Contractors’ Questions: Does the agency’s closure void the contract?

Contractor’s Question: I left a contract 4 months ago and the agency I was with have now ceased trading in the UK. As a result, is the contract - and its restrictive covenants - still legally binding? To complicate matters, although my contract was solely with them, they used an agency, to find me initially, with whom they had a contract with restrictive covenants in relating to how they managed/used me.

Expert’s Answer: It is tricky to answer your question definitively without seeing the contract. The agency may have ceased trading, but has its business been taken over? There are circumstances in which it might have sold its business to another company and where benefit of any such covenants may have passed to the acquirer of the business.

I assume that the ceasing to trade happened after the end of your contract and so after you had been paid in full, meaning the agency was not in breach of its contract with you.

The involvement of the second agency, whilst complicating things  does not of itself change anything, although I would also need to see that contract too.

Still, your starting point should be to understand what the restriction in fact says, against the background of the facts.

Whether or not you validly opted out would affect the answer to your posed question, and should always be considered. Remember 'no valid opt out' means 'no valid restriction' after the end of the contract, provided always that the engagement was 'employment business' and that there was a degree of control by the hirer.

The expert was Roger Sinclair, legal consultant at Egos, a contracts advisory specialising in the IT sector.

Thursday 22nd September 2011