Contractors’ Questions: What if I was terminated prior to start date?

Contractor’s Question: I have just been informed today that my contract to start next week has been terminated due to the company’s circumstances. I am now out of a job, and income, as I have left my previous employer last week. I have signed and agreed to a contract which was sent on behalf of a recruitment agency. As I am an IT contractor set up with a limited company, I am unsure who I can approach for recourse and what I could potentially receive for compensation, if at all?

Expert’s Answer:  The first thing to do is to look at your contract to see whether you are entitled to anything. Has the contract been finalised and signed by both parties? If so, the next thing to look at are the termination clauses. What do they say about when the contract can be terminated, in what circumstances and how much notice should be given? Then look for anything that seeks to limit their liability: such clauses must however be reasonable to have effect. Finally, check to see whether the company were actually obliged to give you work under the contract: you may be surprised that many will say that they do not actually have to do so. Assuming they did agree to actually give you work, then you performed your part of the contract by leaving your previous job and making yourself available but they have refused to honour their part of the agreement. 

Compensation

In these circumstances, depending on what the contract actually says, you would be entitled to compensation. The amount might be set out in the contract but, if not, would be calculated as being the amount you could reasonably expect from the contract had it gone ahead for a certain period of time. The time would generally be calculated as the notice period (if, for example, the contract allowed them to take you on and then immediately give you notice). If there is no notice period in the contract, then you would be expected to look for another position and would be entitled to compensation for whatever period would be reasonable to allow you to find other suitable work.

Is it worthwhile?

If you think you have a valid claim, write and ask for compensation – but don’t hold your breath that they will immediately cough up. You might have to make a Small Claim in the County Court to recover compensation, but should first consider whether the amount you are claiming would actually be worthwhile given the amount of time you would need to put into making the claim (dealing with the court papers and attending a court hearing), the court costs (which you should recover if you win) and the inevitable stress. 

The expert was Gary Cousins, solicitor and co-founder at Cousins Business Law

Expert’s Answer: The first thing to do is to examine the terms of the contract and specifically the termination clause. Most contracts contain a provision stating that the client reserves the right to cancel and that the agent has the same right. This would normally mean that you have very little legal recourse, but the key fact here is that you left a job to take up this role.

‘Likely to be able to claim’

On this basis it appears that you have a strong claim. There’s little doubt that a contract exists and leaving your previous job to take up this opportunity means you are likely to be able to claim damages.  It would be best to speak directly with a solicitor who has been provided with all of the facts and figures to get an idea of what you would be entitled to recover. Bear in mind, however, that the judge assessing your claim will expect you to have taken steps to secure work after having had your contract terminated, so be prepared to show that you’ve made an effort in this regard.

Still act if you don’t claim

As an alternative to commencing legal action, it may be worth contacting your agent in the first instance and explaining the events which have given rise to your current circumstances. There’s always a chance that the agent may be able to recover a termination payment of sorts, but don’t expect this to be any more than a fraction of the value of the contract, if anything.

Practical considerations

Before making arrangements to speak with a solicitor, it’s worthwhile taking a step back and considering the implications of legal action.  Many contractors who I’ve dealt with over the years speak fondly of the freedom that contracting affords them, together with the greater financial rewards on offer. They do, however, all agree that setbacks such as early termination, unpaid fees and contract disputes are part and parcel of contracting.

Consider making enquiries of your agent with a view to getting them to confirm with their client that termination really was due to financial constraints and that they would otherwise have been happy to have taken you on. There’s always a chance that the client may be willing to take you on at a later date when it’s in a better financial position.  As unfair as it sounds, pursuing legal action effectively means burning your bridges with this client. Add to this the fact that the agent will almost certainly side with their client over a contractor and it soon becomes apparent that contracting isn’t without its headaches.

Financial woes?

If you’ve found yourself in financial difficulties as a result of your contract being terminated then it may well be worth considering legal action, providing the amount of damages you can expect to recover are proportionate to the time and effort required for legal proceedings.  If, however, you’re able to chalk this up to being part and parcel of contracting and if you’re able to find another contract then, as unfair as it sounds, it may be worth moving on in the hope of securing something with this client in the future.

The expert was Michael Coyle, solicitor and director at Lawdit Solicitors.

Editor's Note: Related Reading -

Contractors' Questions: Should I accept a 10-day termination clause?

Contractors' Questions: Is my termination clause legally binding?

Contractors' Questions: Why no termination clause?