Reply to: Conflict of Interest clause

[XLMonkey]

Many years ago I once worked for a mainstream agency, before I saw the error of my ways, who had a team dedicated to making the lives of absconded contractors a misery who went to work directly for their client.

I would sooooooo love to get the name of the agency. Pretty please.

[XLMonkey]

What is the exact clause?

This clause may be enforceable, provided that you signed it BOTH on behalf of your company, and yourself personally (i.e. two separate signatures). But it is very poorly drafted (I should know, I draft contracts for a living).

If you signed only on behalf of your company, then its less likely to be enforceable, since you personally are not a signatory. You could set up a newco and then work through that.

[XLMonkey]

My point is, how can your Ltd Co contract with an agency bind you personally?

It binds you personally if the agency wrote the contract terms correctly, because you will have signed both in your capacity as a company director, and as Joe personally.

Now, it is true that if you wind up yourco, and then set up a newco, and then go to work for the client, then you can avoid the problem.

But... when you start to wind up the company, there is a statutory (3 month?) notice period operated by Companies House to catch exactly this scenario, during which time the agent can still sue it for breach of contract. If/when they do, then Joe as the director will still be liable.

The long (long, long, long) and short of it is that, if correctly worded, you can be caught by these clauses.

[Pondlife]

Good work on the names folks.

It also depends on whether Billy Waistband has opted out of the agency regs or not. If they are not opted out (i.e. are covered by them), then there is a limit of something like 14 weeks as a restriction on going direct.

IANAL of course.

[Manic]

Pedantic legal question not necessarily indicative of my own feelings of right and wrong here: if the contract between CC and YourCo Ltd says that neither YourCo Ltd nor its employee Joe Sixpack will work for FTSE, and you Joe Sixpack sign that contract in your capacity as Director of YourCo Ltd, but later on Joe Sixpack does go and work for FTSE, is that not a breach of YourCo Ltd's contract with CC, i.e. they failed to stop him? It may also be a breach of Joe Sixpack's implied contract with YourCo Ltd, but what is YourCo Ltd going to do about that, sue him? The agency CC can't sue him, because he has no contract with them.

My point is, how can your Ltd Co contract with an agency bind you personally?

Exactly. Where YourCo also employs John Washboard who then goes and works for FTSE and you as director of YourCo doesn't stop him, then it gets even sillier.

[Tarquin Farquhar]

Pedantic legal question not necessarily indicative of my own feelings of right and wrong here: if the contract between CC and YourCo Ltd says that neither YourCo Ltd nor its employee Joe Sixpack will work for FTSE, and you Joe Sixpack sign that contract in your capacity as Director of YourCo Ltd, but later on Joe Sixpack does go and work for FTSE, is that not a breach of YourCo Ltd's contract with CC, i.e. they failed to stop him? It may also be a breach of Joe Sixpack's implied contract with YourCo Ltd, but what is YourCo Ltd going to do about that, sue him? The agency CC can't sue him, because he has no contract with them.

My point is, how can your Ltd Co contract with an agency bind you personally?

[IBM Agent]

You would be in bother here if you went and worked directly for the CC's client.

The fact that you've continued to work for their client, accepted payment and possibly had timesheets/confirmation of works acknowledged by their client post expiry of your last written contract, would arguably be deemed as an acceptance on your part to continue working under those previous/existing terms, thus legally binding you. When I say 'you' usually this would be limited to your supplier company (i.e. your Ltd org) but your clause does cite specifically any personnel supplied - you would be on a sticky wicket.

Many years ago I once worked for a mainstream agency, before I saw the error of my ways, who had a team dedicated to making the lives of absconded contractors a misery who went to work directly for their client. The agency threw literally millions at it and it was a very large profit center for the business. I would imagine the CC would have no hesitation is suing you, not utilising your services ever again, and would definitely NOT seek damages from their client - business is too slack in this market on the whole to go biting the hand that feeds the CC regardless if their client has breached the terms by taking you direct..

[Manic]

So an employee of your company is not allowed to accept work there, seems a little restrictive to me. And what does "could be financially damaging mean"?

