Contractors' Questions: Do I owe the agency eight days of my daily rate?

Contractor’s Question: I finished a contract last year and now the agency that I worked for is saying I owe them eight days of my daily rate back. 

The situation is that I was previously told by the agency that I must add 14 days to a contract which was due to finish on 31st June. For a number of reasons, I actually ended up working until 22nd July, meaning I worked almost 22 working days extra, not the 14 days extra that the agency specified. It’s the additional eight days (the difference between the 22nd and the 14th) that they now want to be reimbursed for. Where do I stand, legally-speaking?

Expert’s Answer: The first step to take is to revert back to your contract and carefully review the terms. It is useful to read the contract in conjunction with any correspondence/email exchange that discusses the additional 8 days that you have worked. This would provide a good starting point and would likely provide clarity as to the information that you are looking for.

The first point to clarify is the term of the contract; this would be set out in the contract/correspondence. This would confirm as to whether the contract is for a fixed term (i.e. until 30 June 2015) or alternatively on a milestone basis (e.g. until completion of a specific project). On the face of the facts you outline, it appears that the contract is a fixed term contract ending on 30 June 2015. Therefore any subsequent correspondence/communication is likely to indicate what was agreed.

If the contract was on a fixed term basis then from a legal point of view you would not have been obliged to continue beyond the agreed term. However it is always worth considering the situation from a commercial/business efficacy viewpoint. An important consideration for IT contractors is their reputation; a good reputation within the industry is imperative in successfully securing future work. On the other hand, bad news travels fast and may cause damage to reputation and as such impair your ability to secure future work. With this in mind, the decision to continue beyond the agreed term was a wise one.

Examples of the provisions that you will be looking for in the contractor agreement are:

  • A provision setting out the amount the client will pay the contractor (£x per day);
  • A provision setting out the time frame for contractor submitting an invoice to the client (each week/each month); and
  • The payment terms of the invoice (i.e. the client shall pay the invoice within x days).

It might be useful to politely query as to why the invoice was paid at all if the money was not owed. Another point to query would be why it has taken over six months for this issue to be raised. This is not going to affect any claim against you, the contractor, but it is worth flagging up as it will certainly put the other side on the back foot, which is always helpful in a legal dispute.

Basis for a claim

Any claim against you, the contractor, would be based on unjust enrichment- i.e. the money was paid by mistake. The legal test for such a claim is as follows:

  1. The contractor has received money
  2. Enrichment was at the expense of the claimant
  3. The enrichment was unjust

Turning to each point in question:

  • The first point is not contentious
  • It is possible that the second point may prove to be contentious on the basis of privity of contract. In short, the doctrine of privity of contract implies the relation between the parties to a contract which entitles them to sue each other but prevents a third party from doing so. Therefore in the absence of a contract between yourself and the client (your contract would be with the agency and the agency would have had a separate contract with the client), any claim against you would have to be brought by the agency. Furthermore, if the agency seeks to sue you then it would need to demonstrate that it had paid out the money to the client and was now seeking to sue you to recover this money.
  • The third point may also potentially be contentious. It would be useful to see the facts and evidence that the agency purports to rely on as basis of its claim.

Prior to commencing any legal action, the court would expect the parties to take certain steps. Pre-action protocols explain the conduct and set out these steps. An important step that the court will expect parties to have taken is to have exchanged sufficient information; the objective in doing so is to:

  1. Allow parties to understand each other’s respective position;
  2. Make decisions upon how to proceed;
  3. Attempt to settle the issues without resorting to legal proceedings;
  4. Consider a form of Alternative Dispute Resolution (ADR) in order to assist with settlement;
  5. Support the efficient management of those proceedings; and
  6. Reduce the costs of resolving the dispute.

The pre-action protocol will therefore better assist you in assessing the strength of any claim against you before it is issued; it will also allow you to view any documents/correspondence relied upon by the other side.

In civil matters the general rule is that the burden of proof falls on the party advancing the matter in question. Therefore the claimant will have the burden of proving their case on the balance of probabilities.

Final considerations

The way in which to proceed would largely depend on how strongly you feel about the matter. On the one hand, if you feel that you were genuinely owed the money then arguably you should not be denied that money at this late stage. Alternatively, an important consideration is whether this issue is likely to affect the securing of any future roles and whether any reputational damage is likely to follow. A further important commercial consideration is to assess the amount of money in question against the level of potential risk/damage to reputation. Notwithstanding the above, it is always useful to show that you will not be pushed around, so don’t feel the need to be forced to back down and repay any money. When disputes such as this arise a useful starting point is to attempt negotiations with the other side. More often than not, these can assist in resolving the matter amicably. Of course the success of such negotiations will very much depend upon how receptive and willing both parties are to a settling in this manner.

The expert was Fozia Cheychi of Lawdit Solicitors.

Thursday 11th Feb 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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