Non-Compete Clauses and Rates

[Graemsay]

I've got a quick question: I've seen some comments on the Internet that using a non-compete clause to drive down rates counts as restraint of trade.

Can anyone confirm if this is true? And if it is, would it count as grounds for repudiating a contract?

Thanks.

[Wanderer]

I've got a quick question: I've seen some comments on the Internet that using a non-compete clause to drive down rates counts as restraint of trade

I'd put my rates up if a client wanted me to work for them exclusively.

Can you give us some details of what the clause is, restrictions, length of restriction, length of contract, is it an ongoing restriction after you finish or only while you are working for the client, are they paying you any money to not compete?

[SueEllen]

To get a specific answer you need to put in your scenario. There are cases where it would be and there are cases where it won't be as it depends on the parties involved i.e. their size and how the clause is written.

And then you need to remember that only if it goes before a judge can your case be established either way.

[Graemsay]

The background is that I had about a month and a half's work for a client company doing development work for an organisation in Europe. At the time I was working offsite.

The contract with my client included a non-compete clause (or clauses) stating that I could not work for or approach any company that they were engaged with for a period of 12 months after leaving. I don't have a copy to hand (most of my paperwork is in storage whilst I'm moving), but that's the general gist.

In fact there are two companies involved, my client and an outsourcing firm that holds the framework contract through which contractors are placed at the organisation.

There's no money offered in return for a long non-compete period. The outsourcing firm has penalty clauses that they can invoke if a contractor violates their non-compete terms (which are broadly similar to the above), and include a 250 euros per day fine.

Yeah, I'd like to see that stand up in court...

And I really shouldn't have agreed to sign that.

The specific issue was that a couple of weeks after completing the project with my client, I responded to an advert on Jobserve that turned out to be with the same European organisation. I contacted my client to check it was OK to proceed, but he said that I had to work through his company, and put me forward at a lower rate.

I ultimately landed the role, and reluctantly accepted it after turning it down initially. (Other opportunities had a habit of disappearing, so it was a choice of a bad rate or bench time.) My client refused to match what the other agent had originally quoted.

[Wanderer]

The background is that I had about a month and a half's work for a client company doing development work for an organisation in Europe. At the time I was working offsite.The contract with my client included a non-compete clause (or clauses) stating that I could not work for or approach any company that they were engaged with for a period of 12 months after leaving.

So after 6 weeks of working for a client, they want to "own" you for a year? Hmm, I don't think so.

The outsourcing firm has penalty clauses that they can invoke if a contractor violates their non-compete terms (which are broadly similar to the above), and include a 250 euros per day fine. Yeah, I'd like to see that stand up in court... And I really shouldn't have agreed to sign that.

It won't, there is no such thing as a penalty in a civil contract. To my way of thinking the more outlandish the terms are, the less chance they have of enforcing them so go and sign your life away.

The specific issue was that a couple of weeks after completing the project with my client, I responded to an advert on Jobserve that turned out to be with the same European organisation. I contacted my client to check it was OK to proceed, but he said that I had to work through his company, and put me forward at a lower rate.

Oh dear. That was probably a mistake, you should have probably kept your mouth shut.

I am not a lawyer, but I wonder:

1. Was your contract formed under English law? (even if it wasn't, you may have the right to choose English law anyway)
2. Was the intermediary you were working through an "Employment business"?
3. Did you NOT opt-out of the "The Conduct of Employment Agencies and Employment Businesses Regulations" before you were introduced to the end client?

If you answered yes, to those questions, then the contract may not be enforceable against you.

The other thing to consider is that if you trade as a limited company then your contract is with your company not you personally. You can close your company and start a new one and the other party can only pursue your old company which has ceased trading so they will get nothing.

[Graemsay]

Wanderer, I'd agree with your comments about my client wanting to lock me in for an excessive time for a short contract.

The outsourcing firm's contract is under Dutch law, and there was a rejected proposal in parliament there about making non-compete clauses require a payment to be enforceable.

I don't know if Dutch law would allow for civil contracts to include a penalty, but I suspect not.

I agree that I should have kept my mouth shut, but I figured that I had a decent working relationship with my client, and he'd probably say no problem. And I'd rather do that than give him grounds to lean on me.

