Contractors' Questions: Should I accept a 10-day termination clause?

Contractor's Question: My contract contains a clause that states my services can be cancelled within the first 10 days and, in that situation, I would not be paid for work I completed during that period.

Specifically: "If the representative proves unsuitable to the client within the first 10 days of assignment then immediate notice will be given and the contractor will not charge the company for any time within the first 10 days."

While it may be advantageous from an IR35 standpoint, this clause crushes my expectation as a contractor of being paid for the hours I work. Or is this a standard clause in freelance contracts, rather than something I could contest as being unfair, or even unlawful?

Expert's Answer: It is not unusual for a client or agency to try to include non-payment provisions so they can remove contractors at no cost and short notice. Despite this, this clause is not standard. It is also worth noting that the clause is unlikely to be of much assistance with IR35. It could actually make things worse as it arguably links the work to the specific suitability of one representative supplied by the contractor, rather than allowing for the replacement of an unsuitable representative.

As to whether it is legal, this depends on whether this clause is in a contract with an agency or with the client directly.

If it is in an agency contract, the clause is likely to be unlawful. Regulations 18 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 states agents should not introduce or supply a contractor to a client unless they have obtained sufficient information from the client to select a suitable contractor for the position. Regulation 19 of these Regulations also states the agent must ensure the contractor has the necessary experience or training for the position before putting them forward. All this means that the agent should judge suitability before the contract starts.

Under Regulation 12 of the same Regulations, an agency should not "threaten to withhold (whether by means of the inclusion of a term in a contract with the [contractor] or otherwise) the whole or any part of any payment in respect of any work done by the [contractor]" on the grounds of "any matter within the control of the [agent]". This clause threatens non-payment under the contract if a representative is judged unsuitable - something that the agent had within their control prior to entering into the contract.

All this means that the clause flies in the face of the agents obligations to secure suitability. You should try to challenge the clause on this basis at first. If this fails, it is worth pointing out that to threaten not to pay is likely to be unlawful under Regulation 12. You should be aware that there are few cases on this part of Regulation 12 and the argument is not 100% certain of succeeding, so there is some risk if you allow this clause to remain and just rely on the fact that it can be overruled.

If it is in a client contract, unless you are operating through a personal service company which could be seen as an agent (this could be the case), the clause may be legal. Negotiations for its removal should be based on the fact that the client would have made its own assessment of suitability before the contract starts so it is inappropriate. In any event "unsuitable" is undefined and if the client insists on the clause, you should get the client to define what they mean or remove the clause and rely on normal notice provisions for termination. As you say, you should be paid for the work done.

The expert was David Buckle, head of the employment practice at Cubism Law.

Friday 20th Aug 2010
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