Contracts - Advice for Freelances

Contracts for Services - Legal Problems

In the main, the relationship between a freelance IT professional and the company is regulated by a contract for services. This is to be distinguished from contracts of service which apply exclusively to employees, who enjoy the benefit of employment protection legislation. All the rights of the freelance are regulated by the contract with regard to the conditions of service, the rate, restrictions upon activity and the like.

Distinguishing between the two is not always easy, especially when there is little documentary evident of an agreement. Case law has, over the years established a number of tests which can be applied in an attempt to determine the type of contract the exists between the parties. The "control test" looks to see if the company decides not only what is done and how it is to be done, but when and where. If A says "do this" and B decides, then all the other factors may lead one to conclude that there is probably a contract for services suggesting a relationship between a principal and a freelance.

Of course, it does not end there; experience has shown that despite the various tests of employment status which a court may adopt, no single test should be viewed by itself.

The following is a checklist which can help in determining the employment status of the operative who is employed on a self-employed basis. If the answer to most of these questions is yes, then the more the person is likely in law to be regarded as an employee.

Checklist

1. Do you work under the direct control of the contractor?

2. Do you work with the same contractor from site to site?

3. Does the contractor supply you with any tools or equipment other than plant?

4. Are you paid at an hourly or daily rate?

5. Does pay include any overtime, bonus pay, holiday pay or sick pay?

6. Is there a disciplinary or grievance procedure open to you?

7. Do you need to ask permission for time off?

8. Does your contract provide for notice of termination?

9. Are you required to work for a specific number of hours?

10. Can you subcontract the work or send a substitute to do it? On the other hand, if the answer to most of the following questions is yes, then the more the person is likely in law to be regarded as an self-employed.

1. Do you bear the risk of financial loss as well as the chance of profit on the contract?

2. Do you risk your own capital in the course of training?

3. Do you provide your own plant and/or tools or materials?

4. Are you required to carry out the correction of any unsatisfactory work at your own expense and in your own time?

5. Do you work for two or more contractors?

6. Are you engaged on a contract by contract basis?

7. Is payment subject to the submission of invoices?

8. Can you subcontract or offer the work to others?

9. Are you paid all or part of the time on a measured work or price job basis?

10. Can the contract be terminated without notice on either side?

11. Do you maintain public liability insurance?

12. Do you retain an accountant and submit annual accounts?

The issue is a complex one, but it is safe to say that no one test alone is conclusive. Many of the contractual problems of the kind faced by freelances can be, and often are, resolved through negotiation. A legal solution may not always be appropriate especially where the company is itself experiencing financial difficulty. Having said this, there are occasions where legal advice may be required where for example the involvement of the appropriate Amicus official has failed to conclude matters satisfactorily.

The Amicus Legal Department works closely with Amicus officials in providing advice on the contractual problems which can arise, restrictive covenants, income tax matters and insolvency issues.

Competition and Restraint of Trade

By far the majority of freelances are subject to express terms which restrict their activities both during and after expiry of the contract. There is an implied duty of fidelity and good faith which obligates the employee not to compete with his employer/company, or divulge confidential information and trade secrets.

Such express terms can be used to impose greater restrictions on an employee's activities than those implied through the duty of good faith. Therefore, a company who wishes to restrict one from undertaking any work with a competitor whilst the contract subsists may do so by incorporating an express term to that effect into the contract.

Generally, the legitimate interests of any company tend to fall into two categories: trade secrets and trade connections. Companies may draft so-called "non-competition" clauses aimed at safeguarding trade secrets and prohibiting the formation of competing businesses or partnerships with others. Companies may also draft "non-solicitation" or "non-dealing" clauses which usually apply to freelances who may have a great deal of contact with customers.

Restraints which seek to protect an interest falling outside of these two categories will usually be deemed unenforceable.

What Determines Whether a Restraint is Too Wide?

In order to answer this question, three factors need to be considered:

• The subject matter is of key importance here.

• Geographical area. If a business only operates in one specific area then, in the absence of specific expansion plans to which the employee/agent may be privy to, the company's interests are limited to that particular area and any prohibition extending beyond it may be deemed invalid.

