Dear Contractor Doctor
I’m an IT contractor working via my own limited company. I recently started a contract with a client via an agency. Unfortunately, three days into the contract I became ill as a result of complications from surgery I had last year.
Although I worked for three days, the client refused to authorise the timesheets and as a result the agency is refusing to pay me. The agency is even threatening to take action over breach of contract, claiming that I did not give 30 days’ notice of termination. This is despite me having a sick note from my GP confirming that I was unfit to work. Surely by UK employment law I am entitled to receive payment?
Can I use my sick note as a defence for breach of contract?
Contractor Doctor says:
There are several issues that the contractor in this situation should take into account. The key fact is that limited company contractors are employed by their own company, and not by the agency or client. Employment law is not a factor in the business-to-business relationship that the contractor has with the agency, or indeed with the client.
The second factor is whether the contractor opted out of the conduct regulations. If they did not opt out, then even though the contractor only worked a few days of the contract, the agency is legally required to pay them.
Finally, the severity of the contractor’s illness may mean that the contract is ‘frustrated’, and as a result the agency is unlikely to succeed with any legal action it takes over the contractor’s inability to give 30 days’ notice.
Contractors are employed by their limited companies, not the agency or client
Limited company contractors are employed by their limited companies. There is no employment relationship between the contractor and the client or agency. That means the rule governing any failure to perform services is a matter for contract law, not employment law.
The contractor may have a ‘sick note’ from their GP, but this is only relevant to the contractor’s own business, and is not a matter of concern to the agency or the client.
A contractor may be able to claim statutory sick pay if unable to work for more than three days, but this will be deducted from the contractors existing payroll liabilities and also be a fraction of what the contractor would normally earn.
Opting out of the conduct regulations
If the contractor opted out of the Conduct of Employment Agencies and Employment Businesses Regulations 2003, then the agency may not necessarily need to pay the contractor for time worked.
But the timing of the opt-out is crucial. If the contractor was introduced to the client before explicitly opting out, then the regulations will apply regardless of what the contractor, agency or client intend. That would mean the contractor must be paid by the agency for time worked.
The contractor may have a 'sick note' from their GP, but this is only relevant to the contractor's own business, and is not a matter of concern to the agency or the client
However, if the contractor had opted out of the conduct regulations before being introduced to the client, then there is no protection and the agency may get away with not paying the contractor for time worked.
Contract frustration, or ‘force majeure’, may protect against agency legal action
If the contractor is medically unfit to work and physically cannot perform the services according to the contract’s requirements, then the legal principle of frustration may apply. Frustration can apply in limited circumstances where the lawful performance of the contract is impossible.
For frustration to apply, the circumstances must arise after the contract has been agreed and not be the fault of either party. Illness falls under this heading, so the contractor may escape being sued by the agency for breach of contract as a result of this legal principle.
So, depending on the exact circumstances, the contractor may benefit from being paid for the three days worked and escape legal action by the agency. Alternatively, they may find that the agency has no obligation to pay and it could take action over a breach of contract.