Contractors’ Questions: Is this termination clause in my new fixed-term contract unlawful?

Contractor’s Question: I’m a contractor directing my own limited company, and have been offered a fixed-term contract with an employment agency's end-client. The notice period states that: “The Company means the Employment Agency can terminate the contract with a 28 days’ notice to the Consultant.’ And by the latter, they mean ‘me.’

It also says that the agreement may not be terminated by the consultant. 

Is this clause a valid, legally permissible/enforceable statement? What does it mean in practice, surely not what I think!? What would a fairer clause look like for me, and to that end, can some wording be suggested to give the agency whatever they’re likely to want from suggesting this nasty provision in the first place?

Expert’s Answer: Given that the agreement between your limited company and the agency is a Business-to-Business contract, this means that you automatically benefit from less protection than if you were entering into a Business-to-Consumer (or consumer) Agreement. Contract law in England and Wales allows the parties to freely negotiate the terms of their contracts, provided that the terms are not unlawful or in conflict with an overriding statutory provision.

The clause which you initially highlight means that the agency can terminate your agreement at any time on 28 days’ notice. In this case, while a 28-day unilateral termination clause is not desirable from your perspective, it is not unlawful.

Presumably, the reason as to why the agency has inserted this provision is because they have been bound to accept a similar provision in the agreement they have with the end-client, and they do not wish to expose themselves to risk by not mirroring this same provision in the agreement with your limited company.

Given that you are not an employee, and are working as a self-employed, taking the risk of an assignment coming to an end is part-and-parcel of running a business.

As an alternative, you could ask the agency to:

• Simply delete the clause (but this is unlikely to be accepted for the reasons set out above)
• Make the clause mutual, meaning that you would also able to give 28 days’ notice to terminate (for example, if you find a better assignment)
• Modify the clause, either to extend the duration of the notice period or otherwise to state that the clause can only be invoked in specific instances (such as breach of contract on your part, or if the assignment is terminated by the client due to poor workmanship – which, you could propose, must be demonstrated with evidence)

One thing to be careful of is the potential IR35 implications of a notice period in an agency / contractor agreement.

Indeed, notice periods can be deemed as constituting an obligation to provide and accept work during the duration of the notice period (in this case, 28 days), also referred to as a mutuality of obligations. Having a notice period could be considered as imposing an employee-style obligation on the contractor, because a genuinely self-employed individual has no obligation to accept work, and an agency or end-client has no obligation to provide work.

It is therefore important that: (i) the terms of the termination clause are carefully drafted to mitigate this risk; (ii) you undertake an overall assessment of the contract from an IR35 perspective; and (iii) you ensure that a determination has been made as to whether the assignment at the end-client is indeed, inside, or outside of IR35.

The expert was Charlotte Gerrish, managing director of Gerrish Legal.