Mine says this:

The Consultancy shall not, without prior written consent of the Company, for a period of 12 months after the termination of the contract whether on his own account or in conjunction with or on behalf of any other person, firm or company:
Solicit or deal with Customers of the Company and The Client who were customers or potential customers at any time during the period of 12 months immediately preceding the termination of the contract;

12 months is a little long and probably unenforceable, however you see that I am not allowed to solicit business, I would expect the client has a similar clause preventing them from approaching me.

[mkant]

You are all most kind, and offer good thoughts. I def don't wish to close down the company though, there are various reasons why this won't be happening.

There's a mix of opinion out there, but I do see that the terms of the original contract are still in force. So I'd have to tread carefully, and prob pay for some good legal advice (roll eyes, I did that once before and I wasn't impressed).

What is the exact clause?

During the lifetime of this agreement and for a 6 month period after its termination, the Company (me!) and any personnel thus supplied hereby undertake not to accept contracts to supply goods and/or services to the CC's customers where this could have a financially damaging effect on the CC.

Bother. I'm easy-going, pay me a fair share and I'm gruntled. But fair share has turned into squeezing-me-dry here, and I'm disgruntled.

[Hex]

As mentioned earllier consider closing down your limited company and creating a new one to contract direct to the client. The 6 months exclusion will be against your existing Limited.

It won't stop the CC coming after the client mind, but that is their lookout.

[Manic]

Also, what is the exact wording of the clause, many stipulate you are not alowed to solicit business from the client, but in this scenario you're not, as they are asking you.

[XLMonkey]

Michelle,

for this sort of a scenario you will need a proper lawyer type thing. But... since you asked

1. You do have a contract with the CC, and the terms of the contract are the ones that were written down. The expiry date of 2009 is irrelevant. A court would almost certainly take the view that the terms of the original contract were still in force, since you have continued working for them, and they have continued to pay you.
2. You are bound by the Non-Compete clause (not conflict of interest, that's something different), provided that it was drafted correctly in the first place. These are perfectly enforceable in law, provided that they are between two limited companies. (they are much much more difficult to enforce between a company and an individual, but in your case the CC would be suing your limited company, not you)
3. I have encountered situations where the CC pursued a claim against someone who went direct to the client. It does happen, but its rare, and generally the CC will pursue the client, not you (since the client has more money).

Your best bet is probably to get the client to deal with it, rather than you taking the risk (it is "normal business practice" for a big client to explain to a consultancy firm that if they don't sort their act out then they will suddenly lose lots of business - sounds like they deserve a bit of a kicking). But, if you are going to go direct, then you should definitely get a proper lawyer to look at the terms of your contract and give you a definitive view of your position.

[northernladuk]

If you get found out, you'll get a letter shouting at you, and also CC probably won't want to work with you again.

To be honest if it makes them some money they may change their mind. I have a friend that jumped ship in similar fashion, lot of words and upset and 8 months later he was back with them. It's not a dead cert this one.

I did like the line nothing has been officially signed.... nice little get out clause that.

I for one have heard of plenty of fall outs about this kind of thing but have never heard about legal action and up until that point its just people sulking

[centurian]

There probably would be a presumption of continuation of the contract. I'm sure you would have argued that if they had suddenly stopped paying you after signing your timesheet.

However, these clauses are extremely difficult (but not impossible) to enforce - and the lack of a written contract may give you sufficient wriggle room.

The probably wouldn't bother, but bear in mind that legal action for loss of earnings could be significant. If FTSE does tulip-loads of business with CC per year and as a result of you breaking the restriction, CC loses that business, they may try to chase you for that.

Were you Ltd in your dealings with CC. If so, you could probably close Ltd and either go umbrella or a new company with FTSE.

[jim2406]

IANAL (i am not a lawyer):

If you get found out, you'll get a letter shouting at you, and also CC probably won't want to work with you again.

Doubt anything would happen beyond that.

These things are hard to challenge in court and it's only worth their taking legal action against you for loss of earnings, if they can prove it, they think they'll win, and the potential damages outweigh the legal fees and general pain-in-the-arse factor.

There's never any guarantees though, I've been in a similar situation before and was advised by my brother (solicitor) that it is a legal grey area, but it would be extraordinarily rare for such a contract to be enforced beyond 6 months.

Depends how well you sleep at night I guess. If you're a worrier, don't do it, if you are OK with the potential risk, however small, go for it.