Contractors' Questions: Will the consultancies stop me going direct?

Contractor’s Question: I work for a ‘Big Name’ consultancy (‘BNc’) as an integration tester for a law firm in London. The client (the law firm) only knows that I work for BNc, but recently we’ve actually started working through another consultancy, ‘X’.

Today, I learnt that BNc wants to terminate the contract with the law firm, and I understand that the firm believes that X, the second consultancy, is charging me out at too high a rate. So I’d like to work directly for the client (independent of both BNc and X) and charge the firm a more palatable rate; is that possible and what considerations should I make?

Expert’s Answer: The chances are that when you started working for BNc and X you would have signed a consultancy contract. These contracts may cause some problems if you were to work directly for the client and ‘cut out the middle man.’

The contract may contain a non-dealing covenant; this type of clause is contained in contracts to stop the contractor from approaching the client and offering work such as in this situation. However, the enforceability of such clauses will depend on the interest that is being protected.

In the case of John Michael Design plc v Cooke 1987, the court found that where a customer wishes to stop doing business with an employer but intends to stay loyal to the employee, the non-dealing covenant should be enforced. In this case, an injunction was granted to stop the employee working for the customer.

It must be noted that there needs to be a legitimate interest to protect. The restriction must be no wider than necessary to reasonably protect the business interest. This is what would be asked in a court of law. However, it may be harder to enforce a non-dealing covenant against a self-employed consultant. This is down to the fact that a self-employed consultant provides services to the world in general.

Firstly, you must examine your contracts with both BNc and X; examining for these clauses that could stop you from providing your services to the client directly. If your contracts with BNc and X are free of any non-dealing covenants or restrictions, your next step would be to look for such covenants in the contracts with the client, the law firm. However, these may be confidential contracts and as such you may not have access to these.

Without having a copy of the contracts it is hard to provide a more comprehensive answer. I would expect that both BNc and X would want to protect their business interest and would include the above mentioned clauses.

From a commercial point of view, consider; are you absolutely sure that the law firm would want you to provide your services directly to them? You may end up severing your ties with BNc and X and being left unable to work for the law firm.

The expert was Samuel O’Toole of legal advisory Lawdit Solicitors.

Thursday 22nd Sep 2016
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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