In answer to the three questions:

1. The contract with my client is governed by English and Welsh law. The contract with the outsourcing company (which I signed in addition to that with my client) is under Dutch law. Come to think of it, why I am signing two sets of contracts for one job?
2. The client company operates as a mixture of consultancy and recruitment agency. (Probably more the first than the second.) The MD has referred to the company as being an agency in the past. (e.g. A comment along the lines of they couldn't pay me a higher rate because there has to be enough of a cut for the agency for the job to be worthwhile.) Whether that makes them an employment business, or they have to be registered as one is another question, but I'd guess that the legislation would automatically apply even if they weren't registered.
3. I have not signed any opt-out. I understand that this has to be done separately, and there wasn't anything in the contract.

So if I'm not opted out, then theoretically I could hand in my notice to the client, and then re-sign directly with the organisation? If so, then it's no wonder that agencies want you to opt out...

[Wanderer]

[LIST=1][*]The contract with my client is governed by English and Welsh law. The contract with the outsourcing company (which I signed in addition to that with my client) is under Dutch law. Come to think of it, why I am signing two sets of contracts for one job?

I can't understand that one either. There is no contract with out "consideration", ie money changing hands, so you only have a contract with the party who pays you the money.

[*]The client company operates as a mixture of consultancy and recruitment agency. (Probably more the first than the second.)

An "Employment Business" is a concept under English and Welsh law. It this is a Dutch company then there are most likely different rules and the Employment Agencies regulations may not apply.

So if I'm not opted out, then theoretically I could hand in my notice to the client, and then re-sign directly with the organisation? If so, then it's no wonder that agencies want you to opt out...

You are free from the agency a certain period of time after you stop working at the client. It's 14 weeks from the start of the contract or 8 weeks from the end, whichever is longer.

It's a difficult one, you might need to speak to a specialist who knows Dutch (and English!) law.

[SueEllen]

In answer to the three questions:

The contract with my client is governed by English and Welsh law. The contract with the outsourcing company (which I signed in addition to that with my client) is under Dutch law. Come to think of it, why I am signing two sets of contracts for one job?

That should have rang alarm bells. Why are they making you sign two contracts for one job in two different legal jurisdictions?

I would have got a solicitor involved before I signed the contracts to ensure that you only signed one to cover your work for the end client. This would have likely forced the agency to rewrite their contract so the only law in place was that under English and Welsh law as you aren't on site.

So you would be signing a contract with the agency, and they would be signing a contract with the end client covered in the same legal jurisdiction.

They could argued to leave their one year restriction in with penalties but it wouldn't be enforceable under English and Welsh law so you could have ignored it completely as the time period is too long.

The agency wouldn't want to destroy the relationship with their client, who they know you also have a relationship with, so would have done it particularly if they realised they were talking to a lawyer. Most agencies don't want to pay legal fees so won't get their own lawyers involved.

The client company operates as a mixture of consultancy and recruitment agency. (Probably more the first than the second.) The MD has referred to the company as being an agency in the past. (e.g. A comment along the lines of they couldn't pay me a higher rate because there has to be enough of a cut for the agency for the job to be worthwhile.) Whether that makes them an employment business, or they have to be registered as one is another question, but I'd guess that the legislation would automatically apply even if they weren't registered.

Under English and Welsh law they are an Employment business.

[I have not signed any opt-out. I understand that this has to be done separately, and there wasn't anything in the contract.

According to them they are operating under Dutch law, which is indicated in the contact you signed with them so that's not relevant.

Rather than spend money on getting lawyers involved now I would work this contract out, leave the end client alone for nearly a year if possible then ask them directly for work. I then wouldn't contact the agency at all.

[Graemsay]

Thanks Sue Ellen and Wanderer.

There are various other things that should have rang alarm bells sooner. And I'm with the general conclusion that I shouldn't look at hanging around in the contract.

[Graemsay]

Just an update on this.

I had a discussion with my line manager today, and it turns out that roughly 40% of the gross rate being paid for my services is being swallowed up by agencies.

Ironically, I was hired as a replacement for another contractor who left because his agency got greedy, and had him tied in with a non-compete agreement.

On the upside, I've found an email from my problematic agent saying that the organisation I'm working for wouldn't have gone as high as the original agent had quoted. Given that most contractors there are probably on another 50 euros or so per day over that, I'd say that's being economical with the truth...