Reply to: Restrictive contract clauses

[northernladuk]

Could you work for the client directly without involving a recruitment agent?

Unlikely. Clients use agencies because they don't want the hassle so why should they take him/her on direct?

[Plonitus]

Work For the Client Directly

Could you work for the client directly without involving a recruitment agent?

[DeludedKitten]

Jumping on the back of this, I seem to recall people saying 12 months is also unfair, again is this untested or is there something that can be shown as evidential?

I've been asked if I would be interested in going back to an old client, it's been 7 months but the original contract say's 12.

I can justify based on the no financial loss as the type of contract on offer is not available to the original agency/consultancy. Client has two vehicles for contracts, one for a consultancy to supply all contractors in a certain directorate, the other with a large agency for all other work, I was originally brought in on the former and this time it would be the latter.

Depending on the wording of the clause, twelve months would be generally regarded by a court to by unfair. There have been some court cases where this has been argued and won. There have also been some court cases where it has been argued and lost. It will come down to the exact wording of the clause and the interpretation of the person deciding the case. For example, "the contractor cannot perform any work with multinational ABC for the next twelve months apart from through us" would in all probability be ruled unfair, particularly if the prospective role was significantly different from the former one (eg previous role was a BA in York and the prospective role was a PM in New York). In some cases, there have been restrictions geographically which can be argued one way or the other in court (there are cases where the contract attempted to prevent the individual from working in the Square Mile, which was thrown out as too restrictive because of the concentration of similar businesses in that location).

In all these cases, the client should also ensure that they check the contracts that they have in place with the other parties - you might be able to push your contract restriction to one side, but can they do the same? From the upper contracts that I have seen, they would have adifferent hurdle in arguing that they can just ignore that contract clause and bring in someone via other channels. If there is a contractual restriction between client and another party regarding how they recruit, and the client is willing to just ignore that inconvenience then I would be wary about what I signed with the client.

[Lance]

Jumping on the back of this, I seem to recall people saying 12 months is also unfair, again is this untested or is there something that can be shown as evidential?

12 months is generally recognised, and agreed in court, to be too long.
You'd need to do your own googling to get evidence, but I've been through a legal battle before and stand by what my solicitor told me.

6 months is the maximum enforceable.
There are other things that make them less enforceable (eg. too wide a geographioc area, too wide an industry). But in terms of a restriction for one client they are generally enforceable.

[SimonMac]

Jumping on the back of this, I seem to recall people saying 12 months is also unfair, again is this untested or is there something that can be shown as evidential?

I've been asked if I would be interested in going back to an old client, it's been 7 months but the original contract say's 12.

I can justify based on the no financial loss as the type of contract on offer is not available to the original agency/consultancy. Client has two vehicles for contracts, one for a consultancy to supply all contractors in a certain directorate, the other with a large agency for all other work, I was originally brought in on the former and this time it would be the latter.

[VLKS]

Did you actually read any of the replies given?

Point of note: They are a recruitment, not employment, agency. But you already know that because you have your own limited company

Thanks ladymuck . yes i did read all the replies.

[ladymuck]

These are the actual wordings in the contract.

================================================== ===================
12 Restriction

12.1 The contractor shall not and shall procure that the contractor staff shall not supply services directly , or through any other person, firm or company, to any client for which it has carried out assignments either during an assignment or for a period of six months from its conclusion.

12.2 In the event that the contractor or the contractor staff breaches clause 12.1 the contractor shall pay to the employment business such fess as the employment business would be entitled to if the employment business had arranged the provision of services to the client (the engagement).Where the engagement is on a temporary basis the fees will be calculated at the rate charged by the employment business to the client less the pay rate specified in the assignment contract note which shall be multiplied by the total hours/days worked or to be worked during the engagement.Where the engagement is on a permanent basis the fee payable to the employment business fee shall be 20% of the commencing gross annual salary.
================================================== ===================

In the above clauses - "Contractor" means - My limited company , "contractor staff" means - Myself as an employee , "client" means - Company to whom i am giving service. , "employment business" means - the agency with whom i have my contract.

