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Contractor Doctor: Can my agent withhold £10k based on 17-year-old restrictions?

Dear Contractor Doctor,

I’ve contracted with the same client for 17 years via the same agency, negotiating all the renewals myself, each of which has lasted varying periods of time. The client recently offered me a permanent role, which I have accepted.

However, by accepting permanent employment with my client, I’ve apparently breached a clause in the original agency contract. As a result, my agency has told me it will withhold £10,000 from my last invoice because of the breach.

Does the 17-year-old restriction clause still apply, preventing me from contracting direct, and can my agency withhold £10,000 as a result?

Thanks

Leon

Contractor Doctor says:

“Even if the contract is 17 years old, there is no reason that the original contract will not remain in force unless it has been changed, possibly at the time of one of the contract renewals,” explains Roger Sinclair of contractor legal specialist Egos. “However, if it has not been amended, it will still (at least in principle) be in force, and so the restriction clause in the original agency contract should be closely examined to determine exactly what the legal position is.

“Since the contract pre-dates the Conduct of Employment Agencies and Employment Businesses Regulations, we should consider whether they apply.”

Conduct regulations could apply by default

According to Sinclair, the transitional provisions of Conduct of Employment Agencies and Employment Businesses Regulations 2003 as they relate to limited companies came into force on 6 July 2004, which was after the contractor, Leon, signed his contract with the agency.

He explains: “As the contractor was working through a company before the Regulations came into force, and assuming no breaks whilst he was not working under this contract, then the contractor would appear to be covered by the regulations by default.

“It seems to me that he could not have opted out, because to be effective, notice of intention to opt out would have to have been given before he had been introduced or supplied to the client – ie before 1995 - at which point the regulations, which were driven by Europe, weren’t even a glimmer in an EU Commissioner’s eye.”

The Conduct Regulations state that a contractor cannot be subject to any detriment on the grounds that they take up employment with the client after the end of the contract. This means that the agency’s restrictive clause would have been unlawful and unenforceable since 2004.

“Furthermore assuming the Conduct Regulations do apply, then regulation 12 of the legislation applies, and prevents the agency from withholding money from the contractor. That means the agency’s declared intention to withhold £10,000 from the contractor would also be unlawful.”

But has the contract been continuous over 17 years?

In Sinclair’s experience, examples of contractors who cannot have opted out, and whose contracts are therefore subject to the Conduct Regulations because their contract pre-dates when the regulations came into force in 2004 are unsurprisingly now rarely encountered.

As the contractor was working through a company before the Regulations came into force, and assuming no breaks whilst he was not working under this contract, then the contractor would appear to be covered by the regulations by default

Roger Sinclair, Egos

“Upon a closer examination of the contract and renewals paperwork trail, it may become apparent that the contract is, in fact, not continuous; for example, there may be gaps. So it is possible that the contractor appeared to have opted out in the past, perhaps without fully understanding the implications.”

Sinclair urges contractors finding themselves in the unusual position of having a continuous contract which pre-dates the Conduct Regulations to check their contract records carefully if they do find themselves in dispute with their agency over restrictive clauses.

Good luck with your contracting!

Contractor Doctor

Published: Thursday, January 19, 2012

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