Reply to: Legal Query

[andymalory]

Hi,

Some advice required if possible.

I am currently employed within IR35 regulations, working for a client through an umbrella company and an agency. As of now, I have completed six months of a 12-month contract. However, due to the recent changes in my personal circumstances, it has become necessary for me to seek alternative employment opportunities.

Upon reviewing my contract, I noted that it states, "No provision for early termination." In light of this clause, I am uncertain about my options for leaving the contract before its intended completion.

Considering my employment status within IR35, and thus having the same employee rights as a regular employee, I am wondering if I can provide notice to terminate the contract and subsequently negotiate a mutually agreeable timeline for my departure with the client. While I believe the client will be understanding of my situation, I am also keen on ensuring that I proceed in accordance with all legal requirements, and would like to safeguard myself legally in my dealings with the agency.

Would anyone know where I stand with leaving my contract early?

PS I also intend to seek advice from a legal representative to clarify my rights and obligations

Thanks

As others have said on here, the first thing I think you need to do is raise the issue very honestly with your client and test their position. In most cases that I've ever been part of, your day-to-day relationship is only ever with the client. So the client's view drives the agency, which in turn drives the umbrella, despite the contractual fact that your employment contract is with the brolly.

If the client agrees, the whole thing becomes a lot easier through the chain. Just make sure you still engage the brolly formally.

I've been in contracts where even in a fixed term contract, there are provisions, at least on one side, for early termination. I know you've found the "No provision for early termination." line, but I'd still look for other notice provisions. They may conflict but it'll give you an idea of original intent.

There's also a difference between a fixed term contract, and a contract which has an initial term.

Don't concentrate too much on the 'I've got the same employment rights' part - its not actually true.

Do you have a view on whether the brolly would lose out financially (aside from margin) if you left early? Whilst an early exist out of a true fixed term arrangement can be pursued legally, it is likely to depend on losses actually incurred (unless other costs/liability clauses exist).

[andymalory]

Had the OP checked his employer contract. I believe umbrellas have clauses in to pass on liabilities from the B2B contract which would change everything.

They do indeed - at least every one I've ever had has. Its effectively an employment contract with back-to-back wording to try and pass on most of the responsibilities contained in the umbrella-agency contract.

[northernladuk]

Which is why it surprises me that the Umbrella would agree to such a clause. The risk is entirely on them if the employee can't carry out the work due to ill health etc.

Because there is a big difference to ill health/pregnancy etc than purposely breaching and going for a better rate. Nothing wrong with protecting business interests as best they can without either breaking the law or being dispassionate. We haven't even seen the clause so I would expect it would be worded to differentiate between something normal or negligence/mercenary.

[woody1]

If someone becomes unable to work? Lets say someone was knowingly pregnant at the time of taking the role and goes on maternity. They have the legal right to take time off, but the work isn't being done so the Umbrella is now in breach of contract with the agency. The mother just isn't liable.

Which is why it surprises me that the Umbrella would agree to such a clause. The risk is entirely on them if the employee can't carry out the work due to ill health etc.

[JustKeepSwimming]

But it's more a case of, "please be aware that if you breach the contract we may pursue you for our losses". That's not particular to umbrella employees.

Yes if it was a breach of a contract you're a party to. To a third party contract? No.

If someone becomes unable to work? Lets say someone was knowingly pregnant at the time of taking the role and goes on maternity. They have the legal right to take time off, but the work isn't being done so the Umbrella is now in breach of contract with the agency. The mother just isn't liable.

As to whether it's lawful, it's usually expensive for most people to find out, since legal representation is not cheap and few do well representing themselves. Best not to go there.

Sure, but no fun in that!

[JustKeepSwimming]

Umbrella advised me. Lawful or not he needs to check that to see if there is another twist in the plot.

To be fair I'd be very surprised if a brolly didn't try that on. Why should they be held liable if a contractor doesn't meet his contractual obligations on behalf of the brolly? Seems fair enough to me. Remember brolly employment isn't the same as normal employment.. until ET's start popping up to prove they are and the market will be in turmoil.

They should be held liable because they are the party to the contract that contains that risk.

Having a third party indemnity clause would render the termination clause null and void, because invoking the termination clause would trigger the indemnity clause preventing termination of the contract because a termination does not happen with outstanding obligations. An employment contract much have a termination clause or one will be implied by law. You see the issue?

[Protagoras]

Remember brolly employment isn't the same as normal employment.. until ET's start popping up to prove they are and the market will be in turmoil.

+1, but the other way around!

My view is that umbrella employment == ordinary employment as the default position.
It's just that this isn't widely accepted ... yet!

Certainly, there are nuances with umbrella employees being paid on B2B terms etc (the list is so long that it would open a new discussion) but fortunately there are enough umbrella employees bringing ET claims that this gets better every month.

