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Terminating a contractor

Contractor contracts have a start date, which is when the contractor begins work on the client’s project, and an end-date, when the contractor can expect to leave that client if the two parties have not agreed to renew the contract.

However, there may be reasons why a client wants to, or is forced to, halt a project before the contractors’ contract terms are completed. In such cases, the client will want to release contractors with minimum fuss and, most importantly, expense.

Contract termination clause

The most effective method of terminating a contractor early is by invoking the contract’s termination clause. Most ‘standard’ contractor contracts will have a termination clause that enables either party to end the contract prematurely, with a pre-agreed notice period, which is typically four weeks.

The client will write to the contractor, or their agent, informing them that they have been given formal notice of the contract’s termination.

The client will need to ensure the correct procedure as agreed in the contract is followed to avoid circumstances in which the contractor could claim breach of contract.

Early termination through breach of contract

Contractors are not employees and do not have an employment contract. This means they have to fulfil all the obligations in the business-to-business supplier contract they have with the client.

In the event they fail to do what their contract says they should, then the client is entitled to terminate the contract immediately as a result of a breach of the contract’s terms by the contractor.

Clients who do this should be very sure of their facts, have documented evidence of the breach, and should always take professional legal advice. It’s not as simple as ‘one breach and you’re out’ – the courts take a dim view of clients who reach for their lawyers first and don’t allow the contractual party claimed to be in breach, in this case the contractor, to remedy the breach or argue their case.

Exaggerated breach of contract claims

On rare occasions, because a contract doesn’t have a termination clause, a client is tempted to force a contractor out of the contract without paying for the rest of their contract term. This has been known to be done by exaggerating claims that the contractor is in breach of contract, and terminating the contract on those grounds.

Clients have sometimes accused contractors of poor performance, claimed they have misappropriated client property, repeatedly failed to attend project meetings with the client team and so on, when perhaps this is not strictly accurate.

Although the client could save many months of the contractor’s fees by terminating early, it is possible, and increasingly probable, that the contractor will seek professional legal advice and will lake action against the client.

Any client finding themselves in this situation should seriously consider settling with the contractor, as should the dispute end-up in court and the client has no clear evidence of breach of contract by the contractor, then the client will have to pay the contractor anyway, and probably costs on top of the fees. Not a career-enhancing move for the client, or one that will do anything but harm the client organisation’s reputation.

In addition, in some sectors when word gets around the contractor and agency networks that a particular client has a reputation for mistreating its contractors, suddenly client project managers find it very difficult to recruit good contractors. Or any contractors!

Contractors working through agencies

The most effective method of terminating a contractor early is by invoking the contract's termination clause

When a contractor is working through an agency, terminating the contractor early can, in many respects, be easier. Technically, the contractor has a contract with the agency, the lower level contract, and the agency has a contract with the client, the upper level contract. The contractor does not have a contract directly with the client.

However, the client does have a contract with the agency, which will still say the client is obliged to pay the agency a certain fee for the contractor’s services for an agreed period. So, any attempt to terminate early without a termination clause places the client in breach of contract, unless of course the client once again tries to claim the contractor is in breach of contract.

An agency might have dozens of contractors at a given client, so they are unlikely to make a fuss about losing one through early termination if this would jeopardise the rest of the income stream, and their response would usually be to manage the contractor so the client does not have to.

Ideally, though, all contractor contracts should have a termination clause. And canny clients, who wish to future-proof their contractor workforce against the disputes described above, would be wise to insist that colleagues preparing the paperwork include such a clause in both agency and contractor contracts.

Published: 17 November 2009

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