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Contractor Doctor: Do contractors automatically get employment rights after 2 years?

Dear Contractor Doctor,

I’m an IT contractor and have been working for the same client for almost 2 years, trading via my own limited company. There’s an opportunity to extend the contract again and my client project manager wants me to renew, to retain my services on the project.

However, the human resources (HR) department has told my project manager that they won’t renew the contract because they believe that after two years I gain the right to demand a permanent position with the client, and all the employment rights that come with it. HR has therefore suggested that a contract renewal might not be possible. Bizarrely, HR’s solution is to offer me a permanent employment contract, which I don’t want.

If my client won’t renew after 2 years, fearing I’m entitled to employment rights, what can I do?

Thanks

Liam

Contractor Doctor says:

The client’s HR department has certainly got the wrong end of the stick, as there is no legislation that states that contractors or freelancers gain the right to demand permanent employment after two years.

Contractors like Liam are business-to-business service providers. It’s the contractor’s limited company or umbrella company that is providing the services to the client, not the contractor. So how can there be an employment relationship between the client’s business and the supplier’s business?

Suppliers can’t claim employment rights

As they are working for business-to-business suppliers, limited company contractors and umbrella company contractors cannot claim employment rights. Umbrella company contractors are already employed by their umbrella solutions provider, and compliant umbrella solutions providers will have a formal employment contract in place with their contractor employees.

When the supplier is a single-person business, such as Liam’s contractor limited company, and there is no intention by either party to create an employment relationship between the client and contractor, it is in the client’s interest to ensure Liam is treated like a supplier. That way, he does not become ‘part and parcel’ of the client, so is not even being treated like an employee.

There have been cases where contractors have tried to claim employment rights. However, case law precedents from employment tribunals and appeals, such as the Cable & Wireless v Muscat case, have ruled that contractors cannot claim employment rights.

There is no ‘two-year law’ but there is a 12-week rule – educate the client

Although there is no ‘two-year law’ that allows contractors to demand a permanent job, the Agency Workers Regulations (AWR), which came into force on 1 October 2011, allow agency workers to claim equal pay and conditions after 12 weeks.

Umbrella company contractors are considered to be in the scope of AWR, but limited company contractors can be either in or out of scope depending on the nature of the relationship with their end client.

In Liam’s case, a contractor who clearly wants to remain as a business-to-business service provider and not an employee, the regulations will not apply because he is in a ‘business undertaking’.

Many clients and agencies are still unaware of AWR and its implications – Liam could reassure his client’s HR department that he considers himself to be a supplier and therefore AWR does not apply in his case.

Confirm arrangements – and rejection of job offers – in writing

A confirmation of arrangements letter is a powerful tool for contractors when proving that they are outside IR35, and therefore are not a ‘disguised employee’. It is a document that sets out the nature of the working relationship between contractor and client, and which the client counter-signs to indicate they agree with the relationship described in the document.

Liam could allay the fears of his client’s HR department by confirming in writing on his limited company’s headed letter paper that the relationship between his limited company and the client is one of supplier-customer and not employer-employee.

He could also confirm in that letter that even should a permanent position be on offer, he is not interested in becoming an employee. This document, as well as confirming Liam’s intentions, would be powerful evidence for the client in the unlikely event Liam ever takes the client to an employment tribunal to claim employment rights.

By educating his client about employment law and confirming his position in writing, Liam should be able to convince HR to allow an extension on his contract.

Good luck with your contracting!

Contractor Doctor

Updated: Tuesday, February 20, 2018

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