'An agency signed me up for a 6 month contract. The next day they rang and said they couldn't get the Client to sign. I now find the agency is not on the Client's preferred supplier list, and that the Client would gladly take me through another agency.'
I've read your contract. A contract is legally binding on both parties from the moment it is formed. It means what it says, from that time. This contract is dated and has been signed by both parties. There are no doubts in my mind that the contract itself has been formed.
The next question is, what are its terms, in relation to the situation that has arisen? The contract was for you to provide your services to the Client, for a period of 6 months. There's nothing in the contract saying that it's conditional on the Client also signing up with the agency. The agency is now saying they are unable to perform their part of the contract. They had agreed that they would provide you with work, and now they're saying they won't. On any view, that's a clear breach of contract - so you're entitled to damages.
The starting point for the assessment of your damages is the amount which would put you in the position in which you would have been, had the other party not been in breach. There's a slight qualification here - the damages are limited to what you would have lost if the other party had exercised any such rights they might have had to terminate lawfully. Under the terms of this contract, either party could have terminated on one month's notice. So that sets a ceiling on what you are entitled to - the amount you could have earned by performing the contract for one month. Without having to collect or account for VAT, by the way - damages for breach of contract are not subject to VAT.
The next thing to consider is your duty to mitigate. Damages for breach of contract are not a blank cheque. You are entitled to be placed in the position in which you would have been, had the contract been performed - no better, no worse. You have a duty to take reasonable steps to keep your losses down. So you should try to find another contract as soon as you can, and make allowance for any sums you receive from elsewhere in respect of the same period. And in case you have to prove in court that you have done so, you should keep records of the steps you take to try and find another contract. If the agency itself offers you another contract, then if you decline it without good reason, your damages may be reduced.
Now let's consider the position with the Client. When one party to a contract accepts a breach as terminating the contract, and where the breach is such as to make clear that the other party has no intention to be bound by the contract, then the innocent party no longer has to perform any of its contractual obligations. So you are freed from any term in the contract which might otherwise have restricted you from dealing with the Client for a period.
It follows therefore that there is nothing to stop you from dealing direct with the Client - and indeed, I think it is only right that you should approach the Client to offer your services, as part of your efforts to mitigate your losses.
It is possible that when you do so, the Client will refer you to another agency - one which is on its preferred supplier list - and ask you to contract through them. No problem, but consider the terms of that contract carefully before you sign - it may well contain a restriction. Such restrictions will only be enforceable to the extent that they go no further than is reasonably necessary to protect legitimate commercial interests of the one seeking to impose the restriction.
'Business connection' is the commercial interest that agencies generally use as justification for such restrictions. Maybe fair enough, if it's as a result of their connections that you were introduced to the Client. But here, that's would not be the case - you would be going to the Client, and the Client itself would be referring you to the new agency. So the new agency would have no legitimate commercial interest capable of protection by such a restriction. The restriction would therefore be unenforceable. To avoid any misunderstanding in the future, you should decline to accept any such restriction in your contract with the new agency.
1st May 1998
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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