Restrictive covenant daisy chain - really???

[SueEllen]

The 12 month thing has come up a number of times and the general consensus is yes 12 months is unenforceable as it is breaches your rights to work of something like that.

12 months is generally unenforceable except in specific cases and a lot of it depends on the wording of the clause.

So if you worked for a company, Vet A in Small Town A, where you had lots of clients but you decided to set up your own practice Vet B 5 miles down the road. Vet A could well enforce their restrictive covenant in court (and win) if it stated concisely that you cannot set up or work for a practice within 12 months in Small Town A. This is due to the fact you risk stealing Vet A's clients and damaging their business. (I use to know someone where this exactly happened to them i.e. they were the one that lost.)

However most contractors on here tend to have clients who are large, or even if the client company is small and does something unique they don't risk damaging their client's business by taking those skills to a competitor down then road.

What is risked is confidentiality i.e. exactly how the client operated their business and stealing information such as code and full details of individual customers. In this case confidentiality agreements are put in the contract which can be enforced from the beginning of the contract and continue afterwards.

The thing I don't know though is would that automtically become 6 months or something or does it throw the whole thing out. Thing is you are neck deep in crap alreadu if you are relying on the 12 months being thrown out if that makes sense.

If it goes to court then the offending parts of the clauses may be struck out so it doesn't make sense, which often renders it unenforceable. They don't put a new restriction period in the contract.

Some contracts are now phrased so that the restriction period is defined from a minimum of 3 up to 12 months so if that happens there is still a restriction.

However as the rest of the clause may be badly worded then the restriction could again be meaningless for example banning someone whose client was BT from working for a competitor, a supplier or a customer in any capacity. (Someone tried something similar on me and a barrister explained why it was unenforceable.)

[tractor]

..

If it's in the contract, dodgy ground - BUT Agency A threatening not to pay invoices is out of order... in fact if they breach the contract it might even remove the problem!
If Agency B are happy, maybe have an honest discussion with Agency C and ask their advice.

Maybe they can at least cut B out of the chain.

It won't; in fact it may even exacerbate the problem. A party in law has recourse to sue in respect of non or late payment. Indeed the Late Payment of Commercial Debts (Interest) Act provides the first level of recourse and is f course, why it was introduced - to provide a framework of legislation that enables you to avoid going to court for trivial matters and because one enterprising individual tried to wind up some multinational who clearly was not insolvent IIRC.

The second issue is based in Contracts case law where (and I can't remember the case) a litigant is not released from their contractual obligations because one party avoids theirs. This results in the ridiculous situation that can arise in that if the agent does not pay up, you can follow the previous remedies AND ultimately take them to court but it is possible that if you withold services contrary to the contract provisions, they could be in a position to sue the 'party of the other part' (you) UNLESS there is provision in the contract to withold such provision in the circumstances that arise.

This is all from memory and could be complete bulltulip but you should check it all out before just saying OK I'm off if you are not paying!

[northernladuk]

I'd question why Agency C would bother offering anything to any of the other agencies - what's in it for them?

And why on earth did you friend accept this arrangement? Being 3 people away from your client looks bad whatever country you are from surely?

[TheFaQQer]

Agency C could consider offering Agency C compensation of 8 weeks commission or so as a goodwill gesture if they sign John on a new contract?

I'd question why Agency C would bother offering anything to any of the other agencies - what's in it for them?

[Peamarsh]

Thanks for all the valuable input guys - will have a chat with John and see what he wants to do.

[northernladuk]

The 12 month thing has come up a number of times and the general consensus is yes 12 months is unenforceable as it is breaches your rights to work of something like that. The thing I don't know though is would that automtically become 6 months or something or does it throw the whole thing out. Thing is you are neck deep in crap alreadu if you are relying on the 12 months being thrown out if that makes sense.

[Wanderer]

Agency A threatening not to pay invoices is out of order...

Absolutely! I forgot to add that. The response to this type of threat from an agency is that they will pay on time or face legal action to recover the debt, plus penalties and interest. Make it clear to them that you aren't going to take that sort of nonsense.

John's company is not registered in the UK but in another EU country...does this mean this whole opting out or not opting out is a moot point because it's only applicable to UK based limited companies?.....The client seeming to be just about anyone in this case (Agency B, Agency C as well as Client A) - surely 12 months is unreasonable and unenforceable and that Agency C could consider offering Agency C compensation of 8 weeks commission or so as a goodwill gesture if they sign John on a new contract?

It's not up to John to sort out, it's up to the agencies to sort out amongst themselves, he should stay right out of it. DON'T start negotiating things unless you know exactly how much commission each agency is taking (and they aren't going to tell John because he will be livid and how much him and the client are getting screwed for).

The other option is for John to talk to the client and see if he can screw the whole lot of them and go direct or through an alternative agency of the client's choosing and see if the client will pay the agency off or take on the battle.

From what you say of the restriction, I think it's unreasonable but I don't know if a judge would agree with that view.

You also have to ask if John is willing to close his LTD company down and start a new one as part of the dance around the restrictions...

The first thing to find out is how much the client is paying so you can quantify how much the agencies are taking.

[Peamarsh]

Let the agencies battle it out and come to some arrangement.

