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Contractor Doctor: How can I get out of my first contract with my former employer?

Dear Contractor Doctor,

I am a first-time IT contractor working through an umbrella company. My first and so far only client is my former employer. I am three months into a six-month contract and I am increasingly unhappy with the way that my client is managing the project and I want to leave. However, I am concerned that raising my concerns might lead to early termination or a claim for ‘non-performance’ on my part.

I believe the client has not complied with the original terms of the contract agreement, but there is no termination clause in the contract that I can invoke, and I would much rather reach an amicable termination agreement than go to court.

How can I get out of my first contract with my former employer?

Thanks

Nick

Contractor Doctor says:

The biggest and most common challenge when contracting with a former employer, particularly when the contract starts immediately after employment ends, is that the contractor is treated no differently to when they were an employee. Typically, they are still seen by the client as an employee, and therefore not treated like a professional and highly skilled business-to-business provider that has been engaged to complete a specific project.

Ideally, contractors should avoid contracting with their former employer because there are so many negative issues associated with doing so. And for limited company contractors, there is the very real threat of being found inside of IR35 by HMRC for the duration of the contract and possibly any future contracts with the former employer.

Bite the bullet and stick it out?

But we are where we are, and with no termination clause and only three months to run on the contract, this may be a scenario where the contractor should simply bite the bullet and work through the remaining months, performing exactly as the contract requires. That way the contractor won’t have a fight on his hands and is free to pursue new contracting opportunities without having a CV that shows he has ‘bailed out’ of a previous contract without completing it.

There are some key things contractors should bear in mind if they are in this situation. Preferably, they should keep this advice in mind before contracting for a former employer, particularly if it is their first contract.

The former employer is just that – ‘former employer’

There are steps a contractor can take when contracting for a former employer to minimise the impact of their employment history on the new contract and working relationship. The first of these is to ensure that the contract itself is a ‘contract for services’, clearly stating that the relationship is between a business-to-business service provider (the contractor) and a business client (the former employer).

It is also advisable to create a ‘confirmation of arrangements’ with a covering letter that explicitly sets out exactly how the contractor and former-employer client will work together. This will clarify, for example, that the contractor is not obliged to perform any duties outside of those explicitly declared in the contract.

Once working on the contract, it is also essential that the contractor always get their timesheet signed at the end of every week, as that implies that the client approves of the work completed and is obliged to pay, even if a dispute later arises.

No ‘tail-end Charlie’

Should the client, who may well be the contractor’s former line manager, ask the contractor to complete tasks that are outside of the project specified in the original contract, under no circumstances should the contractor do so. This is very important, even if these are seemingly trivial jobs the former-employee turned contractor used to complete and only take a few minutes.

For limited company contractors, doing any old job that comes down the pipe means they are likely to be viewed as a ‘tail-end Charlie’, which is an immediate IR35 fail. For contractor umbrella contractors, who do not have to be concerned with IR35 because they are technically employees of their umbrella company, it also sends a negative message to the client, who may then think they can dictate what the contractor does with impunity.

If a client threatens to ‘fire’ a contractor for not performing tasks outside of the contract’s scope, then if they follow through with the threat, it is the client who is in breach of contract. In such cases, the contractor may be able to claim damages from the client. But it is always best to try to sort issues out – preferably before the contract is even signed – so that both parties honour their sides of the contract until it ends.

Should the client, who may well be the contractor's former line manager, ask the contractor to complete tasks that are outside of the project specified in the original contract, under no circumstances should the contractor do so

Don’t burn bridges

When a contract becomes unbearable, for whatever reason, and there is no termination clause, then the contractor can try to explain their concerns to the client, and ask them to suggest what might be best in the circumstances.

If the contractor can plant the idea in the client’s mind that early termination is best, and get the client to suggest this, then the contractor can feign disappointment, reluctantly agree and then punch the air on the way out after the early termination paperwork has been signed, sealed and delivered.

But contractors should never walk out on a contract and burn their bridges, unless the situation is unbearable and their moves to ‘put things right’ have failed. Not only is walking out on a contract unprofessional, but it can also cause future problems for the contractor, particularly if a reference might be required from that client.

Pack an escape pod

When they’re in a tight spot, contractors should make sure they pack an ‘escape pod’, that is kept securely offsite, preferably in the contractor’s home office. The ‘escape pod’ should include electronic or hard-copies of all correspondence with the client and all the client’s employees, any meeting notes and evidence that the work so far has been completed as agreed.

A trick sometimes used by clients is to refuse to sign the final timesheet when a contractor leaves early. If there is evidence in the ‘escape pod’ that can be supplied to a legal expert, a letter from a solicitor usually results in prompt payment.

Good luck with your contracting!

Contractor Doctor

Published: Monday, April 19, 2010

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