provision of such services (but not exceeding 12 months) plus VAT."

What I'd like to know is whether this is enforceable or not since it seems to be a barrier to trade. Just to be clear I am still going to be contracting through the agency for my own contract, just anyone else I provide to the client will go through my company and not the agency.

Any pointers would be gratefully received!

MD

[Sockpuppet]

Just start another company to handle this - problem solved.

The new company isn't your co and your not providing services through the second company so tell current agency to jog on.

[Spacecadet]

Just start another company to handle this - problem solved.

The new company isn't your co and your not providing services through the second company so tell current agency to jog on.

Hardly in the spirit of the contract though is it!

I think agencies are entitled to protect their income and prevent you from cutting them off before they get any benefit and in that respect its a fair clause to have in.

[northernladuk]

I believe from other posts on this situation 6 months is completely enforceable but anything over isn't as it breaches some right to work or something. And to actually go legal the hurt party would have had to lose a lot of money or intellectual property or any business to make it worth it.

[realityhack]

Just start another company to handle this - problem solved.

The new company isn't your co and your not providing services through the second company so tell current agency to jog on.

I'd be sure to take legal advice to ensure you, as an individual, aren't bound by this clause. If you have such a cozy relationship with the client - see if you can get a copy of the client-agency terms and master agreement, just in case there's something similar but significantly differently-phrased in that. Hope for the best, plan for the worst.

[Sockpuppet]

Hardly in the spirit of the contract though is it!

I think agencies are entitled to protect their income and prevent you from cutting them off before they get any benefit and in that respect its a fair clause to have in.

THe same could be said when a 6 month contract is ended early or when an agent tries to take a bigger cut at renewal. **** em becuase eventrually they'll **** you first.

[NotAllThere]

The client, agency and the op need to start negotiating an exit from the agency. If the agency won't play ball, then go down the route of starting up a new company (having first checked for any personal liability due to the convenant).

[AussieDigger]

I believe that clause only applies when its you providing services yourself which are of the same type as those you provided when contracting through the agency.

If all you're introducing is other parties to the client and acting as an agency, thats slightly different I think.

Having said that, get the client to document that they elected not to offer the role through the agency but your firm because you firm matched the skills etc or provided a niche, low cost access to the skills they wanted. If the client states that, it gives you some coverage then because the 3/6/12 month bizzo relates to you yourself taking away the agent's income. If the client made the choice of their own accord and approached YOU, you didn't solicit the business. Its not 100% guaranteed but it gives you some coverage.....keep your client happy !

[Spacecadet]

Going back to the OP

How would he feel if having successfully got one contractor on site and planning to get another 3 or 4 on board he then finds out that contractor #1 has gone to the client with a bunch of his own mates CVs and the client co now wants them instead?

[SueEllen]

The client, agency and the op need to start negotiating an exit from the agency. If the agency won't play ball, then go down the route of starting up a new company (having first checked for any personal liability due to the convenant).

The clause has no financial penalties for the representative only the supplier.

As the supplier is not the same as the representative then there is nothing stopping the representative resigning from the original supplier, and working for a new supplier that provides services to the client.

There is also no rule that you have to be the director of the new supplier, and there is also nothing stopping the old supplier from going out of existence.