Contract Notice Period, what does it really mean?

[Wanderer]

This question comes up a bit and I'm wondering what the consensus is about notice periods.

Please read the discussion below before voting. The poll options are discussed in the numbered points 1 - 5 below.

I know that we all have B2B contracts that are bullet proof from an IR35 point of view but for the sake of the discussion, let's put IR35 aside and consider the following example:

A contractor is contracted to a client (take that to mean client or agency) and do a professional working day 5 days a week with X days notice required to terminate the contract. The contract states that there is no Mutuality of Obligation (MoO) and the contract gives the Right of Substitution (RoS), the contractor would be responsible for doing a handover to the subbie and the subbie wouldn't be rejected by the client without good reason.

Now consider these early contract termination scenarios:

1. Client says: "We are giving X days notice that we will terminate the contract. We have no more work to do during those X days and there is no MoO so the contractor must leave site and not come back". Effectively a termination without notice.

2. Contractor says: "I am giving X days notice that I will terminate the contract. As there is no MoO, I am not obliged to provide my services to the client, so I will not do any further work for the client". Effectively a termination without notice.

I think it should go something like this (not saying it does, but that's my reading of what the typical contract means)

3. Client says: "No more work, goodbye". Contractor says "I am still available to work for you during the contracted notice period so you must pay me regardless of whether you offer me any work or not". Contractor bills the client for the notice period and expects to be paid for it.

4. Contractor says: "I'm off, goodbye". Client says "You are obliged to give X days notice that you are terminateing the contract so I require you to continue to work for those X days under the terms of the contract". The contractor could work the notice, exercise their RoS (with a suitable handover period which may be up to X days anyway). If the contractor were to walk away, the client would calculate the actual losses caused by the contractor failing to perform the notice period stated in the contract and claim these back from the contractor (typically by withholding payment).

5. Cop out: There is no hard and fast rule and each case is settled by negotiation and mutual agreement so the whole thing remains as clear as mud.

If scenarios 1 and 2 were true then the lack of Mutuality of Obligation makes the notice period meaningless then, so why have it in there? My understanding is that the MoO refers to future contracts once the current one expires rather than a day to day MoO. What does the panel think?

I'd be interested to hear what agent consider the intention of their contract notice period is but I have a feeling that they prefer it to be a grey area so they can judge each case on it's merits or have it both ways by applying scenarios 1 and 4 but not paying up in scenarios 2 and 3...

Or are we all just going to sit on the fence and take option 5?

So what do people think? Remember that we are putting IR35 aside for the moment, this is only related to what does the notice period mean.

[northernladuk]

Found this little gem after searching for info for this thread...

http://forums.contractoruk.com/busin...ml#post1564599

Shame I missed it as it is a great question but there was no input into it. I thought this was pretty black and white but looking at some comments in the linked thread the actual voting it appears this is quite a problem.

So here is my take....
Number 1 and 2 I think is the reality. I do think the wording in 1 is a bit harsh. I think it paints in the wrong light to say effective termination instead of explaining the reai situation which is the contract and notice period are honoured, the contractor just doesn't get paid. It's just technicalities of the wording but I think it is key to having the right mindset. You haven't been terminated, you are still in contract. It is important to keep this in mind.

3 is completely wrong. This is permie mentality and if this could be proved in a contract it would almost certainly put you inside.

4 I think could be correct in a really really tulipty situation but option 5 plus it just isn't worth taking it that far. It would cost far more to see this through than just deal with it. Companies (and contractors) just don't want to go legal. They would also have to prove loss for this to stand up and they way most of us work loss would be hard to prove. It would be an implied loss over the whole project or whatever so take a lot of arguing because it isn't very tangible.

Option 5 is the coverall and the optimum solution whatever... always. It isn't a cop out. It's business. Everything is up for negotiation, both ways. Sometimes the client won't like it, sometimes the contractor won't. That's business.