• The duration of the restriction is based on the general rule that as such, it should not be longer than is necessary. There is a trade-off between geographical area and duration in the sense that the wider the geographical area the shorter the acceptable duration of the restriction and vice versa.

The burden or providing that a restrictive covenant is reasonable and therefore enforceable falls upon the party who seeks to rely upon it (the company). Courts will tend to construe such clauses narrowly and so any uncertainly or ambiguity will be interpreted in favour of the employee.

The Amicus Legal Department can advise on both the general and specific aspects of restraint of trade and confidentiality issues. Freelances trading under contracts for services are more routinely subject to the kind of restrictions referred to in this note than employees whose contractual rights are underpinned by employment law.

The complexity of the issue is such that litigation is a last resort, however where the Amicus representative or full-time official have failed to resolve matters through negotiation, the legal options are fully considered by the Legal Department in conjunction with the Amicus solicitors. Legal action is progressed on behalf of members wherever appropriate.

Negotiating a freelance agreement

Freelances should be negotiators but sometimes, like trade union officials, when it comes to negotiating on their own behalf all their skills and experience go out of the window!

The following notes are reminders of the principles to observe when you are in negotiation with your employer. However, there is no single, approved style of negotiating.

These are three steps.

• Preparing to negotiate.

• Meeting and negotiating with a employer.

• Recording the agreement.

The Preparation

In any negotiations preparation is essential and in most instances will make the difference between success and failure.

So there is one early warning. If a employer, without notice, initiates discussions about proposed changes to a contract, be prepared to take a careful written note of any proposal and then suggest you will reflect. By all means arrange another meeting or agree to write later, but avoid agreeing any changes on the spot.

Some of the steps you should take when preparing include:

¨ Assemble and review all existing documentation on your relationship. Remind yourself of key aspects of your agreement. Perhaps prepare a schedule setting out briefly the history of the relationship with dates of key events and documents.

¨ Determine

- your aims and the ideal agreement you expect to negotiate - list key points in order of importance.

- any acceptable compromise or fall-back position short of your ideal arrangement.

- the main arguments to support your case and then assess the relative strengths of them.

- the probable case and response the principal will have and then consider your counter-arguments.

- Reflect on the bargaining strengths you hold and conversely the employer - a employer needs a good employee as much as an employee needs a good employer.

¨ Consult the ITPA helpline

- if you have any questions about legal implications of a possible agreement or revised agreement.

- if you need additional information to allow you to complete your brief.

note Remember to make whenever possible to contact your Amicus representative or full-time official as early as possible to give time for your Legal Department if necessary to draft a reply.

The negotiation with the employer

* Establish a business atmosphere by demonstrating you are well prepared and documented.

* Be courteous but firm - any negotiation is about establishing a relationship where the other side is prepared to make a concession, so don't set out to antagonise. On the other hand, being courteous does not stop you from being firm about what will not be acceptable to you.

* Seek to be brief and to point. Do not talk too much - remember people stop concentrating on your comments after about five minutes.

* Make sure the employer knows what you want.

* Listen to what your employer says - again it is good advice to spend more time listening rather than talking.

* Keep notes throughout the negotiation.

* Keep your temper.

* Steer the discussions towards the strongest points in your case.

* Listen to offers from the employer.

* Again be a good listener.

* Ensure that both you and the employer agree on what has been achieved.

* If a problem arises in the negotiations where you need more information or advice, seek an adjournment. Similarly, if there is an impasse an adjournment will often follow both employer and employee to reflect and determine how to break the impasse.

Recording the Agreement

After the negotiations:

* Tidy up and clarify notes

* Insist on either you or your employer writing to confirm the points agreed.

* Maintain in a safe place your negotiation file.

* Review your approach and note what you would do differently next time.

Checklist

Negotiating with the employer

Preparing your case

* get the facts and check them.

* look at the agreement and previous correspondence.

* work out aims.

* work out fallback position.

Meeting the employer

* make sure notes are taken.

* be courteous but firm.

* speak to the point and briefly.

* use adjournments when needed.

* steer discussion to your strongest points.

* listen for offers from the employer.

Recording the agreement

* make sure there's an agreed written record of the agreement.

* keep your negotiation file in a safe place.