Limited company contractors just starting out on their contracting career leave their last employer, workplace and colleagues and are suddenly thrust into a whole new set of relationships governed by unfamiliar rules.
Employment rights no longer apply and the relationship between a contractor and the agency and client is a business one. Any disputes with agencies and clients are now governed by contract law – there’s no such thing as ‘contractor rights’.
Umbrella company contractors do continue to enjoy employment rights, but this is a relationship between the individual contractor and their umbrella solutions provider. The umbrella company then has a business relationship with agencies and clients.
Employment law versus contract law
As their names suggests, employment laws are there for the benefit of employees, who are workers with a contract of service with an employer. These laws are largely there to protect workers from being treated badly by their employer.
Contractors don’t need employment laws to protect their contracting business from being mistreated by agencies and clients. Their contractor limited company has a contract for services with agencies and clients, which is a business-to-business relationship.
Even when they are caught by IR35, which implies there is an employment relationship between the contractor and their client, contractors are unable to claim employment rights. This is directly as a result of the judiciary trying to maintain clear water between contract and employment law.
Limited company contractors should also note that any rights or benefits they do claim will be from their own company that employs them. They should steer clear of benefits such as those for unemployment.
When clients, or client employees, still think contractors are employees
Some client project managers never really ‘get’ the fact that contractors are highly skilled, project-based knowledge workers working on short-term assignments to meet specific outcomes.
Clients can even get insistent about contractors becoming ‘part of the team’, and try to bully contractors to participate, even if there is no contractual obligation on the contractor’s part to attend team meetings. The only solution for the contractor may be to terminate the contract and get out: there’s no HR department or employment tribunal to go to.
Contractors don't need employment laws to protect their contracting business from being mistreated by agencies and clients
In a worst-case scenario, client employees can and do subject contractors to varying degrees of harassment or hostility. Contractors can’t ‘complain’ about these colleagues to line managers because they technically have no line manager. However, the client does have a duty to provide a safe workplace, so recourse to health and safety legislation may be the option.
When clients fear contractors may become employees
On occasion, particularly when a project is a long one or has undergone several extensions, the client might get their wires crossed and decide that the contractor is starting to look like an employee. Their fear might be that the contractor may try to claim employment rights. Sometimes clients put arbitrary rules in place like not wanting to renew a contract after 2 years.
This should be easy for a contractor to resolve by some gentle education of their project manager, or the human resources department, on the basics of employment law and why business suppliers – for that is what the contractor is – can’t claim employment rights.
What to do when things go wrong and there are no employment rights
There are a great many ways that a contractor can experience challenges during their contracting career. If they were an employee, these issues would have mostly been dealt with either by the HR department or an employment tribunal using employment law.
If a limited company contractor doesn’t start the contact as planned because, for example, the client cancelled the contract, what can they do? As an employee, it would be a tribunal issue. A contractor either has to take it on the chin or take legal action, and they can certainly sue for a last-minute contract cancellation.
Equally, if an employee starts a job that turns out to be nothing like what they were told, there is employment law in place to protect them. But a contractor has options too, and can quit the contract, claiming compensation under contract law.
Contractor options during contacts when disputes arise
It can be done, but an employer has to have a good reason to cut the pay of an employee. If the employer tries without a good reason, then the employee has recourse to employment tribunals.
If an agency tries to renegotiate a contract mid-way through to attempt to force a lower rate on the contractor, then under contract law a contractor enjoys protection, and the contractor can politely inform the recruiter where to go. They are under no obligation to accept a mid-contract pay cut or sign anything new contract or alteration unless they agree to.
And in the event a contractor does not get paid at all by a client or agency, they have a range of debt recovery procedures to choose from and implement. Assuming the contractor has performed their side of the bargain, contract law provides ample opportunities to recover unpaid fees.
Dismissal or termination?
Employees may endure unfair dismissal and, if they have a case, can seek to become reinstated or be paid compensation. Contractors may not wish to fight to continue with the contract if terminated early, as the project may cease to exist. But they can secure some compensation for the time they spend looking for a new contract.
Contractors who believe they have been unfairly terminated early must follow a different route compared to when they were an employee. That may involve taking a client or agency to court, although there may not always be a legal challenge to every early termination.
The good news is that most limited company contractors can work for their entire careers without facing any serious issues. And even for those that do have problems, they will find a contract law solution for most of the challenges that contracting will throw at them.
The key for the professional contractor is understanding when to accept the situation and move on, and when to ‘go legal’.