Contractors’ Questions: Did my recruiter break the law?

Contractors’ Question: The client I work for uses a managed service for contractor recruitment and payment, working at a margin of around 6%. The managed service uses other agencies where required but still at the same margin. If another agency is used then the managed service pays the contractor their rate direct to them and the margin to the agency. This way the managed service knows the contractor is getting their genuine rate.

Last week, one contractor was told by his agency that the way it works at the next client is that the money he gets each week from the managed service includes the agent's cut as well, meaning that the contractor is liable to pay this to the agent out of what is effectively the contractor’s rightful income. The contractor signed an agreement with the agent to that effect.

Previously, an agent tried this trick on me but I refused the resulting agreement and told the managed service and the client ditched the agent as a result. But in the current case, the contractor says he was unaware the practice was underhand and regrets that he agreed to pay 20% to the agent each week. Perhaps he was naïve but he shouldn’t have been taken advantage of, as one recruiter recently put it. So, is there any legal comeback for this contractor, beyond hoping the client and managed service drops the agency off their PSL?

Expert’s Answer: Whilst this situation appears complicated on the face of it, it is simply down to the contracts. If the contractor signed a contract direct with the agent and agreed to pay their rate directly to them then he / she is liable to the agent for this. What would make more sense, in this situation, would be for the managed service to have a contract with the contractor (obviously) and then the managed service to have a contract with the agent. With such a contractual chain, the managed service would be under a contractual obligation to pay the rates to the agent and then pay the contractor their normal fee.

If the contractor had been misrepresented as to the clause stating they were liable for the agent’s fees then it may be possible for the contractor to have the contract rescinded (i.e. the contract is voidable) and / or claim for damages. There may also be claims for fraudulent misrepresentation (deceit). However in the situation you outline such a claim seems unlikely. From the circumstances mentioned, it does not appear that there has been such a misrepresentation; the fact that there is a usual contractual situation that most of the temporary or specialist team work under does not mean that this will be the same for each and every contractor / agency.

Bearing in mind that the contractor agreed to these terms, the only likely avenue will be for a breach of contract claim by either the client or the managed service. But this will of course depend on terms of their respective contracts.

The expert was Ben Evans, of the e-commerce team at Lawdit Solicitors.

Wednesday 6th April 2011