How NOT to frame freelancer-agency contracts

Using contracts that are not 'fit for purpose' can be disastrous. Even if you do use a contract that is well drafted, the process of putting it, or them, in place can also give rise to issues, particularly where another party other than the end-client, such as a recruiter or agency, is involved. Believe it or not, these issues can be just as damaging as having an unfit contract.

1/Let your agent fill in the blanks

A nightmare for contractors can be triggered by them letting their agent fill in the blanks on a contract after the contractor has signed it. This handing over of a 'to be completed' but signed contract is often suggested by the agent due to time pressures, in an attempt to ensure there is at least something in writing between the parties before the project starts. Do not allow this to happen.
Although you, the freelancer, could dispute the inserted terms if they do not reflect something you are happy with, at first instance it will appear on the documents that you have agreed to them. This gives the contractor a mountain to climb when trying to prove otherwise.

Examples of how failing to fill in the blanks can lead to disaster are numerous. I have seen an agent state the wrong party in a contract, using the name of the contractor and not their company. This greatly affected the contractor's status under PAYE and IR35. I have also seen project specifications inserted which were broader than anticipated, which resulted in lost revenue and longer working days for a set cost. Letting the agent complete a document signed by you can of course lead to more minor but important annoyances, such as the requirement to attend offices beyond a reasonable commuting distance.

2/Get the terms down, sign later

Other distressing issues for contractors can occur where the contracts are prepared but not signed. This mostly occurs where standard terms are agreed but there is a failure to sign any ancillary job sheet or work specification. Whilst it may be argued that the terms are agreed by custom and practice (i.e. doing the work), any restrictions in an unsigned contract may be unenforceable - IP may not transfer, restrictions may be invalid and any opt out of the Agency regulations (Conduct of Employment Agencies and Employment Business Regulations 2003) may not be worth the paper is it stated on.

3/Out with secrecy, in with sharing

When operating through an agent, it is generally accepted there will be a mark up. This is how agencies make their money. As part of this, agents often guard their contracts with the clients to ensure the contractor does not see the mark up. Similarly agents try to prevent their terms of supply falling into the hands of the contractor. All of this is to ensure that neither party know the true cost of the contractor or their true worth. Whilst this may seem underhand, it is merely a commercial approach to protect important information.

That said, agents have been known to send their terms of business with the contractor or client to the wrong party, often to disastrous effect. Contractors will understandably demand more money if they know the agent is substantially marking up their cost to a client. On the flipside, agents can find clients demanding a reduction in their costs when they know a contractor actually only costs a small proportion of the price they are paying. Disclosure of this type of information gives rise to attempts to work direct, leading to fights over restrictive covenants, injunctions and a large amount of legal fees. If you are an intermediary, be careful who sees your terms.

4/Watch terms to and fro, in force or not

The incorporation of terms is a classic problem for agencies. Agents often have standard terms for clients or, in some cases, contractors which do not require a sign-off. This means that these terms must be incorporated into any agreement. Wording of such terms needs to be clear for this to happen without any nasty surprise later on. For example, any terms should state that they set out the agreement between the parties and this is confirmed through some action, such as the receipt of the contractor's details or receipt of their consent for their details to be sent to the client. Without this, the terms may not apply at all, which can leave everyone in the dark as to what is agreed.

This problem can also give rise to a 'battle of forms.' If the agent sends you terms and you disagree with them and send them your own and this continues but the project starts, generally it will be the last contract sent that will be seen as the binding terms. This can mean you agree to something different without realising it. The classic situation is where a temporary worker, operating through an umbrella company, provides their terms. The agent then counters by sending their own but the worker is unaware of this response because it is sent to the umbrella company, not the worker. This can mean the worker is then bound by different levels of pay, hours, timing, etc of which they were blissfully unaware until part completion of the project.

And finally, what contractors SHOULD ensure:
Contractors should try to stay in control of the terms of their engagement as much as commercially possible. Failing this, they need to be absolutely clear what terms apply before starting a project. If not, lawyers and legal costs are likely to be involved at a later date.

Overall, and all too often, contractors, agents and clients have shiny new contracts that claim to cover all that is required but, through committing the four contractual sins, above, they become invalid, questionable and unenforceable. This raises the question: why have these if they are not going to be applicable? As with most things, when it comes to contractor-agency contracts, it is not necessarily what you do but the way you do it.

David Buckle, head of the employment practice at Cubism Law , a legal advisory for contractors.

Friday 1st October 2010