Restrictive Covenant ... more on this.

[suewood27]

I've read previous posts about this (fairly) standard clause that appears in many contracts. I wonder if, legally, there is any way to get around it? I think not, but feel I need to ask the question anyway ....

I have recently completed a contract for a client in the health sector, the contract ran for just over a year covering maternity leave. This work was sourced through an agent (who I would love to name and shame) and the contract included a restrictive covenant that runs during the term of the contract plus 12 months post contract.

Because of the imminent changes to the health sector the client is now in a position where any recruitment must be sourced, in the first instance, from a pool of staff whose jobs are identified as being ‘at risk’ and, failing that, they have to source internally. There are no provisions to go to external sources at all. Basically it is a staff freeze.

Aside from the duties of the position I was employed to cover I recently started a piece of work, under the clients direction, that now needs to be continued and expanded. The client does not have internal resources to complete the project and, because of the complexities involved, believe that bringing in a person from the ‘at risk’ pool who will need to be trained and mentored will severely impede the success of the project.

It was decided, by the client, that the best way forward would be to outsource the project directly to an external provider (me).

Both the client and I have approached the agent and asked that they waive this clause in this instance but the agent has flatly refused. I can appreciate that the clause is there to protect the business but, in this case, the refusal is not going to force the client to say “ok, we’ll hire through you then” and the client is not able to hire through another agency either.

So what we have ended up with is a LOSE, LOSE, LOSE situation. The client is now not able to continue and complete the project (which will have ramifications on the local economy), the agent has lost credence with the client and will be sidelined for any future contracts, and I am now out there, unemployed and looking for another contract.

All this, because of the agent's sheer bloody-mindedness and inability to co-operate and negotiate. Do I feel any sympathy or empathy towards agents? .... NOT AT ALL.

[Clare@InTouch]

How long ago did you finish the original contract?

In some cases I think you can argue 12 months amounts to a restraint of trade, but 6 months would be more likely to be seen as reasonable. My suggestion would be to get legal advice on it, or ask the agency what they want in return for backing down.

[Wanderer]

Welcome suewood27

I think your post is more of a rant than a question. I know exactly how you feel though, an agency makes an introduction and they then want to "own" you for the next 12 months after you finish? We need to fight back against this stuff, I don't grudge agencies their income but these restrictive covenants don't serve anyone except the agency. It's not about protecting their business, it's a restraint of our trade.

A few questions:

1. You know that opt out of the agency regulations that the agency was desperate for you to sign, did you sign it?
2. If so, was it done before you were introduced to the client?
3. Is the client willing to engage you directly without the permission of the agency?
4. Are you operating as a LTD company, if so are you willing to close your company and start a new one?

Questions 1 and 2 are important. If you didn't sign the opt out at the right time (or didn't sign at all) then the restriction is invalid and can't be enforced.
Questions 3 and 4 depend on the client's co-operation and are high risk, but technically the contract may have been with your LTD and if you close it down and start a new one then the agency will have a lot of difficulty getting money out of you.

Moral of the story is Don't opt out of the agency regulations!

[suewood27]

How long ago did you finish the original contract?

In some cases I think you can argue 12 months amounts to a restraint of trade, but 6 months would be more likely to be seen as reasonable. My suggestion would be to get legal advice on it, or ask the agency what they want in return for backing down.

I finished up with them a month ago, having given 4 weeks notice, because a) the staff member I was covering was due to return to work so end of contract, and b) I had planned a holiday to coincide with the end of the contract.

Now I'm back from my holiday and I'm told they are struggling to continue with the work and would like me to return.

I believe that 12 months is unreasonable, and I did suggest that to the agent a couple of days ago but they were completely un-moveable on it.

I realise I should have picked up on the clause before I signed the contract - we live and learn!

[suewood27]

Welcome suewood27

I think your post is more of a rant than a question. I know exactly how you feel though, an agency makes an introduction and they then want to "own" you for the next 12 months after you finish? We need to fight back against this stuff, I don't grudge agencies their income but these restrictive covenants don't serve anyone except the agency. It's not about protecting their business, it's a restraint of our trade.

A few questions:

1. You know that opt out of the agency regulations that the agency was desperate for you to sign, did you sign it?
2. If so, was it done before you were introduced to the client?
3. Is the client willing to engage you directly without the permission of the agency?
4. Are you operating as a LTD company, if so are you willing to close your company and start a new one?

Questions 1 and 2 are important. If you didn't sign the opt out at the right time (or didn't sign at all) then the restriction is invalid and can't be enforced.
Questions 3 and 4 depend on the client's co-operation and are high risk, but technically the contract may have been with your LTD and if you close it down and start a new one then the agency will have a lot of difficulty getting money out of you.

