John Antell
is a barrister at
Godolphin chambers and specialises in employment and related tax law. He
advises contractors and others on IR35 and other employment status matters
including the review or drafting of contracts, and he represents taxpayers on
appeals to the Tax Commissioners and the High Court. He is the author of Employment Status published by
Butterworths.
Introduction
In the past many contractors signed contracts with agencies without being too
concerned whether or not the detailed clauses reflected the way in which they
provided their services to the end client.
..it is important that contractors which provide services as independent contractors ensure that their contracts accurately reflect the way they work
John Antell - Barrister
With the introduction of IR35 it is important that contractors which provide services as
independent contractors (rather than simply supplying workers to work under the
control of clients as if they were employees) ensure that their contracts accurately reflect the way they work. Otherwise they may find themselves
caught by IR35.
Uphill struggle
Contractors negotiating changes for IR35 compliance in their agency's standard contract often face
an uphill struggle. Sometimes this is due to the agency being unwilling to
spend time looking at clauses and gambling on the contractor giving in and
signing the standard contract.
Often the agency will say that the client will
not agree to changes and sometimes this so. However many contractors will find
themselves in the situation where they and the client are in agreement but the
agency will not change the contract to reflect the realities of the situation.
Why is this and why, in particular, do agencies try to insist on there being a
clause in the contract which says that the contractor's worker will work under
the control of the client?
The answer lies in the particular way that agencies structure their contracts.
The agency contract
Instead of simply charging a finders’ fee to the client, agencies generally
insist on having a contract with the client under which the agent undertakes to
provide the services to the client at a certain fee rate, and another contract
with the contractor under which the contractor agrees to provide the service to
the client on behalf of the agent for the fee rate minus, say, 20%.
Contractually this is a standard contractor/sub-contractor arrangement under
which if anything goes wrong, the agency is directly liable to pay compensation
to the client. The agency must then try to recover its loss from the
contractor.
Agencies like to reduce their potential liability and one way of
doing this is to put a clause into the contract with the client saying that the
contractor's worker will be under the client's control, obey any reasonable
instruction, and that the client must supervise the worker. If anything goes
wrong it is more difficult for the client to sue the agency because the
contract says that the client has control of the worker.
Thus although the client may agree that the services being provided by the worker are consultancy
services where the worker is providing his judgement and expertise rather than
being a servant obeying his master's orders, often the agency will still try to
insist on a control clause.
Direct contracts
It is not surprising that many contractors are looking with renewed
interest at the possibility of direct contracts between contractor and client.
It is not surprising that many contractors are looking with renewed
interest at the possibility of direct contracts between contractor and client.
In doing so they are not necessarily seeking to dispense with the services of
the agencies who may still be needed to put those who provide a particular
service and those who need it, together.
They are seeking a reasonable arrangement with agencies which allows contractor and client to negotiate a
direct contract which reflects the realities of the situation and which is not
coloured by the desire of agencies to dress up the relationship as something
akin to employment in order to reduce their own potential liabilities.
Neither the author nor the publisher can be held responsible for any actions
undertaken as a result of the opinions expressed in this article which are
necessarily of a general nature and cannot be a substitute for individual legal
advice on your own particular situation.www.johnantell.co.uk
©John Antell 2000-2002
Published: Wednesday, September 18, 2002