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Zut Alors! – Business Contracts

The French translation of drat, damn and blast.  Don’t you think it has so much more passion than the English equivalent?

French or its English translation is the polite version of the explicitness when things go wrong.  In which case a written contract drawn up by a well briefed solicitor is still the smart way to go.  Whilst we all know this; when funds are tight it’s easy to cut corners.  I am not advocating cutting corners however, there are some very useful D.I.Y. contract creation solutions available on the Internet.

A written contract even if it is an adapted template, is always better than none at all. The process of discussing the ins and outs of the terms allow you and the client to iron out differences in opinions.  After all, the impression of verbal agreements can mean something very different to another party.

A contract is just like insurance.  That is that it’s only worth having when things go wrong!  So you do have to be careful. One normally thinks in terms of the sum of the ‘whole’ being more than the sum of the individual parts. Sometimes the individual parts of a contract can cost you more than you bargained for. So watch out!

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1.  Verbal contracts

A verbal yes is still considered in law to be an agreement to contract.  So given the advent of myriad communication channels, a verbal contract can still be deemed as consent.  Consider how many times you have had a telesales asking you to change utility providers? Quick and easy isn’t it?

2.  Implied Contracts

These come about because a customary pattern of behaviour has been so well established, one or more parties can demonstrate it is reasonably to rely upon the continuance of that pattern.  Whilst they are not written down, they are understood to exist.  They tend to be the root cause of many an employer and employee dispute, especially in respect of problems arising from claims under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) 2006.

3.  Written Contracts of Service (Service)

A well written contract of employment, with a precise job description, and clear guidelines on dismissal, disciplinary and grievance procedures, can avoid disputes.  It is far too easy for employees to take their employers to the cleaners through an Employment Tribunal . An ‘innocent’ employer will often be better off giving the disaffected employee a financial settlement to withdraw their complaint, rather than fight the case … even if they have a fair chance of winning.  It is not surprising that the very employers that need the benefits and the protection of a clear contract of employment, are the least likely to have them in place. Their loss …  If you can’t afford the fee a solicitor or HR specialist will charge to draw up a bespoke contract of employment … then use the fabulous free resources on the ACAS website.

4.  Written Contracts for Service (Client)

These should include and explanation of:

  • The parties to the contract, what they are expected to do, and by when. 
  • The method of remuneration will help avoid disputes over how you get paid and when.
  • Any restrictive covenants that may influence or limit the conduct of the parties both during, and after the contract …
  • The mediation and arbitration that may be evoked if the contract falls into dispute …

The idea is to define as precisely as possible the scope of the services and/or goods to be delivered by the service provider(s) to the client(s) to manage the expectations of all parties concerned in the execution of the contract.  They should detail any warranties to be provided to the client in respect of the service or goods to be provided.  They should give an opportunity for the parties to define the legal requirements and professional regulations the service provider must observe in the delivery of the service or goods during the contract (PPI, licences, qualifications etc) and define when each stage of the contract will be deemed to be satisfactorily completed, and the yard stick by which to measure that happy state of affairs.

Restrictive Covenants

Don’t forget to include the following clauses:

  • Confidentiality: Prevents the service provider from using or disclosing the client’s confidential business information to others.
  • Non-competition: Prevents the service provider from competing with the client.
  • Non-solicitation clause: Prevents the service provider from inducing others to leave the client’s employment.

Whilst they are hard to prove, and even harder to win a case, having the clause in place acts as a deterrent and allows for discussion between two parties.

Mediation and Arbitration

Mediation is a process where an impartial third party or mediator facilitates the negotiation of a settlement between parties to a dispute.  Mediation involves meeting half way in a compromise solution.  Arbitration is a process whereby parties to a dispute mutually agree to an impartial referee who hears and makes a binding decision.  Arbitration is only a satisfactory choice if you actually win the case. Both are usually less expensive than a full court hearing.

The issues with IR 35.  Intentions of the parties re ‘employment status’

If you subcontract the contract should always explicitly state that the service provider is ‘self employed’.  This will mean that they have no obligation to work entirely for you.  They have control over their work times and places.  They have the right to send a substitute in their place if necessary.  They have their equipment and tools and do not reply on your provision.

The Sting in the Tail is that the contract must reflect the working practise.  If it doesn’t … the written contract is not worth the paper it’s written on …

With thanks to Ralph Elliott-King for his inspiration and insight.

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