Contractors' Questions: What if the rate I was extended on is reneged?

Contractor’s Question: My contract was extended two months ago when the agency and I signed it. At the time, I had an offer from another company, offering the same rate as the new rate that was stated in the extended contract, so I rejected the other offer. But what I did not know was that the new rate in the contract schedule was incorrect. I thought this was a genuine increase, because I had asked the agency a month before for a rate rise.

Yesterday, I invoiced the agency with the new rate. This is when the agency said that the rate stated in the contract was wrong. They told me they would have to issue another contract to me with the original contract rate (the one I started with just over a year ago) to sign. Now, I have lost the chance for the better rate -- with the other company. Where do I stand, legally?

Expert’s Answer: A signed contract is a legally enforceable agreement. The first important point to note is that the contract having been signed by both parties is binding, unless the agency can show that there was a unilateral mistake, i.e. that you were aware of and knew that the new rate was incorrect. If the agency is successful in arguing this, the position would be that the contract is not binding, or in other words it can be said that there never was a contract.

Although we cannot advise definitively without sight of the contract and all of the supporting documentation, based on the facts provided so far it would appear that you would be in a strong position to argue that you were not aware that the rate was a mistake. This assumption is arrived at, by noting that you previously asked for a rate increase and so when an increased rate followed in the contract, you had every reason to genuinely believe that the rate was correct. Therefore, we will proceed with our advice in this answer on the basis that the contract is legally binding.  

The agency has advised you that they would need to issue a new contract. You do not have to agree to a new contract and have no obligation to do so. You have already agreed and signed a contract which sets out the terms and conditions and the agency cannot force you to change those conditions. If you decide not to sign a new contract, you should be aware that there is a risk that in accordance with the termination terms under the contract, the agency may opt to terminate your existing contract, and there is nothing you can do about this.

Another option available to the agency is to vary the existing contact. It is important to check your contract to determine, whether there is clause in your contract that allows the agency to reduce the rate under certain circumstances. In the absence of such a clause the terms of the contract cannot be lawfully changed/ varied without the consent and agreement of both parties. Therefore if the agency seeks to reduce the contracted rate, the only way to achieve this, would be for the contract to be varied with your agreement. If you do not wish to accept the variation, you must clearly communicate this. Again refusing to accept the variation, may give rise to the agency terminating your contract.

If you choose not to sign a new contract and also reject any proposed variation of the contract, the agency may restrict/limit any future opportunities available to you. However unprofessional this may appear on their part, it is still a scenario that ought to be considered. 

You may after having given consideration to all the circumstances, decide to agree to the rate proposed by the agency. If this is the case, you should state when you agree for the rate in question to be commenced. It may be sensible to negotiate this to be equal to the period stated in the contract for the termination of the contract.

The expert was Fozia Cheychi of Lawdit Solicitors, a legal advisory for IT contractors.

Editor’s Note: Related Reading –

Beating the IT contract crunch: ii) broken promises

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