Contractors' Questions: Agency ripped me off, where do I stand?

Contractor's Question:

My question is to do with the way in which the agency that I am working through has dealt with me. Prior to obtaining a position through them they asked me what rate I wanted. I said minimum of 50 per hour. They told me that this was far too rich for their client and so convinced me to take 40 - my choice.

On starting I repeatedly asked for a contract from them to no avail. I then found out that the agency were making 23 per hour out of me. More than 50% of what I am receiving.

Where do I stand? They lied to me about the rate and did not satisfy their legal requirements in terms of contracts and terms notifications. I have complained to them, though now they are holding out for a payment from the Employer for my transfer to their books. I am feeling rather ripped off.

Answer:

There is no written contract between the contractor and the agency but an oral contact or contract by conduct will exist because work has already started and the agency have already made some payments to the contractor.

The contractor's complaint is not that he is receiving less than he agreed but rather that he agreed to do the work for £40 per hour only after the agency told him that the £50 per hour which he originally asked for was "far too rich for their client".

Where a party is induced to enter into a contract by the other party's misrepresentation, the innocent party may have a claim in deceit or under the Misrepresentation Act 1967. However in order to the claim to succeed the misrepresentation must be an untrue statement of fact rather than opinion. The exact dividing line between opinion and fact is not always easy to draw but a claim based on misstatements, during negotiations, of what a company is willing to pay is very unlikely to succeed. In addition, depending on the exact words used, it could even be argued by the agency that what it said was true because given the agency's intended margin (about the size of which it made no statement, true or false) it was actually true that the rate which the contractor sought would result in a rate to the client which the client would be unwilling to pay.

There is the additional difficulty that even if the agency were liable in principle for an actionable misrepresentation, the court would award compensation only if it could be shown that the contractor, as a result on entering into the contract, had lost money in the sense that if he had not entered into the contract he would have been able to take up alternative opportunities which would have earned him more. This is likely to be difficult to prove unless, for example, it is the case that had the contractor known of the size of the agency's margin he could and would have undertaken the work for the same client using a different agency with a lower margin.

On the information available, therefore, it seems unlikely that the contractor would have a claim in deceit or under the Misrepresentation Act 1967.

Regulations 13 to 15 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 require the agency to give certain information in writing to the contractor. However, although this appears not to have been done, and although by Regulation 30, breach of the Regulations can give rise to a civil liability, there will only be civil liability if the breach causes actual loss. Neither the agency's margin, nor the amount paid by the client to the agency are items of information which the agency is obliged to notify to the contractor and so it does not appear to be the case that breach of the regulations has caused loss to the contractor. Although the contractor could make a complaint to the Department of Trade and Industry over breaches of the regulations that would not in itself result in any compensation for the contractor.

The contractor also complains that his transfer to direct employment with the client is being delayed by the agency "holding out for payment" from the client. Regulation 6 prohibits an agency from subjecting a contractor to a "detriment" where the contractor seeks to "go direct". However an agency which merely seeks from the client a transfer fee which is lawfully due from the client would not be held to be subjecting the contractor to a detriment since such a fee is specifically allowed by Regulation 10. Regulation 10 does however limit the circumstances in which it is lawful for an agency to charge a transfer fee to its client and the contractor may wish to suggest to the client that they consider seeking independent legal advice on whether the agency's demand for the fee is lawful in the light of the wording of the contract between agency and client.

In summary, unfortunately it does not appear, from the information available, that a legal claim by the contractor for compensation for the shortcomings of the agency would be successful.

Answer kindly provided by John Antell

John Antell is a barrister who specialises in contractual disputes (particularly those involving IT and engineering) and in employment law in its widest sense (i.e. including the duties of agencies and clients towards contractors and other workers who are not employees, and the taxation of all types of worker).

He is the author of Employment Status (published by Butterworths)

www.johnantell.co.uk

Copyright John Antell 2005

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