'I've been working for a Client through an agency. The Client in turn has me working as part of a team providing services to one of its own clients. My contract is coming to an end, and the Client's own client wants to engage me direct. Does the restriction in my contract with the Agency prevent me from doing this?'
As I understand it, it is only the Client who is mentioned in your current contract. The restriction term in the contract says that the Company (my company) shall procure that I:
'…shall not for a period of six months following the termination of this agreement be engaged directly or indirectly in the provision of services similar to those supplied by the Company to the Client or any associated or subsidiary person company firm or organisation.''
What does the term mean -
does it make sense?
The first thing we have to do when considering such a term as this is to understand it, in the context of the whole contract. We have to consider what the words actually mean, and whether or not they might operate so as to prevent you from doing what you want to do.
On the face of it, this is a term in restraint of trade - it appears to seek to interfere with what would otherwise be your lawful freedom to trade in whatever way you choose, with whoever you wish. One of the consequences of this is that where the term does not make sense as a matter of simple English, any ambiguities are likely to be resolved in your favour. Here, I think it does (almost) seem to have a clear meaning, although I think that the last phrase needs to have a few words implied into it under the officious bystander rule (ie 'it's obvious that's what the parties meant') - so it would read:
' …similar to those that have been supplied by the Company under this agreement to the Client…'
Does it appear to prevent you
from doing what you want to do?
I think not - under the current contract, your services were to be provided to the Client. Under the proposed new arrangement, neither the Agency nor the Client will be involved, and your services are to be provided directly to the Client's client. So we are left with the question of whether the Client's client is an 'associated or subsidiary person company firm or organisation', in relation to the Client.
Normally, when one considers companies, the terms 'associated' and 'subsidiary' have particular meanings. You can find these meanings defined in the Companies Acts, and also in tax legislation; generally, the definitions revolve around questions of ownership (subsidiary) or common ownership (associate). I'd be a little challenged in trying to work out how an individual as a 'person' could be a subsidiary of a company - but then I remember that as a matter of law, 'person' generally includes companies. However, here, we don't need to worry about that, the Client's client is in fact another company. It's a wholly separate company to the Client, no questions of common ownership arise, and so it's not an associate or a subsidiary of the Client.
So it would appear that we have the answer to our question: the Client's client does not appear to fall within the scope of the term - therefore you are not restricted in any arrangements you may make to provide services directly to the Client's client.
To what extent is the term
enforceable?
We shouldn't need to worry about this, in the light of our answers so far. But if we had come up with a different answer to the last question, then we'd have to consider whether the part of the term that got in our way was likely to be enforceable. It's quite unlikely that it would have been, since restrictions in restraint of trade will generally only be enforceable to the extent that they go no further than reasonably necessary to protect legitimate commercial interests of the party imposing the restriction. Protecting their existing business connections may be such a legitimate interest; prevention of mere competition is not. It seems to me that whilst the Client may have had a business connection with its own client, the Agency did not, and so without that 'peg' on which to hang and justify it, such a restriction by the Agency may well have been unenforceable.
Other issues may also arise as to whether agency legislation makes the term unenforceable, for different reasons - the law is changing here, but I'll save that for another article.
What are the risks?
Few things in life are risk-free. Carefully steering a way around such a restriction which someone - probably a non-lawyer - in the Agency complacently thinks protects him will not always produce an 'Oh - OK' reaction. The biggest risk may be that if the Agency finds out what you are doing whilst they still owe you money, they may well refuse to pay you. I don't say they are entitled to do so, but this is a real world, and people do sometimes do things they are not entitled to do. That would leave you with a potential uphill (ie lengthy and expensive) struggle, with no guarantees as to the end result.
Overall
Caution is always called for when considering such issues as these. Interpretation of such restrictions as these, and considering their enforceability, is very much an area for the expert. A word different here or there - even in another part of the contract (eg definitions) - can change the sense of the term, or the conclusions to be drawn from it.
20th
April 2001
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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