Long term commitment come hell or high water

[private123]

I have searched around a fair bit and can't find any advice on this particular scenario and hope someone can help or advise.

I am a permie who is about to being made redundant and hoping to begin work "contracting" for another company who is taking over part of the business from the failed company I work for.
There are several of us hoping to do this and the underlying basis for the contract is currently being put together by one of the soon-to-be ex employees.

The contract will/could run for well over a year, and it has come to light that it may be the case that we are going to actually commit ourselves for this length of time, come hell or high water. Straight away I know that this scuppers any chance of being outside IR35, but my worry is that it is implied that if I fail to fulfill the entire length of the contract, either myself, or my company (if I do go LTD) could be liable for bucket loads of cash for failing to fulfill. I don't know if it will specify exactly what I would be liable for, but presumably it could be at least enough to find someone else to step into my shoes. Given the specialist/bespoke nature of the service being provided, I imagine this could be very expensive. I'm concerned that either through illness, or some other reason, I could become extremely of pocket. I think there is an underlying expectation that if one or more of us do not fulfill the contract or are unavailable for whatever reason then the rest of us would cover (not sure at what rate, or how this will be worded).

None of the other people seem that bothered about this, however, I cannot imagine they would ever get someone new in to make this kind of commitment - i.e "we want you to commit for over a year, if you get ill or it doesn't work out, you owe use a large amount of money. Oh, and also, if any of these other guys can't do thier bit, we want you to do thier bit as well"

I realise this works both ways, and it guarantees me work for the entire contract as they can't get out of it, but I think that being liable for an unspecified amout seems too high a price to pay for this.

First of all, i'm wondering, when a contract states a length, be that one month or two years, what generally happens if either party does not fulfill the entire contract ?

Does it differ between being a sole trader, LTD company or umbrella ?

My guess is that if I am LTD then they sue the company - does any kind of insurance cover this ? If I shut down the company, where would that leave me ?

I also guess, that if I am sole trader, they can sue me and I lose my house !?

And I wonder about umbrella. I guess the umbrella co. would be liable, so i'm unlikely to find any umbrella to take me on ?

[BolshieBastard]

What does the flippin' contract say? It doesnt matter whether you work through a limited co, umbrella, sole trader or even an employee. If you break the terms of the contract, you could be liable to be sued. That's called breach of contract.

Get your contract reviewed by Bauer & Cottrill or similar. It'll cost about £180.

[d000hg]

But whether you are employee or a PSC presumably effects what contractual terms are actually lawful/enforcable?

[northernladuk]

Are you sure your old company will let you do this? There is no handcuff clause in the contract saying you cannot work with their clients/suppliers for 6 months? Maybe if you being made redundant they may waive this but if they are still doing business with the client they may be a bit protective of it.

[private123]

Are you sure your old company will let you do this? There is no handcuff clause in the contract saying you cannot work with their clients/suppliers for 6 months? Maybe if you being made redundant they may waive this but if they are still doing business with the client they may be a bit protective of it.

The old company will no longer exist. They are in administration.

What does the flippin' contract say? It doesnt matter whether you work through a limited co, umbrella, sole trader or even an employee. If you break the terms of the contract, you could be liable to be sued. That's called breach of contract.

Get your contract reviewed by Bauer & Cottrill or similar. It'll cost about £180.

There is no contract yet. One of us is in the process of doing an outline proposal of what will be in the contract, but that person's view is that it will be a contract for over a year, and if we break said contract, we will owe them a bucket load of cash. I want to be clear where I would stand on this, as Sole trader/LTD/Umbrella before the proposal goes in to them.

TBH I can't imagine anyone would go into a contract for a long period knowing that if it did not work out they would get sued. Maybe i'm being naive, and that's the way all contracts work ?
You wouldn't go into a permie role knowing you had to stay there over a year whatever happens, and I assumed, maybe wrongly, that if you started an X month contract, it did not necessarily mean an X month commitment from both parties ?

[northernladuk]

TBH I can't imagine anyone would go into a contract for a long period knowing that if it did not work out they would get sued. Maybe i'm being naive, and that's the way all contracts work ?
You wouldn't go into a permie role knowing you had to stay there over a year whatever happens, and I assumed, maybe wrongly, that if you started an X month contract, it did not necessarily mean an X month commitment from both parties ?

You will not be sued. It is a pentalty clause in the contract. You don't have to sue to invoke a penalty clause.... If you don't pay up then you might...

Why does everyone assume getting sued is the first option in business

Surely if you guys are writing the contract it is up to you to make sure there are suitable clauses and that the agreed piece of work is carried out as YOU want it and then negotiate with the client.

