Early termination clauses for the contractor

[Super Ang]

I have been contracting for a number of years now. Just about to start a new role and I noticed that in the Termination Clauses, the agency and the end client have the right to end the contract early giving notice (which was omitted from the schedule) for any reason whatsoever. This is perfectly normal and as a contractor you expect to see this. However what I was surprised to see is that there is no reciprocal early termination right for the contractor. It can only be terminated early in the case of breach of contract by the agency and if the agency/company goes into liquidiation/becomes insolvent.

Additionally the contract also says that if the contractor ends the contract early giving notice other than for the reasons above (again not specified in the contract) then "the agency shall be entitled to deduct from any fees due to the Contractor any financial loss suffered by the agency as a result of such termination".

I have never seen such a clause before and as someone with experience in contract law it does seem a bit irregular. Is this now de-rigeur in contracting? I have only been out of the market for two months! Quite apart from anything else, if the agency is going to insist on recouping financial loss from the contractor in the form of some penalty payment, surely they HAVE to clearly specify in the contract or an accompanying schedule what the maximum amount of penalty would be?

I am presuming they would calculate this as their mark-up on my daily rate for the remaining days of the contract? So the schedule should show the costs of early termination of one month, two months etc. Of course this would mean that they would have to 'fess up to exactly how much money they are making out of me - probably much higher than I would imagine!

I have gone back with some questions and requested a couple of variation of clauses in writing but not sure if that will work or not. Also have had the thought of asking for 2 x 3 month contracts instead of 1 x 6 month. As the director of my own company I have a fiduciary duty to protect the interests of my company.

Whilst I hope that the next contract will be very fruitful and bring many extensions and I have absolutely no intention of leaving to go to another contract (the only move I would make, if any, would be back into a senior perm role) as Director of a company I have a fiduciary duty to protect the company interests and not enter into an open ended agreement where I may have to pay compensation with the agency unless I know exactly how much that will be.

If they don't use the variation option and don't agree to shorter contracts should I just go ahead and sign this? I am interested to know what others would do

[SueEllen]

The clause is not regular.

If they refuse a shorter contract I would be tempted to find and pay a solicitor to review the entire contract. Strangely agencies tend to back down from stupid clauses if you get the contract reviewed and redrafted.

[northernladuk]

I have gone back with some questions and requested a couple of variation of clauses in writing but not sure if that will work or not. Also have had the thought of asking for 2 x 3 month contracts instead of 1 x 6 month. As the director of my own company I have a fiduciary duty to protect the interests of my company.

Doesn't asking for two 3 monthers give them a chance to screw up their system and mess up your contract? Also an easy out to not renew as the opportunity has arisen where if you were 6 months they would go pick on the guy with two 3 monthers?

How does doing this protect your company?

[thunderlizard]

How does doing this protect
your company?

If he gets run over by a bus on day 1, he only has to pay the agency 3 months of "losses", rather than 6.

Actually it wouldn't be "losses", it would be "profit that the agency hoped to make but didn't" and he'd do quite well arguing that in court if it ever came to it.

[TheFaQQer]

I have been contracting for a number of years now. Just about to start a new role and I noticed that in the Termination Clauses, the agency and the end client have the right to end the contract early giving notice (which was omitted from the schedule) for any reason whatsoever. This is perfectly normal and as a contractor you expect to see this. However what I was surprised to see is that there is no reciprocal early termination right for the contractor. It can only be terminated early in the case of breach of contract by the agency and if the agency/company goes into liquidiation/becomes insolvent.

OK - so they can give you notice, but you can't give them notice. Which is fairly standard these days, but not something that can't generally be negotiated round.

Additionally the contract also says that if the contractor ends the contract early giving notice other than for the reasons above (again not specified in the contract) then "the agency shall be entitled to deduct from any fees due to the Contractor any financial loss suffered by the agency as a result of such termination".

I have never seen such a clause before and as someone with experience in contract law it does seem a bit irregular. Is this now de-rigeur in contracting?

It's a fairly common clause in any contract - if you want to breach the contract (apart from force majeure), then you have penalties to pay. In this case, they have detailed the penalties, so at least you know where you stand - some agencies might try to tack on a new advertising fee etc. to find a replacement if you breach the contract.

I have only been out of the market for two months! Quite apart from anything else, if the agency is going to insist on recouping financial loss from the contractor in the form of some penalty payment, surely they HAVE to clearly specify in the contract or an accompanying schedule what the maximum amount of penalty would be?

No - they have specified the condition and what it works out at. There is no additional need to cap it.

I am presuming they would calculate this as their mark-up on my daily rate for the remaining days of the contract?

Yes, I would assume the same.

I have gone back with some questions and requested a couple of variation of clauses in writing but not sure if that will work or not. Also have had the thought of asking for 2 x 3 month contracts instead of 1 x 6 month. As the director of my own company I have a fiduciary duty to protect the interests of my company.

Don't see how it protects you in the slightest, but if that's what you want to do, it's up to you.

should I just go ahead and sign this? I am interested to know what others would do

You are in business - act like you are. If you are not happy with the contract, then you (and only you) need to weigh up the pros and cons of the contract and determine whether you want to enter into the arrangement or not.

[TheFaQQer]

If he gets run over by a bus on day 1, he only has to pay the agency 3 months of "losses", rather than 6.

Actually it wouldn't be "losses", it would be "profit that the agency hoped to make but didn't" and he'd do quite well arguing that in court if it ever came to it.

If he gets run over by a bus, the company would shut down, and that would be a valid termination (under most contracts).

[thunderlizard]

Mine wouldn't.

If I just got moderately squished and had to eat through a tube for a couple of months, I'd keep the company running until I was ready to work again.

If I got permanently squished, the company would still have to honour its liabilities before winding up.

(substitute "wins the lottery" for "gets run over by a bus" for a happier version of this).

[TheFaQQer]

Mine wouldn't.

If I just got moderately squished and had to eat through a tube for a couple of months, I'd keep the company running until I was ready to work again.

But - you wouldn't be terminating the contract. You would just leave it so that they would terminate it - so have no liabilities.

If I got permanently squished, the company would still have to honour its liabilities before winding up.

If you were winding up or entering administration, then you would be able to terminate the contract without penalty, so there wouldn't be any liabilities from this contract.

[Wanderer]

Additionally the contract also says that if the contractor ends the contract early giving notice other than for the reasons above (again not specified in the contract) then "the agency shall be entitled to deduct from any fees due to the Contractor any financial loss suffered by the agency as a result of such termination".

They are trying to bulltulip you. If there is no "Mutuality of obligation" in the contract then there can be no financial loss to the agency. As you say, the amount is unspecified so it couldn't amount to "liquidated damages". I doubt that this would stand up in court but they put it in there hoping that they can bully you out of the money they rightfully owe you should the contract be terminated.

I would be inclined to try to get them to remove it (they will tell you that everyone signs this contract) and if that doesn't work then sign you life away and take them to small claims court in the event that they withhold paying any fees from your company.

[VectraMan]

I had one like this a couple of years ago, and I negotiated a 4 week notice period. I'm actually working for the same client again (but direct), and again they've said "no ability to give notice", but it's only a 4 week contract.

It's ironic that in a "permanent" job you're held to less notice than a temporary contract.

I agree it's probably not enforcable. What I think would happen is the agent would use this as a reason not to pay you any outstanding amount, and then leave it to you to sue them. Many people just won't bother and will walk away from the loss. I think I would.