Contracting during coronavirus: a PSC contractor’s legal survival guide

Now that the government has officially prohibited all non-essential travel due to the COVID-19 outbreak, working for contractors will be substantially different than what was first envisaged when your contracts were signed, writes Lily Morrison, consultant at law firm Gerrish Legal.

For some contractors, the right reaction to the coronavirus lockdown means stopping work altogether. For other contractors, the right reaction is continuing to work (remotely). Whichever camp you’re in – and we’ll offer guidance to both camps, you should very likely take some practical steps to protect your work or business.

What contractual clauses will protect me?

If you are no longer able to work, you will want to make sure that you are not held liable for targets not being met under your B-2-B agreements.

To do this, look for the Force Majeure clause which is commonly contained in such agreements. Depending on how it is drafted, the clause can have a number of results: sometimes, it will entitle a party to pause the contract; it might excuse a party from performing some or all of their obligations under the contract, or it might enable someone to terminate the contract altogether.

This clause concentrates on your ability to perform your obligations, and is normally activated when performance under the contract unexpectedly becomes illegal or impossible. There has been some debate around the possibility of invoking Force Majeure for COVID-19. Before last week, some suggested that the pandemic was not totally unforeseen considering health warnings at the start of the year, and that performance was not totally impossible given the government was simply giving guidance.

However, following the prime minister’s formal announcement that we should no longer go outside unless strictly necessary, and how quickly and unpredictably events are unfolding, the courts would now be likely to have a wide view of the situation.

Some clauses will have specific wording in them such as fire and war, and the important one here is acts of governments, plagues or epidemics.

If your contract does not specifically mention a category that COVID-19 might fit into, the wording will depend on circumstances beyond the party’s control. Sometimes performance will need to be rendered completely impossible, and sometimes reasonable alternative measures are required. In contracts, one word can make a big difference.

It is therefore important to check the wording and consider how tight it is and whether there really is no other way to achieve your targets. As a limited company contractor, it is good practice to predict here what your agency and client might be expecting. Make sure you document all of your considerations and why these might not be suitable. Be able to prove that you did reasonably attempt to source equipment and materials in other ways, and alternative home working measures, and why this would not have been suitable. Work with agencies and clients, discuss their expectations and make sure they understand the measures you are taking now.

You should also check the Force Majeure (or next most relevant) clause for notification obligations. It might only be possible to invoke it if conditions are met such as fair notification that your performance might be rendered impossible. Again, work with your agencies and clients and make sure you keep everything documented. Don’t assume they know that your services will be seriously impacted by the pandemic.

And finally, don’t give up: the Force Majeure clause could be used to your advantage to put the services on hold. As well as going towards ensuring that you will not be liable for non-performance, it can be used to avoid automatic termination of the contract. Discuss using the clause with your agencies and clients and ask them to consider keeping the contract in force until more certain times. This way, you can extend the target dates rather than lose out on the contract.

What if I’m being forced to work amid COVID-19?

The government has now strictly announced that only ‘essential’ workers can travel. These “key workers” have been outlined as health and social; education, food, public services, government, utility, security and transport staff. Independent, freelance contractors are unlikely to fall into these categories.

That said, there is not a lot of guidance on this yet. And unfortunately, clear rules probably won’t arrive until after the pandemic, when courts and regulators have the chance to review situations.

The only concrete suggestion so far is that if you fall into a ‘vulnerable’ category, or have been directly affected by coronavirus, you should not be working. So an agency or client should not expect you to keep working if this is against government guidance. There is a general obligation on workplaces to ensure that reasonable adjustments are made for their staff, and agencies and clients should listen to any concerns that you have.

As already mentioned, as much as where possible work with clients and agencies. Make sure you are documenting everything: if you feel that you are being treated unfairly, it might be something that can be challenged in the future once more concrete guidance is available.

Above all, your health is of the utmost importance. If termination is threatened by your agency or client to incentivise you to work, remember you may be able to invoke the Force Majeure clause. If Force Majeure has not been included in your contract you might alternatively be able to use the legal rule of Frustration. This is a general law read into all contracts whether explicitly mentioned or not, that you do not need to perform your obligations if there has been such a material change in circumstances that it would be impossible. While the bar for this can be high, COVID-19 is arguably one of the most serious events we have seen. Please try to avoid any and all work situations that would put you in danger.

What if I want to keep working during the coronavirus pandemic?

In our online world, work can increasingly be done remotely. And as a contractor, you should have some degree of control to organise your own work in a way you see fit.

Again, the contract you have with agencies and clients should be the first port of call. Agreements should set out the Performance expected under the contract or have a Schedule of Services to be provided; the Control that each party has, the Obligations of each party and the process to follow for Amendment.

These sections will set out what targets you need to meet, when, and how you should deliver them. It should also have information on the processes to follow if there is going to be delays. This should provide you with flexibility to modify the way that services are delivered, or adapt to new timescales. Communicate any alternative measures you can think of.

Remember that agencies need to be careful about the ‘Supervision, Direction or Control’ they have over contractors. So long as the same end-services are being delivered, you should be able to choose how they are delivered. If a client or agency objects to the way you wish to deliver services, check your contract to see what rights this will give them (such as termination), and make sure you document how you are delivering the same services, but in a different way. And if they accept, remember the additional privacy and security obligations this may give you!

What sort of goverment support is available to contractors?

Aside to contractual aid and practical legal steps to protect your contactor business during the UK now being on an emergency footing due to this virus, work-conscious contractors ought to consider:

VAT

All payments you are liable for can be deferred from 20 March 2020 to 30 June 2020. All VAT registered traders are eligible for this and it amounts to around one quarter’s VAT. There is no enrolment required- it is automatic, and no VAT payments will be required during this period.

HMRC has not yet confirmed how it will deal with any direct debits that are set up, so if you have a direct debit set up and do not wish to pay VAT, you should be able to cancel this.

Self-assessment income tax

This would normally have been due on July 31st 2020, but this has now been delayed to January 31st 2021. Again, no application is required for this automatic offer. The self-assessment form should still be sent in July and no penalties will be charged in this grace period.

Remember that while available these are optional relief measures, and you do not have to defer any payments if you do not want to. Debts will not be cancelled, only delayed.

And finally, it should go without saying but just in case…

The most important practical step during the coronavirus pandemic is to look after yourself and your family, as well your livelihood. With the latter, if contracts feel out of control, consider asking a lawyer for help. We are in extremely uncertain times, so keep monitoring guidance, trusted sources of information and alerts from your advisers, both for work and for your safety.