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What to do when agencies refuse to change contracts

Contractors who commission a review of a new contract may often find their legal experts flag a range of unfriendly and unacceptable contractual clauses. And almost as often, the agency will initially refuse to make any changes.

This is because most agencies adopt a standard contract and don’t have the in-house legal expertise to reword and customise contracts at short notice. Some agents might also prefer simply to avoid the hassle, particularly when the contract in question offers them fairly low margins. That means the default reaction of many recruiters to contract amendment requests is ‘no’. Some agencies when pressed might even suggest the contractor pays the agency’s legal costs to approve the changes.

However, contractors can adopt a range of negotiating strategies to try and get the offending clauses altered or removed. If the agency still won’t budge, then contractors can seek reassurances from the client and in the worst case scenario, they can always walk away from the contract.

Strategies to secure contract changes

Contract negotiations are just that – negotiations. That means contractors can offer concessions in exchange for the agency removing unacceptable clauses; and ultimately, contractors have the option of walking away from the deal before anything is agreed or signed.

There are four typical scenarios when contractors are prepared to walk away if the agency doesn’t remove or reword the offending contract conditions:

  • The agency concedes, and the contractor secures an acceptable contract
  • The agency concedes some of the points, and the contractor secures a more acceptable contract
  • The agency does not concede, but the contractor nevertheless accepts the contract ‘as is’, and takes steps to mitigate the impact of the negative clauses
  • The agency does not concede, and the contractor walks away.

There is a fifth, ‘nuclear’ option, which involves asking the client to put pressure on the agency, or circumventing the agency altogether – both of these are dealt with below.

It’s a judgement call by the contractor as to how far they want to push the agency. It may be that the deal is so attractive that it is worth conceding some points to the agency. And if the stakes are really high, then it may be worth the contractor investing in legal assistance to negotiate on their behalf.

How to counter IR35-unfriendly clauses

Although having clauses putting a contractor inside IR35 will immediately attract the attention of the taxman in the event of an HMRC investigation, the Autoclenz employment status ruling confirms that a tribunal can completely ignore written contracts when determining IR35 status.

The evidence contained in an IR35 compliance file can be used by a professional advisor to halt an HMRC status enquiry before it really gets underway

That means that even if a contract contains terms that would put a contractor inside IR35, the contractor can demonstrate through their actual working practices that the reality is anything but disguised employment.

So, if there are IR35-unfriendly clauses, contractors should:

  1. Secure a confirmation of arrangements (COA) from the client to confirm that the working arrangements are outside IR35. A contractor should be able to secure a ‘model’ COA from their contract reviewer
  2. If the client won’t sign a COA, and many won’t, particularly in large organisations, contractors should collect evidence that their working conditions are outside IR35. This could include examples of working independently on a project, refusing to complete a task that is outside of the contract specification, working from home or even rectifying a mistake in their own time
  3. Keep an IR35 compliance file, which should include examples of non-employee-like behaviour, meeting notes, emails and any evidence that could help to demonstrate that the contractor is not controlled by their client and not treated the same as employees.

The evidence contained in an IR35 compliance file can be used by a professional advisor to halt an HMRC status enquiry before it really gets underway, so this is an incredibly important dossier for contractors to create and maintain.

Circumventing the agency – the nuclear option

Clients are generally ignorant of the day-to-day operations of their agencies, and how their agencies treat and interact with contractors. Under normal circumstances, this is perfectly acceptable, as clients are paying agencies to reduce their hassles.

But if it is the agency’s intransigence that is preventing the contractor from signing the contract and getting to work on solving their client’s challenge, then informing the client of the situation, and asking them to intervene with the agency, is sometimes necessary.

Clients will typically respond in three ways:

  • The client responds negatively and says if the contractor can’t agree with the agency, that’s tough
  • The client agrees to have a word with the agency and ask them to be more flexible
  • The client says that they work with more than one agency, and suggests some alternatives to the contractor.

It is possible that the client won’t help or has their hands tied because of an exclusive relationship with one agency. In this scenario, if the contractor simply cannot accept the agency’s terms, then the only remaining option would be to walk away.

Published: 29 February 2012

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