[Protagoras]

You think it's lawful for an employer to transfer liabilities to an employee of an unknown amount from a contract, or contracts, that the employee has not seen nor has any right to see?

'If you want to work here you need to give us a signed blank cheque, good luck'.

I don't think it's fair at all although this scenario arises from a deliberate breach by the employee. For that matter the whole 'umbrella employee' thing is not fair!

But it's more a case of, "please be aware that if you breach the contract we may pursue you for our losses". That's not particular to umbrella employees.

As to whether it's lawful, it's usually expensive for most people to find out, since legal representation is not cheap and few do well representing themselves. Best not to go there.

It's a reminder also that often the add-on legal protection purchased with house insurance offers some level of employee dispute cover. Or one can obtain insurance from 'contractor' insurance providers.

[northernladuk]

You think it's lawful for an employer to transfer liabilities to an employee of an unknown amount from a contract, or contracts, that the employee has not seen nor has any right to see?

'If you want to work here you need to give us a signed blank cheque, good luck'.

Umbrella advised me. Lawful or not he needs to check that to see if there is another twist in the plot.

To be fair I'd be very surprised if a brolly didn't try that on. Why should they be held liable if a contractor doesn't meet his contractual obligations on behalf of the brolly? Seems fair enough to me. Remember brolly employment isn't the same as normal employment.. until ET's start popping up to prove they are and the market will be in turmoil.

Thinking on. If an employee acts in a way to create a loss for the employer isn't there a chance they'd (attempt to) sack him? It's so different from normal employment it's hard to say.

[JustKeepSwimming]

Had the OP checked his employer contract. I believe umbrellas have clauses in to pass on liabilities from the B2B contract which would change everything.

You think it's lawful for an employer to transfer liabilities to an employee of an unknown amount from a contract, or contracts, that the employee has not seen nor has any right to see?

'If you want to work here you need to give us a signed blank cheque, good luck'.

[northernladuk]

Had the OP checked his employer contract. I believe umbrellas have clauses in to pass on liabilities from the B2B contract which would change everything.

[JustKeepSwimming]

The Umbrella will say they don't agree. Sure as hell bet they will pay up rather than even risk the chance of getting a judgement telling them they are wrong. Especially if they are big player.

[northernladuk]

So back to the original post. Answer to OP is to negotiate out and don't breach contract because it's a bloody minefield.

[northernladuk]

Where the umbrella employee has performed the work, evidenced by a signed timesheet, there is a view that the umbrella employee will get paid irrespective of whether the umbrella company is paid (absent umbrella company insolvency)

Umbrella employee income typically has three parts;
(a) PAYE, usually hours worked at national minimum wage
(b) Bonus payment
(c) Pension payment, which make include and element of salary sacrifice of (b)

(a) will be paid because all umbrella companies know that an ET would certainly enforce payment of this (unlawful deduction)
(b) and (c) should be paid because where the employee has been getting paid these for months on end before hand, there's a view that these are a normal part of employee's remuneration. This would be a matter for the ET.
(This was discussed in a previous thread, last year).

Can't disagree with that. The article I mentioned does cover some of this which is useful.

So if the worker fell out with the umbrella the amount the worker would be able to claim against the umbrella would be the amount which the contractor was, strictly speaking, legally entitled. That amount may be not much and may be far removed from the amount due to the agency

But key point is...

This is money due from the agency to the umbrella, and the latter working as they do will not generally expect to fund contractors out of their own pocket, rather they will expect to operate on a pay when paid basis. Technically, this may therefore be a breach of the Conduct of Employment Agencies and Employment Business Regulations 2003, if the umbrella falls within the definition of an employment business for the purposes of those regulations. Of course the umbrella is likely to argue that it does not fall within that definition. But even if the umbrella is in breach of its obligations towards the individual, that breach is only going to extend to the amount paid to which the individual is entitled

So if the agency doesn't pay the brolly then it's likely the brolly believes it doesn't have to pay the contractor and a legal battle will ensue. But, to answer a point earlier, the contractors action is likely to affect his pocket (rightly or wrongly).

So when you say

Personally, I think that umbrella companies should be legally required to pay their employees like employees and to surcharge agencies etc to cover the factoring costs.

It would appear they are legally required to but the brollies won't agree. Needs a case to go the whole way to get the answer I guess.

[Protagoras]

Very coincidently there is an interesting article about contract breach and umbrellas on CUK as we speak. It's the other way around with the agency not paying to agree terms though. Still an interesting read.

https://www.contractoruk.com/umbrell...h_of_4205.html

Thanks for pointing that out.

It's a reminder that umbrella workers are "taxed like an employee" and paid "like a B2B contractor" with extended terms, rather that being paid to a fixed weekly or monthly schedule.

Personally, I think that umbrella companies should be legally required to pay their employees like employees and to surcharge agencies etc to cover the factoring costs.