I am very surprised to see more votes for the contractor getting paid for not working. Is it because my whole thinking on this is wrong or that contracting is going to the dogs due the market and the way clients deal with us now that the deluge of new 'contrators' will never get it and are in fact hidden permies?

Maybe CUK can do an article on it from an expert or QDOS or Kate or someone can comment on here?

[NotAllThere]

MOO means I'm obliged to give you work and you are obliged to work for me. No MOO means one or both of those obligations doesn't exist. No MOO is fulfilled by "I do not have to give you work, but if I want you to work, you must". I might have a notice period, though, which would mean that I once given notice, I'm only obliged to work for the notice period. Still, lack of MOO remains.

Obligations to work either override, or define the notice periods. If I and the client both have 1 week's notice, and there's nothing else in the contract talking about whether work has to be provided (payment in lieu) or work must be done (cover losses), then I think MOO is implied.

[MyUserName]

Notice periods are on odd feature. I think they have come from the blurring of perm and contract positions.

If I say I want to terminate the contract then the client might hold me to my 1 month notice period but I can exercise my moo clause and refuse to do any of the work and start working somewhere else.

They could say that want to terminate and I hold them to the notice period and they exercise moo and do not give me any work. I bill them for the work I have done which is none. They hire someone else to do any work that needs doing.

my contract has a 1 month notice period with another clause saying they can terminate on the spot if they decide I am unsuitable.

Moo and termination clauses basically nullify notice periods but people seem to keep them in out of habbit.

[Willapp]

MOO means I'm obliged to give you work and you are obliged to work for me. No MOO means one or both of those obligations doesn't exist. No MOO is fulfilled by "I do not have to give you work, but if I want you to work, you must". I might have a notice period, though, which would mean that I once given notice, I'm only obliged to work for the notice period. Still, lack of MOO remains.

I had always assumed MOO was always equally valid on both sides at all times, but this does put a new slant on it for me if MOO can exist only on one side in certain situations.

I think if I were put into a position where I wanted to end a contract prematurely and there was a notice period, I would generally discuss it with the client and if requested would make the best effort to see the notice period through, since this is what I would believe the client would expect, and if we were on good terms why would I jeopardize that by trying to invoke MOO just because it might be technically valid to do so.

Likewise if I was given early notice I would hope to be able to work the notice period and bill for it as normal, but if the client wanted me to leave immediately I would never expect to be paid "in lieu of notice" since this definitely seems like a permie mentality - if I haven't done the work, what's there to bill for?

It may seem like I'm giving the client more leeway but if the bottom line is to act professionally and not burn bridges in case more work comes up down the line, I don't see any reason not to be accommodating providing it doesn't extend to doing work without getting paid!

That's my $0.02 anyway.

[malvolio]

Mutuality is not an on/off situation; there are degrees of mutuality. Hence the case law is built around an "irreducable minimum of mutuality".

If the client wants you gone, he can give you notice as per the contract, but not give you any work to do. MOO means you don't get paid for not working.

If you want gone, you can offer notice to the client, continue working during that period and charge for it. Or you can stop work immediately and not charge them. However, the first is fine, the second is a breach of contract and you may find for example that other outstanding payments are not forthcoming, or you may get sued for consequential losses. You have, after all, just cost your client a lot of money. Equally, of course, you can offer notice, the client says "Fine, off you go" and gives you no more work. Again, you don't get paid. Which one demonstrates mutuality?

Where MOO comes in in the real world is a situation where you can get paid for not having work to do for any reason. As long as people accept that no work equals no pay, this whole notice period thing becomes immaterial. It is also naive to try and use MOO to excuse poor business practice, and I'll give very good odds that you ditching a contract abruptly will not be enough to demonstrate MOO and hence why you should be outside IR35. More likely it will demonstrate you are not acting as a business and in good faith.

Of course, notice periods are for permies, who have a legal right to them. We don't, they are merely an administrative convenience, nothing else.