Contractors' Questions: Should I be eligible for 4 weeks' pay?

Contractor’s Question: My IT contract says I need to give 4 weeks’ notice which I gave in writing on 30th January 2014. The ‘Consultancy Notice Period to Agency’ section states: ‘This agreement is for the provision of services from a Consultancy as laid out in the agreement above and 4 weeks’ notice is required to terminate this agreement.’

But my agency says that my last day at the client site will be February 14th and my timesheet should be approved only till that date, which I’m also told is the last day I should invoice. The pay will be only until the 14th, Valentine’s Day. Shouldn’t I be eligible for 4 weeks’ pay, as per my contract?

Expert’s Answer: The answer to the question depends entirely on the drafting of the contract. If (in the unlikely event) the contract requires the agency to issue payment throughout the term of the contract including the four-week notice period then you would have an argument that the reduction in the notice period caused by premature termination of the contract on 14/2/15 has caused damages, i.e. 'expectation loss'. In this case, you would be entitled to issue a claim for the loss of the expected payments if the contract had been terminated in accordance with the notice period. 

However, contracts for services typically exclude any obligation upon the agency to provide work and for the contractor to accept work. So the contractor, you, would only be entitled to payment on the basis of work evidenced by a time-sheet. If the client no longer requires the services provided by you for any reason, then you can no longer issue additional time-sheets to claim payment. On the basis that mutuality of obligation would be excluded in a contract for services, you would have difficulties in arguing that damages through loss of expectation have occurred as a result of the agency's decision to prematurely terminate the contract and any litigation would in all probability fail.

Unfortunately, notice periods in contracts for services are often included to provide a mechanism for termination for convenience rather than to provide an expectation of income. Conversely, in contracts of services paid notice periods are imposed by employment legislation to provide a measure of protection for employees.

To summarise my overall answer to your question, unless a contract has been drafted to guarantee payment, a contract for services would only entitle the contractor to enforce the contract in respect of work done and approved by the client. Remember, notice pay is an employment right and contractors as good as exchange this protection when operating through a PSC and/or an agency for greater tax efficiency.

The expert was Martyn Valentine, founder of The Law Place, a legal advisory for contractors.

Monday 16th Feb 2015
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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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