Notice Period

[hugebrain]

Hi,

Thinking of signing a new contract.

It has a condition that if they terminate they have to pay four weeks notice.

Should I ask them to remove this to avoid any problems with MOO and make it more clearly IR35 proof?

I can't imagine they would want to terminate early anyway since I am so nice, handsome, talented etc.

[XLMonkey]

It is a pointer to IR35 status if worded in the way you describe (since it implies that they have an obligation to provide you with work for the final 4 weeks, even if there is no work to be done). You should actually be expressing it as a charge (i.e. something that represents the cost to yourco of the lost business)

The easy way around this is to suggest a fixed termination charge (calculated based on 4 weeks at your daily rate). So, if daily rate is 300, the clause reads something like

"client can terminate at any time during the term of the contract, subject to payment of an early termination charge of £6,000. This termination charge does not apply if termination takes place in the final 4 weeks of the contract."

[XLMonkey]

Denny, I think you forgot to put "in your opinion" in that little rant.

Compensation for early termination is entirely normal practice in commercial arrangements of all kinds. For that matter, there is an entire model schedule dealing with the topic in the Office of Government Commerce toolkit for public sector contracts. This allows for termination payments in respect of
- breakage costs
- early termination costs
- lost profit

(now, I'm not saying that just 'cos its public sector means its alright for everyone, just that there is a large body of evidence that suggests that the precedent is a good one)

The wording of the proposed clause has nothing to do with whether work is offered or accepted - it is compensation for lost revenue, that is all.

[XLMonkey]

...but, advice that is backed up by extensive guidance and good practice material issued by the OGC (and subject to peer and legal review). what is the basis of your advice?

[XLMonkey]

So, just to be clear: based on self-confidence, instinct and the conversations you've had with your accountants, you can categorically state that you know how the courts would judge an IR investigation of this contract?

hmmm

[The Lone Gunman]

My advice is based primarily on three things:

Good sound business acumen about business practice derived from much reading on the subject and my own experiences to date on the workings of the EB industry and SME client practices. All of which reflects the amount of self confidence I have about running my own business affairs. It is this degree of self confidence that rids me of the 'bum of seat' employee type over-dependent 'I must do as I'm told or else....'mentality whereby I'd rather trust anyone but myself and need my hand holding all the time to arrive at a decision.

Tests with Qdos staff about my understanding of IR35 issues, which have unreservedly been acknowledged as being 'much sounder than the average contractor's knowledge).

Instinct. I trust it. I've rarely been wrong when I've trusted it and I look ahead and what might be tomorrow and not just what is today. I also have a healthy disregard for being told what to think or what to feel (which stems from my premier league university education which discouraged plagiarism in any shape or form, convenient study packs, study group essay writing and any other form of 'dependence' to arrive at conclusions. My uni tended to comprise highest level Oxford educated professors spouting off all kinds of intellectual gobbledegook which overwhelmed you at first but were expected to understand, and if you did'nt - tough - you had a number of late nights ahead of you catching up with your brighter peers. There was no excuses for late submission of essays either. Instead of study packs, there was also a comprehensive reading list of about 20 pages of sources and a library card. That was it.

--

I've often found that if, and whenever, I trust the advice of the authorities and disregard my own instincts by allowing others to take the reigns I come out a lot worse off.

Den love. Could you explain why I as a legitimate business can not have a penalty clause built in for early termination?
I think we may have argued this before, but I quote a rate based on a number of things, one being length of contract.
What you propose exposes me to the nasty practice, prevelant not so long ago, of clients tendering for a 12 month quote, getting good long term rates only to shut down the project after 2 months.

[The Lone Gunman]

You can have whatever you want, LG. I just wanted to express that an IR investigation is almost bound to challenge the legitimacy of this approach if this is not the norm in your industry and why such a penalty clause would be deemed viable when the client can terminate whenever they want to during the contract anyway without any penalty on their own side. I just think that legtimising a notice period but still calling it a notice period is a better approach than giving an illigitimate notice period which can't be justified for a real biz. a carefully worded disguise.

That doesn't mean to say that I agree with the IR or with their categorisations for what consistutes an outside IR35 biz against an inside IR35 employee.

Maybe I can expand on this. My contract actualy states that the client can terminate with no notice period. It also states that should this occur within a certain period (ie less than 3 months fo a 6 monther) then they will compensate my company by paying the difference between the 3 and 6 month rate for work already delivered.

I would also suggest that a decent lawyer could work on the "not normal for the industry" as IR35 application is not normal either, in fact IR35 takes each contract on the merit of the contract and looks at it in isolation.

[The Lone Gunman]

I would check with Qdos or B&C what the implications of this arrangement is.

Personally I would consider that you're skating on thin ice as a disguised employee because it is a sort of redundancy payout removing some of the risk from your company. See what they say and let us have the outcome.

Do you belong to the Qdos Freelance Club - if so, ring them. Or the PGC might have the answer.

I do not belong to any of those clubs.
What annoys me here is that as a director I am obliged to do whatever it takes to protect my company, yet if what you say is true then my "penalty" turns into MOO yet when other companies do it, it is a legitimate business practice.

I do not claim to be a lawyer, nor do I claim to be an IR35 expert, but I do claim to have an understanding of what I am doing.

All this conversation is proving is what a disgrace IR35 actualy is.
The view taken by the IR is not a normal view, it is wholey and deliberately twisted to prove the revenues point rather than to look at the reality which it purports to do.
If I sold 10,000 widgets at a reduced rate, then the customer decided he only wanted 1,000 I would be entitled to charge him the normal rate for 1,000.
If I sell a customer 1800 hours at 35 per hour instead of the usual 40 and the cutomer then decides he only wants 900 hours I should be able to adjust the rate accordingly.

It is all about viewpoints.