'I'm just coming to the end of my contract. The Client wants to extend me, but says my present agency's too expensive and wants me to change agencies. There's a restriction in my contract, but the Client says if I set up a new company that will be OK. Is this safe?'

The first thing we have to do is to look at your current contract. The contract is between your company and the agency - you personally are not a party, although the signature on behalf of the company is yours. There is a restriction in there, which says that your company:

There's often some uncertainty amongst Contractors about whether such terms in contracts are enforceable. The legal position is that

We then need to consider what the term as it is written actually says and means, and whether or not the scope and duration go further than is reasonably necessary. If they do, then what the Courts will do is to cross out wording that goes too far - they won't re-write the clause. And if what's left doesn't make sense, then the whole term will fail - if for example the duration is too long, then the whole restriction fails, the Courts won't substitute a shorter period.

Here, we'll assume the restriction does not go too far, and is likely to be enforceable. So we need to look to see exactly what it seeks to prevent - your company agrees that neither it nor you will contract directly or indirectly, for the provision of similar services to the Client.

The Client's plan is for you to start a new company, and have that company contract for your services through another agency. You have to consider what the risks to you would be in co-operating with that request. And believe me, there are risks.

First, there can be no guarantee that the original agency won't find out about this - it would be wise to plan on the assumption that they will. If they find out about it at a time when they still owe you money, then there must be a real risk that they will withhold it. I don't say they'd have a right to do so, but it would put you in the position of having to fight (and possibly start legal action) to try and get it - hassle you don't need.

Even if they don't find out until after you've been paid, they might still take action. They'd certainly be able to make a case against your old company - which would still be vulnerable, to the extent of any assets it still held.

It's also not beyond the realms of possibility that they could make a case against you personally. True, you were not a party to the contract - but you were the guiding force behind the old company, and would still be the guiding force behind the new arrangements. You, as a director of the old company, would personally and deliberately have done things which you knew very well would place that company in breach of contract. There have been somewhat similar cases where directors have been held personally liable. You might end up in the law reports, making legal history - expensive!

In short, you'd be exposing yourself to a significant degree of risk. Why should you do that? At the very least, I'd say you should tell the Client that you'll only consider doing what the Client requests if the Client expressly guarantees in writing to cover (1) any liability there might be to the old agency for breach of this term of the contract (including any liability for legal costs - both your own, and any costs you may be ordered to pay the old agency); and (2) any failure of the old agency to pay any sums that might be due to you. The Client is telling you there's no real risk in co-operating with its request - if that's what the Client really thinks, then the Client will have no difficulty in agreeing to cover you in this way. If (as I suspect) the Client declines, ask yourself why…

My own view is that Contractors should be prepared to negotiate all the terms of contracts offered to them (ie including the scope and duration of such restrictions) with firmness, even to the point of declining an otherwise apparently attractive contract if acceptable terms cannot be agreed. And having agreed terms, it's better to stick to them. That way, you're entitled to insist that the other party does so too.