Moral of the story is Don't opt out of the agency regulations!

Yes, you're right - I'm ranting .. I'm angry! I agree with you that the restriction just inhibits my right to trade, the contract was very local to me (nice!) and during the time there I came in contact with several other (local) organisations. The way the clause reads suggests that I would be in breach if I worked with any of these other organisations within the next 12 months, which effectively means I have to travel out of the area in order to secure an income .. pathetic, eh?

Pretty sure I did sign the opt out but not sure when - will have to go back through my paperwork and find out. But the clause is on the client/agency contract too. The agency have told the client they will be in breach of contract if they hire me through any other channel than them, and the client is not willing to put themselves in that position (which is fair enough). I do operate through my own Ltd Co .. but given that the client is not prepared to do anything through the back door it probably wouldn't be in my interests to go to the trouble of close down and start up etc.

Will read and re-read and re-read the next contract .....

[fullyautomatix]

Hi Sue

The clause in the contract is there to prevent the kind of situation that you are in at the moment. The agency needs to be protect themselves. If not for the agency you would not have been introduced to the client in the first place. Every contractor would have been cancelling the contract after a month and signing a new one with the client direct and putting the agency out of business.

[The Agents View]

Yes, you're right - I'm ranting .. I'm angry! I agree with you that the restriction just inhibits my right to trade, the contract was very local to me (nice!) and during the time there I came in contact with several other (local) organisations. The way the clause reads suggests that I would be in breach if I worked with any of these other organisations within the next 12 months, which effectively means I have to travel out of the area in order to secure an income .. pathetic, eh?

Pretty sure I did sign the opt out but not sure when - will have to go back through my paperwork and find out. But the clause is on the client/agency contract too. The agency have told the client they will be in breach of contract if they hire me through any other channel than them, and the client is not willing to put themselves in that position (which is fair enough). I do operate through my own Ltd Co .. but given that the client is not prepared to do anything through the back door it probably wouldn't be in my interests to go to the trouble of close down and start up etc.

Will read and re-read and re-read the next contract .....

So let me get this straight.

Agent introduces you to their client.

As a result of introduction, and your good work, you secure additional contract.

You want to take 100% of this revenue, and cut the agent off of your gravy train?


Your issue is NOT with your agent - it's with their end client - they're the ones "dictating" that they can't do this and can't do that. "Hard times", "staff freeze", "budget cuts" are all irrelevant - Tescos doesn't sell beans at 50p a can with 20p profit for a year, and then sell them at cost for the rest of eternity, because "times are tough" - why should an agent be any different?

Unfortunately,
you have no bargaining power here either. If the agencies client has a complete freeze on, I suspect that they have nothing they can dangle in front of the agent, to "do a deal".

The whole reason we put these clauses in, is to stop situations like this. This is business - the sooner contractors detach themselves from the emotion of the situation, the easier life will be for everyone concerned.

[realityhack]

Sue - can't the agency agree to a buy-out? Say a % of your margin, as happens when someone goes perm? Not condoning the agency's behaviour but just thinking of ways forward.

[suewood27]

Hi Sue

The clause in the contract is there to prevent the kind of situation that you are in at the moment. The agency needs to be protect themselves. If not for the agency you would not have been introduced to the client in the first place. Every contractor would have been cancelling the contract after a month and signing a new one with the client direct and putting the agency out of business.

But I didn't cancell the contract after a month .. the contract was originally for 6 months and got extended to 14 months. This is not me trying to 'cut out' anyone elses business, neither is the client trying to do anything under-handed. The situation is that because of government proposals and future changes to the business the client is not able to recruit externally, but still has a requirement for extra resources.

[suewood27]

So let me get this straight.

Agent introduces you to their client.

As a result of introduction, and your good work, you secure additional contract.

You want to take 100% of this revenue, and cut the agent off of your gravy train?


Your issue is NOT with your agent - it's with their end client - they're the ones "dictating" that they can't do this and can't do that. "Hard times", "staff freeze", "budget cuts" are all irrelevant - Tescos doesn't sell beans at 50p a can with 20p profit for a year, and then sell them at cost for the rest of eternity, because "times are tough" - why should an agent be any different?

Unfortunately,
you have no bargaining power here either. If the agencies client has a complete freeze on, I suspect that they have nothing they can dangle in front of the agent, to "do a deal".

The whole reason we put these clauses in, is to stop situations like this. This is business - the sooner contractors detach themselves from the emotion of the situation, the easier life will be for everyone concerned.

I know I have no bargaining power ... I agreed that it was just a rant. But who is benefiting from this situation?