In case in the future my current employment agency get to know the fact that i have joined back to the Client through some other employment agency , Are they legally allowed to contact me directly as they think i have breached the contract or they cannot contact me directly and they have to send me a court notice ? if they want their fees as mentioned in the contract clause 12.2.

Please advise.

Thanks,

Did you actually read any of the replies given?

Point of note: They are a recruitment, not employment, agency. But you already know that because you have your own limited company

[ladymuck]

Thanks Ladymuck . Actually i am a contractor and have got my own Limited company. And therefore i don't want to be on the payroll.

What you want and how HMRC would interpret the arrangement are two completely different things.

[VLKS]

In case in the future my current employment agency get to know the fact that i have joined back to the Client through some other employment agency , Are they legally allowed to contact me directly as they think i have breached the contract or they cannot contact me directly and they have to send me a court notice ? if they want their fees as mentioned in the contract clause 12.2.

Please advise.

Thanks,

[VLKS]

These are the actual wordings in the contract.

================================================== ===================
12 Restriction

12.1 The contractor shall not and shall procure that the contractor staff shall not supply services directly , or through any other person, firm or company, to any client for which it has carried out assignments either during an assignment or for a period of six months from its conclusion.

12.2 In the event that the contractor or the contractor staff breaches clause 12.1 the contractor shall pay to the employment business such fess as the employment business would be entitled to if the employment business had arranged the provision of services to the client (the engagement).Where the engagement is on a temporary basis the fees will be calculated at the rate charged by the employment business to the client less the pay rate specified in the assignment contract note which shall be multiplied by the total hours/days worked or to be worked during the engagement.Where the engagement is on a permanent basis the fee payable to the employment business fee shall be 20% of the commencing gross annual salary.
================================================== ===================

In the above clauses - "Contractor" means - My limited company , "contractor staff" means - Myself as an employee , "client" means - Company to whom i am giving service. , "employment business" means - the agency with whom i have my contract.

[VLKS]

If you've been with the client for 5 years why aren't you on the payroll?

However, in answer to your question, the clause can only truly be enforced if the agency can demonstrate that they are suffering a financial loss due to you engaging with the client via another agency (or direct). If the client has terminated their contract with the agency then they know that no further income is forthcoming from them so you cannot be held accountable for any perceived financial loss. They may make angry noises at you but, as long as the client is willing to support you and confirm the upper contact was terminated before you moved to another agency, they don't have a leg to stand on

IANAL

Thanks Ladymuck . Actually i am a contractor and have got my own Limited company. And therefore i don't want to be on the payroll.

[VLKS]

Thanks everyone for your support and advice.

[jmo21]

+1 to all the above.

The agency knows this too by the way.

They are simply trying to ring the last few pennies out of the contract by getting the end client, or you, to pay a fee to drop the clause.

And while you might well come at them armed with these facts, it might be too much hassle for the end client who might choose to let you go.

FWIW, almost the same happened to me and another contractor I was working with once, with a month left on both our contracts. The client really wanted us and chose to pay a fee, even though they really shouldn't have. Only difference was agency never told me to hand in notice, we just got informed that they were switching us onto another agent.

[BlasterBates]

Agree with the above, the handcuff clause is there to stop you changing agency mid contract or renewal, not to put you out of work by preventing you from working for the client in the event that the agency serves notice.

If a restrictive covenant protects a legitimate interest of the agency, then the clause is valid and enforceable

In determining what a legitimate protectable interest is, the courts will apply the 'Elephant Test.' This is a truly lawyerly invention: try and explain what an elephant looks like; you will find that you can't. But you know what an elephant is, and you recognise one when you see it. This is how the courts will seek to determine if there is a legitimate protectable interest--i.e. does it sound like it is fair?

In this case the agency would not be protecting a legitimate interest so don't worry about it.

[northernladuk]

Ladymuck covers the situation nicely so +1 to that. They can't use handcuffs just to cause a fuss when they have no further skin in the game. Screw them.

On a side note, how much do you know about Ir35? Time is not necessarily directly related it does erode your defense, particularly if you've got complacent and taken your eye off the ball.

Also exposes you to a huge amount of risk with the April 2020 changes coming up.