Dear Contractor Doctor
I am an IT contractor and typically contract direct with clients through my own limited company.
Having just started a six-month contract with a new client, I discovered that I was pregnant. When they found out, the client immediately terminated my contract as a result.
What are my rights if I am terminated because I am pregnant?
Contractor Doctor says:
“As a limited company contractor, Harriet won’t have any employment rights from her client,” explains head of human resources (HR) at contractor accountant ClearSky, Helen Pedder.
“The only employment rights a limited company contractor enjoys are from their own business, although they should also check the terms of their contract to ensure that the client is not in breach of contract by terminating immediately.”
Pedder explains that the contractor may be in a position to claim sex discrimination under equality discrimination, as this applies to all workers: “Contractors are protected by the Equality Act 2010, under which is it unlawful for an employer to discriminate against a worker on the basis of their gender.”
However, she added that the situation may be complicated by the fact that the contractor is working through her own limited company. The end client may have included an indemnity against such a claim in the contract, so it’s a good idea to check this before proceeding.
Check for breach of contract first
After that, Pedder advises that the first step following any unexpected termination is to check the contract to ensure that the termination clause, if there is one, has been applied correctly.
“Although limited company contractors don’t have employment rights, they do have protection under contract law. It is possible that the client, in their haste, may not have applied the terms of the contract correctly.”
If this is the case, then the contractor can reasonably request payment for any notice period and if this is not forthcoming, they could have the option of taking legal action to recover some compensation. “Professional legal support is essential in this case,” adds Pedder.
The Equality Act and ACAS
According to Pedder, the contractor would not be able to claim unfair dismissal as a result of being pregnant, because under the Employment Rights Act 1996 this right is restricted to employees. And an employee is classed as an individual who has entered into, or works under, a contract of employment. Contractors are not employed by their clients.
Looking at the facts of this case, the contractor may therefore be in a position to claim sex discrimination under the Equality Act
Helen Pedder. ClearSky Accounting
“However, all workers are protected by the Equality Act 2010,” she continues. “Looking at the facts of this case, the contractor may therefore be in a position to claim sex discrimination under the Equality Act – if indeed she is classed as a worker.”
The process for pursuing a sex discrimination case is very different from what is required for a breach of contract. It first requires an attempt to resolve the issue with the client via the Advisory, Conciliation and Arbitration Service (ACAS).
“From May 2014, HM Courts and Tribunal Service will not accept a claim for any employment tribunal unless it has been referred to ACAS and received an early conciliation certificate,” says Pedder.
The case would only progress to an employment tribunal if the contractor and client were unable to agree a settlement. Pedder notes that some clients simply refuse to acknowledge there is a case to answer and therefore simply won’t negotiate via ACAS.
“If the case is referred by ACAS, then the contractor will need to complete an ET1 form online that starts the process, alongside a £250 issue fee. If the case actually progresses to a hearing, then the contractor can expect to pay a further hearing fee of £950.”
The contractor can represent themselves at the hearing, or they can hire professional legal representation, which may incur additional costs. A ‘bundle’ of evidence is presented to the tribunal judge, who will then decide whether or not the contract was ended for a discriminatory reason.
If the tribunal finds in favour of the worker, then they may be entitled to compensation for loss of earnings. Pedder notes that if a contractor found new work quickly after the termination, this would be taken into account when awarding compensation.
The IR35 sting in the tail
However, although the contractor may be able to secure compensation for being terminated because they are pregnant, there is one final complication. “A well-drafted agreement will contain a substitution clause”, warns Pedder.
“The existence of a substitution clause will mean that the contractor’s services were not personally required, and could be replaced. By alleging discrimination, the individual is contradicting the substitution clause and could be jeopardising their IR35 status.”