Beating the IT contract crunch ii) broken promises

Contractor's bind: My promised rate just got cheaper


In this economic downturn, client companies and recruitment agencies are pursuing cost savings by, allegedly, verbally offering IT contractors a certain pay rate only to downgrade that rate when the paperwork comes through. Contractors, understandably, want to know if clients/agents are legally permitted to renege on verbal pay promises, particularly if the contractor rejected another role because it offered a lower rate that emerges as the higher rate once the agent's or client's downward revision is factored in. Contractors say they need to know their legal options when they make a business decision based on, or because of, their agent's or client's initial pay promise that ends up being broken.

CUK advisor:

As an IT contractor, firstly consider:

•How sure are you of your ground?

•What is the difference between the amount you were paid, the amount you were offered and the amount you were offered on the contract you turned down?

•Is that figure substantial enough to warrant any action other than requiring future offers in writing from the agent/client?

•In the commercial world we live in, the phrase 'because of their initial promise' can be read more than one way.

What the law says

Verbal agreements can be incorporated into a contract at any stage and can even form the contract in its entirety. The terms of a contract need not be written and it is for this reason that many contracts have what is known as an 'entire agreement' clause, ostensibly to restrict the terms of the contract to those signed and exclude oral representations.

Contracts by necessity are often interpreted by the courts as desirably flexible, in order to match the demands and nature of business people and the commercial world. There may be good reasons for variation. That said, unilateral variation of the terms of a contract or offer, whether written or oral, can create a breach of contract or invalidate the contract resulting from the offer, allowing non-performance or part-performance.

The other party has an obligation to honour their offer. You must mirror their offer with mirror image acceptance, fundamental to the law of contract. You were induced to enter the contract by a misrepresentation and therefore the contract is 'voidable,' and you can elect to rescind or affirm the contract. Damages may not be available unless the misrepresentation was made fraudulently or negligently, but may put you back into the position you would have been in had the tort not been committed.

What to do?

You could consider claiming a breach of contract. It is likely such a claim would be more successful against an agent than if you are dealing direct with a client as you may have more of a claim where you have an ongoing relationship. With a client it might be viewed that such statements were part of negotiation, and with an agent you may have an existing and ongoing contractual relationship. You may place more reliance in an offer from your agent. Equally the opposite may be true! This is subjective.
If you still have other options you could claim the contract is not valid. You may have a claim to damages, but be aware of your general duty to mitigate your loss. In the non-litigious world this equates to a marginally better hand in negotiation as you can point to the difference between the wages – if you had anything in writing to evidence the three contrasting offers. This not being the case you may have little to work with even if the damages are large, beyond your persuasive charm!

The costs of actually pursuing a claim may be prohibitive, but dependant on the sums involved, consider engaging a solicitor to write a robust letter.

Contractor's bind: I agreed, but then along came a better contract


Like most businesses in this economic downturn, contractor companies need to make the most of market opportunities. Contractors want to know where they stand, legally, if they verbally accept an offer but subsequently decide they want to accept a higher-rate contract elsewhere, with a separate agent. Contractors are asking what might happen if they went a step further and signed the first contract, and argue they were wrong to sign because of unforeseen personal or commercial reasons, in an attempt to free themselves up to take the better-paid alternative.

CUK advisor:

What the law says

Legally and morally speaking the answer to the first question is simple. A verbal agreement can form a binding contract. Practically speaking, read the answer to one of the other question posed here regarding verbal promises made by the other party.

In addition you may wish to consider whether you have formed a valid and binding contractual relationship. This is a case-by-case matter and one that it may be worth considering with an expert, but a contract in summary is typically formed by:

•Consideration on both sides; and
•Intention to create legal relations

The answer to the second of these questions is, as usual, dependent on the contract itself. More particularly, check whether the contract allows for its discharge in certain, or any, circumstances. If it does, consider carefully whether your situation can be made to fit the circumstances in which you are legally permitted to discharge your obligations by agreement or performance. And consider whether there is a penalty.

If it does not, it is largely legally irrelevant whether you have decided you could earn better elsewhere, or whether your dog has had puppies unexpectedly. If the other party to the contract wants performance, and contractually they have the right to performance, it is likely that you are legally bound to perform.

Many contracts contain what is known as a 'force majeure' clause. This applies where for unavoidable reasons one party is unable to meet their contractual obligations. However such clauses are not often used, and are unlikely to apply to a 'better paid alternative ' as they more typically relate to natural disasters and the like. The law has always favoured certainty in contracts, so when you sign you must typically honour the obligations (if not unduly onerous) to which you sign up to. And it must be said, generally rightly so.

What to do?

This means your only sensible and practical option, unless you are willing to defend a breach of contract action, and maybe earn a bad reputation, is to check out your options and the bottom-line thoroughly, before you commit yourself to a contract. And make it plain that you will only consider yourself engaged once you have it in writing.

Always try and leave a well-hidden get-out clause. It always helps to have a pre-drafted standard contract available at the negotiating stage and a loose grasp of what you are trying to avoid in their standard contract.

If it is unavoidable, thoroughly examine the contract you have signed, and check amongst else whether it is divisible, and you have reached the end of a stage, and check that it does not allow for assignment. Check minimum levels of performance and how performance may be provided. Consider working two jobs if necessary, or sub-contracting.

Contractor's bind: My offer was disappeared by 'changed job spec'


One IT contractor says he was offered a contract and accepted. The starting date was a week after the offer. A couple of days later, the client company told the recruiter that the job 'spec' had changed and the offer of the contract was withdrawn. Is the action by the client company legal?

CUK advisor:

As a Solicitor Advocate, I have to say it is very loose terminology to state that you were offered a contract and you accepted. For the sake of argument I read this to mean that you have entered into a contract or at least a semi-contractual relationship.

What the law says

The above being the case, the other party is in breach of contract; depending as always on the details of the contract that exists between you and the other party – partly written, partly oral, partly representation, partly explicit, partly implied from course of dealings. This may seem vague, but until the commercial relationship between you is examined in the House of Lords, make that the European Court of Justice, no-one can be 100% sure what the contract consists of!

What to do?

Read this and consider carefully what the damage is. Are you at the base of things just nursing your pride?

You are probably left with a claim against the other party for breach of contract. However the harm caused to you does not appear to be demonstrably high based on the facts of your question alone. Granted a lot can change in a couple of days but probably it hasn't. The other side know this too. Always bear in mind that you are not that likely to pursue such a claim and in such circumstances are more focussed on getting a settlement from the other side.

It is really a matter of how far you can push it with them, but you could try to ask for damages, or, at the minimum, a goodwill payment on the basis of work you have lost as a result of what is probably an unavoidable vicissitude of business, and of which they may feel guilt. My realistic advice beyond this, however, would be to try to take it with good grace – no it's not likely to be legal, but we all must live in the real world.

CUK was advised by Michael Coyle, director of Lawdit , a legal firm specialising in intellectual property, internet and technology law.

Friday 1st Oct 2010