You sure you guys are up to this?

[private123]

You will not be sued. It is a pentalty clause in the contract. You don't have to sue to invoke a penalty clause.... If you don't pay up then you might...

Why does everyone assume getting sued is the first option in business

Surely if you guys are writing the contract it is up to you to make sure there are suitable clauses and that the agreed piece of work is carried out as YOU want it and then negotiate with the client.

You sure you guys are up to this?

We are not writing the contract, we are writing a proposal for the basis for a contract. Trouble is, one of the guys, the one who is dealing with them, is the guy writing the proposal. He is of the opinion that they want us to commit to the full length of the contract and that there will be a penalty if, for any reason, we do not/cannot fulfil the entire contract. When the actual contract comes back from them, the actual penalty may or may not be spelt out. If it is spelt out, then obviously I can either take it or leave it. If it is not spelt out, then it is open to interpretation, and that is where I am wondering where they would stand legally, and if it makes a difference whether you are sole/Ltd/umbrella.

If they want something in the contract to stop us just bailing out one day, I'm thinking maybe suggesting some, e.g get paid a lower rate, then get paid a bonus, either at the end, or regularly, say a month in arrears, that would be a dis-incentive for us bailing out - i.e. if you bail out, you don't get the bonus.

[NotAllThere]

....The contract will/could run for well over a year, and it has come to light that it may be the case that we are going to actually commit ourselves for this length of time, come hell or high water. Straight away I know that this scuppers any chance of being outside IR35...

Er. No. It doesn't. To me the scenario you describe implies the opposite. Penalty clauses are not part of employment contracts.

but my worry is that it is implied that if I fail to fulfill the entire length of the contract, either myself, or my company (if I do go LTD) could be liable for bucket loads of cash for failing to fulfill....
My guess is that if I am LTD then they sue the company...

Ltd stands for "Limited Liability". That means, with a few exceptions, the liability stops with the company. That's the whole point of ltd. It allows people to limit their risk in starting a new business.

Contracts are subject to negotiation. If you don't like something - don't agree to it. You can't be forced at gunpoint to sign - and even if you were, it wouldn't be valid. Do your due diligence, get a suitably informed lawyer to go through the contract that you agree on, to see whether your soul really has been ceded to Beelzebub.

Completion bonuses put the risk on you; you're the one who has to bill for it. Penalty clauses put the risk on the customer - they have to bill you.

You colleague should anticipate what the client want, but in drawing up a contract, you want to make sure that it is as favourable to you as possible.

[private123]

Notallthere. Thanks for the very contructive reply.

Er. No. It doesn't. To me the scenario you describe implies the opposite. Penalty clauses are not part of employment contracts..

But this would be a contract with (initially) more than a year notice period either way (reducing as the contract nears it's end). I thought anything over 1 month notice blew away "outside IR35".

Ltd stands for "Limited Liability". That means, with a few exceptions, the liability stops with the company. That's the whole point of ltd. It allows people to limit their risk in starting a new business.

But surely you can't get away with folding your company just to get out of a contract, then start up a new one for the next contract ?

What about if you were under an umbrella ? Who would have the liability if you bailed out ?

[NotAllThere]

I am not a lawyer. If you want a professional opinion, then go talk to one.

IR35 isn't reliant on notice periods. I've contracts with suppliers where I have to give them three months notice if I want to divest myself of their services - and I definitely don't employ them. IR35 depends on whether the contract is effectively one of of employment. Notice period might come into that, but other factors will blow it away. The ideal b2b contract is that your client can't give you notice, and you can't give them notice. If you've a contract that's obligatory on both parties for one year, then you've might have a fixed price contract?

What's the nature of the work? Is it just support? Can you benefit from getting the work done in 9 months? There's many factors that go into IR35. Your colleague who's drawing up the contract would be an absolute fool if he didn't do all he could to make sure it's not an employment contract.

The contract will be between your company and the client. If you were unable to work because of ill-health, and your company couldn't get a replacement, then the contract would be frustrated. Then you could hide behind limited liability. If you just decided that you didn't want to work anymore, and they came after you for the funds, then they might be able to go directly to you - but only to the amount that you'd taken out of the company. Your personal assets would be protected.

You and your colleagues should write yourself a decent contract, then take it to your customer and start negotiating. Don't worry about ifs and mights and maybes. Get the safeguards into the contract. Then it's all nice and clear.

So far as you've described the work, you'd be pretty stupid to go through a brolly - just throwing money away. They wouldn't want you anyway.