Restrictive Covenants in Self-Employment

Tabitha_T

Hi there, does anybody have any experience of restrictive covenants if you have been a self employed worker? I was working (in the UK) on a self-employed basis for an Canadian company for five years. When I left (of my own free will) they reminded me of my 'Contractor Agreement' that I had signed in 2005. This stiplates that for a period of TWO years, I am unable to compete with my ex-company by working in the same industry, or contact/solicit clients. Any breach of either of these two things will necessitate an injunction, court etc etc.

I have now been offered a job that I really need, but, it is in the same industry and it would involve talking to some contacts whom I dealt with before. It has been nearly 6 months since I last worked for the Canadian company.

I hope to be able to talk to CAB and try to obtain some free legal advice, but in advance of this, if anybody has specific knowledge of how enforceable these clauses are, I would be most grateful for your advice.

Many thanks, Tabitha

Annisele

There's a similar-ish thread here.

Somebody with more knowledge will be along shortly, but in the meantime it might help if you were to post the actual wording of the clause.

(On a separate note I'm not entirely convinced that you would have been 'self-employed' if you were working for one single employer for a five year period, but I'm no expert).

Uncertain

I doubt that the CAB will be able to help much with this as it is very specialised.

You need a proper legal opinion on this contract.

I agree with Annisele that it is worth looking at whether you were in fact legally self employed. Beware though that is is perfectly possible (stupid as it may sound) for, say, HMRC to say you were an employee but an employment tribunal to say you were self employed - neither is binding on the other.

However, if you can question the legality of the way in which they were "employing" you this may help to negotiate some kind of compromise.

Tabitha_T

Thanks for your response. Firstly, re the self-employment, I only worked for the one client over the 5 year period (who passed on jobs to me) and I set-up a limited company to receive my commission payments, paying all my own taxes and NI. It was really a case of sub-sub contracting. The Canadian company had a base in the UK and awarded me short-term, marketing consultancy positions in High Street stores throughout the 5 year period. The Canadian manager in the UK found the jobs and passed them on to independent consultants, including myself.

Re the wording of the clauses within the Independent Contractor Agreement, the 2 relevant extracts are as follows:

"For a period of TWO years following the termination of the independent contractor's relationship with 'X', the independent contractor will not:
1)
Compete with 'X' by engaging in any business which is the same or substantially the same
2)
Contact or solicit any customers, merchants or accounts with the specific purpose of competing with 'X' "

I last worked for this company in late March this year, I now have
the chance to work for a direct competitor but would like to acquire some knowledge relating to the potential enforceability of such an Agreement.

Any thoughts much appreciated. Cheers.

SarEl

Tabitha_T wrote: »

Thanks for your response. Firstly, re the self-employment, I only worked for the one client over the 5 year period (who passed on jobs to me) and I set-up a limited company to receive my commission payments, paying all my own taxes and NI. It was really a case of sub-sub contracting. The Canadian company had a base in the UK and awarded me short-term, marketing consultancy positions in High Street stores throughout the 5 year period. The Canadian manager in the UK found the jobs and passed them on to independent consultants, including myself.

Re the wording of the clauses within the Independent Contractor Agreement, the 2 relevant extracts are as follows:

"For a period of TWO years following the termination of the independent contractor's relationship with 'X', the independent contractor will not:
1)
Compete with 'X' by engaging in any business which is the same or substantially the same
2)
Contact or solicit any customers, merchants or accounts with the specific purpose of competing with 'X' "

I last worked for this company in late March this year, I now have
the chance to work for a direct competitor but would like to acquire some knowledge relating to the potential enforceability of such an Agreement.

Any thoughts much appreciated. Cheers.

Actually this one is very different from the other one. Provided that this is all it says, in this case is is extremely unlikley that the covenant can be enforced. This is a total restriiction of trade and is contrary to British and European law. You do need specialist advice to be utterly certain, but I would be 99.9% certain that on the basis of what this says it could not be enforced.

axomoxia

My first thoughts

1. Seek legal advice!
2. The second clause sounds reasonable (a non poaching agreement) the first less so. Howerver you could argue that that the parent company isn't in the same line of business as you, since you are marketing, and I assume the company does something else?
3. If the agreeement is between your limited company and your ex client, I suggest that you start a new limited company....

Uncertain

Tabitha_T wrote: »

Thanks for your response. Firstly, re the self-employment, I only worked for the one client over the 5 year period (who passed on jobs to me) and I set-up a limited company to receive my commission payments, paying all my own taxes and NI. It was really a case of sub-sub contracting. The Canadian company had a base in the UK and awarded me short-term, marketing consultancy positions in High Street stores throughout the 5 year period. The Canadian manager in the UK found the jobs and passed them on to independent consultants, including myself.

Re the wording of the clauses within the Independent Contractor Agreement, the 2 relevant extracts are as follows:

"For a period of TWO years following the termination of the independent contractor's relationship with 'X', the independent contractor will not:
1)
Compete with 'X' by engaging in any business which is the same or substantially the same
2)
Contact or solicit any customers, merchants or accounts with the specific purpose of competing with 'X' "

I last worked for this company in late March this year, I now have
the chance to work for a direct competitor but would like to acquire some knowledge relating to the potential enforceability of such an Agreement.

Any thoughts much appreciated. Cheers.

If you were a limited company then this almost certainly gets round what otherwise may have been "sham" self employment.

You may not be aware that SarEl is a barrister specialising in employment law so her advice is very encouraging for you.

You do however also need a professional opinion from somebody who can actually look at all the paperwork and directly ask you questions before advising.

Finally, even if the advice is favourable, there is a possibility you could end up with a fight on your hands or it may be a complete try on (perhaps legal in Canada?).

inmypocketnottheirs

axomoxia wrote: »

3. If the agreeement is between your limited company and your ex client, I suggest that you start a new limited company....

Exactly as I was going to say!

If the agreement is in your ltd co, dump the company and start another/

Additionally, the enforceability of the agreement depends on the Canadian company taking action.

HTH

SarEl

Uncertain wrote: »

If you were a limited company then this almost certainly gets round what otherwise may have been "sham" self employment.

You may not be aware that SarEl is a barrister specialising in employment law so her advice is very encouraging for you.

You do however also need a professional opinion from somebody who can actually look at all the paperwork and directly ask you questions before advising.

Finally, even if the advice is favourable, there is a possibility you could end up with a fight on your hands or it may be a complete try on (perhaps legal in Canada?).

Canadian law can only be enforced in Canada. So provide the OP isn't operating in Canada then that won't matter. However, I would be less sanguine about relying on the advice to start another company - companies are useful and they can do a lot of things. One of the things they can't do is sign a restrictive covenant! That is an individual term. One of our colleagues here who specialises in the corporate side of things can no doubt remind me what the coporate equivalent is called (because for the life of me I can't recall) but it is different.

Tabitha_T

Thank you very much for your speedy responses, that is encouraging to hear. I now feel better equipped and more confident that I may well be able to gain new employment without the worry of a legal battle looming. I'll seek professional advice and go through the paperwork with a fine toothcomb, keep you updated. Thanks again.