Be aware that with a chain of agencies in the deal, John and the end client are both being raped on the agency margins. John should speak to the client and find out how much they are paying the agency.

Also, did John opt out of then agency regulations? If he did then he is about to find out why that wasn't such a good thing to do....

John's company is not registered in the UK but in another EU country...does this mean this whole opting out or not opting out is a moot point because it's only applicable to UK based limited companies?

Also, the offending clause in his agreement with Agency A goes along the lines that John may not work for "the client" within 12 months of his agreement ending. The client seeming to be just about anyone in this case (Agency B, Agency C as well as Client A) - surely 12 months is unreasonable and unenforceable and that Agency C could consider offering Agency C compensation of 8 weeks commission or so as a goodwill gesture if they sign John on a new contract? Not sure that John has the stomach to face off against Agency A's threats - even if they are most posturing....

[d000hg]

If it's in the contract, dodgy ground - BUT Agency A threatening not to pay invoices is out of order... in fact if they breach the contract it might even remove the problem!

If Agency B are happy, maybe have an honest discussion with Agency C and ask their advice.

Maybe they can at least cut B out of the chain.

[Wanderer]

Any other advice for John here?

Let the agencies battle it out and come to some arrangement.

Be aware that with a chain of agencies in the deal, John and the end client are both being raped on the agency margins. John should speak to the client and find out how much they are paying the agency.

Also, did John opt out of then agency regulations? If he did then he is about to find out why that wasn't such a good thing to do....

[Peamarsh]

Good points of course - the issue is that Agency C's client, Client A, absolutely loves John and would be furious if he was lost due to inter-agency shenanigans.

So, John could brave the bravado and call A's bluff or continue the daisy chain for another contract with A but not get the rate hike....

[Peamarsh]

Thanks for the quick response! Agency B is not fussed and is OK with Agency C becoming the primary contracting party with John.

Agency C are willing to sign with John. Of course, it would be beneficial for both John and them as Agency C would not be paying Agency B who would be paying Agency A. John would get a higher rate with C with 2 middle men getting cut out.

Is there a way out of Agency A's handcuffs for John?

Cheers

[northernladuk]

What exactly are the advantages of going straight with Agent C over his current situation? Obviously there won't be the huuuuuuuuuuuuge risk that one of the agents doesn't bother paying the next one and so on but is he getting a much better rate due to the agents not getting their cut or is Agent C gonna pocket that?

2. In your opinions, what are the odds that Agency A are using bravado in the first instance to scare John out of leaving them? Has anyone ever actually gone to court in this type of situation?

100% for Agent A to use bravado in the first instance. Everyone does, goes straight for the 'sue you' line. Gotta think how much is in it for the agent against cost to sue. From what I have seen on these forums no one has yet gone to court over anything contract related but Kitty is going to try it seems. It could be they never go to court because they do fold.

There is another post on here similar to this but only one agent. Are you sure this is of no use to your friend?

.... and how the hell did he get stuck in a chain that long??? Why doesn't C just drop the lot and go find a new contractor??

Also are there any visa issues here? Is there a chance A or B could turn vindictive and cause problems?

[TheFaQQer]

1. Without you guys even seeing the contract clause of course, is it even feasible for Agency A to be able to stop John working for their client's client's client (through agency C) after their initial contract with John expires?

Without seeing the contract, and at risk of being accused of making an assumption about the situation(!), yes it's feasible for Agency A to be able to stop him working with the client.

I'd wager that the contract between C and B prevents C from doing this; I'd also wager that the contract between B and A would prevent you even from going to B and cutting out A.

3. Any other advice for John here? Sign with Agency C and call Agency A's bluff?

Sign with A.

What does C say about it?

[Peamarsh]

Hi all

Have done some reading on the forum but have not managed to find a similar case to the one in which I seem to be involved. I was hoping for a little guidance (on behalf of a foreign contractor) who is panicking!

The story goes like this, John the contractor is found by agency A who subcontract him to Agency B. Agency B then sign a contract for John the contractor with Agency C. Client A then signs a contract with Agency C for John's services. However, both Agencies A and B know that John is actually working at Client A and it is also written so in the original contract between John and Agency A.

Everything goes swimmingly for the 1 year contract period
but when the issue of extensions comes up, John has decided that he wants to sign a new contract with Agency C thereby cutting Agencies A and B out of the equation BUT still working at Client A. He informs agencies A and B of his intention and predictably both are unimpressed. Agency A immediately starts to intimidate John with talk of breached restrictive covenants and has even said it will not pay his invoices until Agency A has spoken to Agency B for their opinion of John's intention. Unsurprisingly, John being a new contractor and foreign, is rather worried about the fact that Agency A has "instructed their lawyers". So to the questions then;

1. Without you guys even seeing the contract clause of course, is it even feasible for Agency A to be able to stop John working for their client's client's client (through agency C) after their initial contract with John expires?

2. In your opinions, what are the odds that Agency A are using bravado in the first instance to scare John out of leaving them? Has anyone ever actually gone to court in this type of situation?

3. Any other advice for John here? Sign with Agency C and call Agency A's bluff?

Thaks very much in advance!