Dear Contractor Doctor,
I’ve just signed up to a new contract for six months and registered with a new umbrella company at the same time. Originally the contract was supposed to be three-months long, which suited me fine as I am pregnant and was planning to start my maternity leave at the end of the three months.
What I’m planning now is to follow my original plan and work for three months, then give a month’s notice to the client, which my contract’s termination clause allows, and quit at the end of four months. My umbrella company knows about the pregnancy but the client does not, although I’ll be attending ante-natal classes so I’m worried that they’ll find out and terminate me immediately as I signed a contract knowing that I could not fulfil it.
If I’m pregnant and want to leave a contract early, can the client sue me for breach of contract?
Contractor Doctor says:
Although the short answer to this contractor’s question is, ‘no, the client can’t sue’, there are important lessons from Angela’s case relevant to other contractors, says Paul Chamberlain, Employment Partner with law firm Brabners Chaffe Street.
“Based on what Angela has told us, her contract has a break clause and her agreement with the umbrella is not for a fixed-term six month contract,” explains Chamberlain. “This break clause is a key factor that leaves the contractor free from redress because it is plausible and lawful for the contractor to exercise it. However, if a contractor commits to a six month fixed term contract with no break clause and they have no intention of fulfilling the contract from the outset, there could be a case for misrepresentation as well as breach of contract.”
Furthermore, he explains, because there is an intermediary in this case between the contractor and the client – namely a contractor umbrella company – any action over a breach will be directed at the intermediary, in Angela’s case the umbrella, and not the contractor directly.
Misrepresentation and the contractual chain
“If a contractor enters into an agreement that they have no intention of fulfilling, they are potentially guilty of misrepresentation,” says Chamberlain. “The other party, which could be an agency or client, may have the right to seek compensation from the contractor for failing to complete the contract.”
But umbrella contractors are largely insulated from contractual issues, as the umbrella company has a relationship with the agency, which has the direct relationship with the client. The contractor is an employee of the umbrella and is subject to the terms of their employment contract of service, governed by employment law, and does not have a contract for services direct with the agency or client.
Chamberlain points out that it is the umbrella that bears the risk: “A contractor like Angela might have a ‘break’ or notice clause in their employment contract, but the umbrella company may not have a mirrored termination clause in the contract with the agency or client. That means the umbrella company is potentially in breach of contract because they cannot supply a contractor as required by the contract.”
The complications of pregnancy
If there was no break clause and Angela’s pregnancy and the fact that she could not complete the contract was discovered by the client, the client may be able to terminate the contract with the umbrella on the grounds of misrepresentation. Should as a direct result the contractor be terminated by the umbrella company, it could find itself on the receiving end of an unfair dismissal claim on the grounds of pregnancy and a stand-alone claim of sex discrimination.
If a contractor enters into an agreement that they have no intention of fulfilling, they are potentially guilty of misrepresentation
Paul Chamberlain, Brabners Chaffe Street
In Chamberlain’s experience, Employment Tribunals tend to adopt a protective stance towards employees over discrimination claims, and often reverse the burden of proof onto the respondent, or umbrella company, which would then be required to prove that it did not discriminate.
And an umbrella company may find even the basic rights of time off for ante-natal care for a pregnant employed contractor could put it in breach of the discrimination legislation if it does not afford its workers those basic rights. “A pregnant contractor should expect to receive all the benefits and rights from their umbrella company employer as they would from any other employer,” explains Chamberlain. “This could become a problem if the umbrella company does not make provision for such time off in the contract with the agency or client.” Ultimately, every worker has rights that an umbrella company or agency has no control over, and any contract with the agency or client should include clauses that take this into account.
Offering a substitute to remedy a breach of contract
Will the client sue for damages? “Of course it depends on the individual circumstances of each case, but probably not and only if the client has suffered a tangible loss, not because of a point of principle,” says Chamberlain.
“There may even be circumstances where the umbrella company can provide a substitute, either during the periods of absence for ante-natal care or for the remaining three months of the contract. Of course, it comes back to the contract between the umbrella company and agency or client, which may not include a right of substitution clause. And all of this is still technically of no concern to the contractor.”
Chamberlain warns that many contractors have been chosen to complete the assignment personally because they have exactly the right combination of skills and experience the client needs, so can’t easily be substituted, if at all.
Enter the Agency Workers Regulations 2010? – but not yet
There’s a further consideration, says Chamberlain: “If Angela’s engagement was timed after October 2011 then, with the Agency Workers Regulations 2010 coming into force after that date, under certain conditions she could potentially demand the same pay and benefits enjoyed by the client’s own employees, which could further erode the umbrella company’s margin and increase its risk.”
Chamberlain concludes: “If it weren’t for the break clause in Angela’s contract, there is the possibility that, if, for example, her services were mission critical to the client, she could become embroiled in a complex legal wrangle. This case emphasises the importance of all parties creating contracts that are fit for purpose, and seeking professional legal assistance from the outset.”
Good luck with your contracting!