Contractors' Questions: Is my termination clause legally binding?

Contractor’s Question: Is the following clause in my new contract legally binding? The reason I ask is, if at the end of this contract, I get another position at the same company via a separate recruitment agency, am I unable to accept such a role due to the clause? This clause, it would seem, is stopping my career progression and income to my company. It states:

‘The consultant company shall not during and for a period of 6 months following termination of this Contract (the "Relevant period") for whatever reason that termination is affected perform services which are of the same kind as or as a materially similar kind to or competitive with the services provided under this Contract within the Relevant Period other than via [this agency] either directly or indirectly or alone or jointly with another person full time or part time by contract or otherwise for:-

(i) the client; or

(ii) any person on whose site the consultant company has performed under this contract.’

Expert’s Answer: Such restrictions as these always need to be considered as a whole – one needs to look at:

  • the entire contract;
  • the factual background, and
  • whether or not the individual validly opted out of the agency conduct regulations.

First, one needs to consider whether or not the agency regulations apply, and if so, whether there was a valid opt-out. If there was not, then the restriction is likely to be wholly ineffective, because the agency conduct regulations operate to make such restrictions on a contractor's activities after contract end unenforceable. That is one good reason not to opt out of the agency conduct regulations (and one reason why agencies encourage contractors to opt out).

Second, one needs to consider what the restrictive term actually means, in the context of the contract as a whole; and indeed, whether it in fact has a clear meaning.

Thirdly, one needs to consider whether what is proposed would in fact conflict with the restriction.  

Fourthly, one needs to consider whether the restriction infringes the restraint of trade doctrine – whether it goes no further than reasonably necessary to protect some legitimate commercial interest on the part of the agency.

Fifthly, one needs to look at the practicalities; is there still money outstanding from the agency for work done, that might be vulnerable? And lastly, what is the likelihood of the agency finding out?

The expert was Roger Sinclair, legal consultant at contracts specialist Egos.





Monday 15th April 2013