Contractors' Questions: Should I reject agency's 6-month lock-in clause?

Contractor’s Question: I’m a newcomer to contracting who’s been asked by a recruitment agency to sign a contract which seems to have a 6-month tie-in. The clause states that, even when the contract finishes, I will have to stay with that agency unless I hold off for 6 months.

Shall I object to this clause on the grounds that firstly it is too restrictive and secondly, it could adversely affect my IR35 status? It seems I’m bound to the agency and not free to find my own work outside of this contract, which pertains to me working at a government agency. Would the clause even be enforceable?

Expert’s Answer: On the assumption that you are operating through a company, the question is actually whether you opt out of the Conduct of Employment Agency and Employment Business Regulations. If you do, then the issue boils down to the commercial terms you agree with the agency as there is no legal prohibition against a fixed-term contract, although I am surprised to see an agency using a 6-month lock-in, and the terms of that lock-in would be interesting to see.

If you don’t opt out then these regulations apply, and R.6 prohibits the agency from doing anything which threatens you with a detriment (i.e. some kind of penalty) in various circumstances.

These include two aspects that are relevant to your question. Firstly on the basis that you may terminate your contract with the agency, for example after your government contract finishes you tell the current agency you have found work through another agency before the 6 months is up (this effectively prematurely terminating your contract with the agency). This premature notice would, on the face of it, entitle the current agency to claim damages for breach of contract, or even an injunction. That can be the only purpose of the 6-month clause. This would amount to the threat of a detriment, i.e. you will be in breach of contract and we will come after you.

Secondly, a clause that tries to stop you taking up employment elsewhere also amounts to an unlawful prohibition, as it amounts to a threat of action if you do engage with another agency within the 6- month period.

It’s up to you whether you opt out or not, but you lose the benefit of the regulations if you do. It’s often been said that to be outside IR35 you should opt-out, but our view is that the opt-out is irrelevant. The fact that you choose to have the benefit of the regulatory protections, which are designed for all ‘work-seekers’ whether corporate or otherwise, does not at all change the hypothetical employment relationship that is necessary to exist between you and the hirer for IR35 to apply. It only changes your relationship with the agency.

In any event, it’s always best to get the contract looked at by a legal professional before you proceed on a course of action.

The expert was Adrian Marlowe, managing director of recruitment law firm Lawspeed.

Thursday 23rd July 2015