View Full Version : Restraint of trade issues in agency contracts

19th February 2004, 10:53

This is my first post here and i was hoping you could help. Our company has just been offered a contract through an agency, and there are a couple of issues that we are not sure about.

The contract states that we cannot work for the Client, the client group or any client customer for six months after the completion of the contract. If we do, we have to pay the agency 20% of any wages earned. I wondered if anyone here had come across this clause, and if they knew if it had been tested in law.

19th February 2004, 12:45
I'm not any sort of legal expert, but...

Variants of this clause are common and is intended to protect the agency's income stream from people using them to get work, then binning the agency in favour of a direct contract. As such, their existence is entirely valid.

It is valid (if you sign up to it, of course) and general legal opinion seems to be that up to six months is fair and reasonable - much after that and it will be seen as unfair restraint.

If it's a real problem then negotiate it - I suspect you won't get very far, but you won't know if you don't ask.

Similarly, at renewal you may be able to go direct, with the client's agreement and without penalty, but only if the client is willing to face up to the agency on your behalf. It is unlikley the agency will protest too loudly if it means losing the client - but it is all at your own risk and you might end up with no client and no agency.

19th February 2004, 13:04

Thanks for your post. I have heard of these clauses before, certainly in regard to not being able to work for the same client for up to six months after a contract finshed. My partner, who is the one who will be doing the work, doesn't have a problem with that, because he doesn't intend to try and work for the client direct afterwards anyway.

What surprised me (and what concerned him) was the fact that the contract referred to the 'client group' and any companies the client has dealings with. This could be a rather large amount of companies, and i don't understand how the agency can claim 20% of wages earned if my partner just happened to work for a company that has a link with the client (he might not even be aware that the link exists), unless they hold some exclusive right to provide contractors for all the companies concerned (which I doubt!).

It probably isn't worth the risk of signing, but I was just curious if anyone knew anything about it, so thanks again for taking the time to respond.

19th February 2004, 13:46

You cannot be bound by a relationship about which you knew nothing.

I suspect that the clause is badly worded (or you have interpreted it incorrectly) and it is meant to restrict working for clients of the client *with whom* the contractor had specifically worked. It's there to stop people contracting to (for example) EDS, being subcontracted to MegaCorp and then negotiating direct with MegaCorp. It isn't meant to stop someone working direct for every client of EDS (and would be unenforcable if it did say this, for the reasons you have suggested)


20th February 2004, 10:29
Agree with Tim.
Long ago I worked for an agency that got me work at one of those "body-shops". I was therefore working on site at the body-shop's customer.
When that customer found out I was external (it came out when they were planning the project and who was where over the holiday season) they decided not to pay the extra 2 layers (agent and body-shop).

Both agent and body-shop made the token threats but the amount of money being paid by the customer for the overall project wasn't worth the effeort to annoy them.
Hence I worked for the customer without the 2 layers of waste.

Bottom line, it depends on the money involved and how many people are annoyed. Body shops now make it explicit (when joining) that you can't tell the customers
that you're an independent and could go direct if given the opportunity :)

On the original question, extreme example but if you worked for MS would that mean that you couldn't work for anybody who was developing windoze software.
I don't think so ... that's how I would argue my case in court :)

21st February 2004, 13:36
Lyndsay, you are right to be concerned with bad wording that agencies are happy to dish out. Consider what the Client, the client group or any client customer might mean if the Client was BT !!

You might like to negotiate the wording with the agency and then with a little professional help re-word to contract to something more suitable. Agencies will always argue that everyone else was happy with their "standard" contract and that you are just rocking the boat. This is not true. Some people sign contracts believing that they are not binding ! Others are just too stupid to read them in the first place. And anyone else who was smart enough to arrive at a fair contract will be glossed over as flights of your imagination.

In short, only sign a contract that you are happy to abide by !

22nd February 2004, 11:32
The worst contract I ever saw was one where the agency had a clause that they owned the copyright/intellectual property of any work I did at the client.

Fair enough if it had said that belonged to the client, but NOT the agency.

Mark Snowdon
22nd February 2004, 12:48
Sysman, thats actually fairly common if you go through a consultancy rather than an agency.

I do think the inclusion of the clients customers in this case is over the top.

22nd February 2004, 13:01
Mark, it wasn't through a consultancy. That I could have certainly understood, as I had done it before.

Anyway, I simply crossed out that clause (and inserted a note to that effect) before signing. No objections were raised.

22nd February 2004, 14:54
I agree completely with what Datestamp said about agencies using bad wording and then claiming all their other contractors were quite happy. This particular agency claimed that the 20% thing was 'standard' in all London agency contracts. As our company has already done another contract through a London agency, we know this is not true, as we are very careful and always go through all our contracts with a fine tooth comb. It is surprising how many contractors you meet who don't bother reading the contracts at all though.

As it happens, this agency did offer to reduce the clause to just the Client, and not the Client group or other companies the client deals with. However, we did have other issues with this particular agency, and decided to go with another agency/contract instead, which was very clear and unambiguous by comparison with the previous one!

23rd February 2004, 13:20
My experience is that, however this clause is worded, it is simply a mechanism to stop you jumping ship on the current project; it is common for agencies/consultancies to then at least make bullying noises when you do jump, and often to take action. I have never heard of this happening for contractors, who have terminated legitimately and then come back on a different project. Just my experience though.