In the last issue of Freelance Informer we looked at an incident where a client of mine had had money withheld by an agency because the agency imagined he had acted in breach of a restriction they had (wishfully) thought to be in his contract. They agency eventually conceded, and paid up.

Hot on the heels of that is another situation, where two clients of mine had worked alongside each other through another agency, for a Consultancy. One heard about the position from a colleague, and he himself told the second about it. The Consultancy insisted on them using this agency - the agency did not introduce either of them. The Consultancy deployed them onsite with one of its own clients. The Consultancy lost that contract, and my clients' contracts ended early - although the agency never bothered to tell them, or to give notice. The agency failed to find them fresh contracts, and when the consultancy's client made them offers, they accepted - with the full knowledge of the Consultancy's on-site representative. Some months down the line, the agency sued them, claiming that by accepting contracts with the Consultancy's client, they had broken the terms of their contracts with the agency.

We argued that the agency itself had been in breach of contract by ending the contracts early, without giving notice. The agency had the right to terminate on four weeks written notice. However, the only indications the Contractors were ever given of early termination were from the Consultancy's on-site representative. It is a (perfectly logical) legal principle that if you want to rely on the terms of a contract, you must first comply with it yourself - and if your actions show that you do not yourself intend to be bound by its terms, you lose your right to demand that the other party is bound by them. The restriction was a term of the same contract that the agency had broken; therefore (we said) the Contractors were released from the restriction.

Secondly, we said that the restriction itself was unenforceable. It sought to prevent the Contractors from contracting '…for the services of …any other customer of the Consultancy to carry out work which the Contractor gained as a result of entering this contract…', through any other agency, for 12 months after the end of the contract.

Such restrictions are in 'restraint of trade' - they interfere with the fundamental legal principle that people should be free to do business as they see fit, except where there is good reason to restrict them from doing so. There is a balance to be struck between this basic freedom, and legitimate protection. If the restriction goes further than is reasonably necessary to protect the legitimate commercial interests of the person imposing the restriction, then the Courts will treat the contract as though the offending words (and any other words that do not make sense without them) had been crossed out from the contract. So, for example, if '12 months' was too long, the whole restriction would fail - the Courts would not simply reduce the period. We said 12 months was far too long to be reasonable in contracts for 6 months.

Other case have said that confidential information, trade secrets, and business connection can be 'legitimate commercial interests' capable of protection by such terms. Here, the only such interest can have been 'business connection' - but, of course, the agency (1) had not introduced the Contractors, and (2) had no business connection with the end-client, only the Consultancy - the end client itself had flatly refused to use the agency (I wonder why?).

Finally, the contracts contained what we call a 'liquidated damages' clause, which said that if the Contractors were in breach, then they would pay the agency the equivalent of a 25% margin on the contractual rate for a whole year. That was the amount the agency claimed.

The law provides that unless the amount calculated by such a term is a genuine pre-estimate of the likely actual loss, then the term amounts to a 'penalty' - and is not enforceable. If there were a breach for a short period, then any actual loss the agency might suffer would be related to the length of period, not to their margin for a whole year - and therefore the term would be an unlawful penalty.

The case got very close to Court, and with just over a week to go until the date fixed for trail, the agency contacted my clients; offered to accept only 25% of their claim to settle it; were told where they could stick their offer; and finally said they would withdraw their claims completely.

And so an attempt by another agency to bully contractors into paying the agency money it was not entitled to fails. There was no question of the agency having lost anything, or of having its own connections exploited unfairly. I simply cannot understand the mentality of an agency which depends on Contractors for its very existence; spends a fortune in advertising; and then shoots itself in the foot by acting in this way.

From the Contractors' point of view, the 20:20 vision of hindsight tells them that they would have been wiser to decline such restrictions where the agency was not responsible for making the introduction; or where the term restricts dealing with those with which the agency itself has no business connections; or which extend for longer than the contract period; and to decline to agree 'liquidated damages' clauses.