Why do agencies insist on control clauses in contracts?

John Antell examines the dangers of the standard agency contract

Historically many contractors signed contracts with agencies without being too concerned whether or not the detailed clauses reflected the way in which they provided their services to the end client.

With the introduction of IR35 from 6th April 2000, it is important that "one man company" contractors who provide services as independent contractors (rather than simply supplying a worker to work under the control of clients as if he were an employee) ensure that the contracts they sign accurately reflect the way they work. Otherwise they may find themselves unnecessarily caught by IR35. The question of control can also be important for individual contractors who sign contracts directly with the agency (without having their own "one man" limited company).

Contractors negotiating changes to their agency's standard contract often face an uphill struggle. Sometimes this is due to the agency being unwilling to spend time looking at clauses and gambling on the contractor giving in and signing the standard contract. Often the agency will say that the client will not agree to changes and sometimes this is so. However many contractors will find themselves in the situation where they and the client are in agreement but the agency will not change the contract to reflect the realities of the situation. Why is this and why, in particular, do agencies try to insist on there being a clause in the contract which says that the contractor will work under the close control of the client?

The answer lies in the way the contracts are structured. The agency will have a contract with the client under which the agency undertakes to provide the services to the client at a certain fee rate, and another contract with the contractor under which the contractor agrees to provide the services to the client on behalf of the agent for a lower fee rate. Structurally this is the same as a standard contractor/sub-contractor arrangement under which if anything goes wrong, the agency is directly liable to pay compensation to the client.

The agency must then try to recover its loss from the contractor. Agencies like to reduce their potential liabilities and one way of doing this is to put a clause into the contract with the client saying that the contractor will be under the client's control, obey any reasonable instruction, and that the client must supervise the worker. If anything goes wrong it is more difficult for the client to sue the agency because the contract says that the client has close control of the worker. Thus although the client may agree that the services being provided by the worker are consultancy services where the worker is providing his judgement and expertise rather than being a servant obeying his master's orders, often the agency will still try to insist on a control clause drafted as if there is to be a master/servant relationship.

An agency's assertion that the client will not agree to any change in the "control clause" should not be taken at face value.

John Antell is a barrister at Godolphin chambers and specialises in employment law particularly unfair dismissal and employment status including its tax and NIC consequences. He advises contractors and others on IR35 and other employment status matters including the review or drafting of contracts, and he represents taxpayers on appeals to the Tax Commissioners and the High Court. He is the author of "Employment Status" published by Butterworths.

Neither the author nor the publisher can be held responsible for any actions undertaken as a result of the opinions expressed in this article which are necessarily of a general nature and cannot be a substitute for individual legal advice on your own particular situation.

Friday 30th Apr 2004
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