Terms of Business

Oh the joy! Alongside insurance and pensions, terms and conditions of business are probably considered one of the most mundane areas that business owners and directors have to deal with on a day to day basis; whether working out what their standard terms of business should be or how to negotiate terms and conditions imposed by their clients.

Prior to the Agency Workers Regulations 2010 (AWR), it all seemed so much more straightforward, standard terms and conditions of business for recruiters were shorter; with only the Conduct of Employment Businesses and Employment Agencies 2003 (Conduct Regulations) to be concerned with, and the familiar areas of legal risk debated in client imposed terms and conditions; focused on whether or not the recruiter was liable for the acts, errors and omissions of contracting staff, and to what extent a recruiter had to accept responsibility for employment status claims against clients.

Has anything changed, really?

Clients

Clients have become more astute in reviewing recruitment agency terms and conditions of business issued as a matter of course, and are taking the opportunity to challenge agencies on what were considered the norm in terms of exclusions of risks associated with contracting staff, limiting agencies’ liability, and passing much of the responsibility for the supervision and control of the contracting staff to the client.    You could argue this is a reflection of the economic climate we are in, although I’m not personally convinced by this.

It does make sense as a consequence to take care that terms and conditions are drafted in a way that is balanced and reasonable (where possible) to avoid unnecessary and protracted conversations which simply detract from business.   Some industry standard templates can give the appearance of being very one-sided in favour of the agency, yet with some individual thought on format and content this can be minimised.

Agencies

Agencies have become more conscious of the shortcomings in their existing terms and conditions (some of which hadn’t been reviewed for years) which were not necessarily as optimised commercially or as legally robust as they would have thought.  In fact, some agencies have found they have been working to a number of versions of their own terms and conditions of business which procedurally didn’t make sense, so really AWR has been a good opportunity to audit and tidy up templates and internal business process around contracts.  The possible downside in tidying up contracts is getting existing clients to accept updated terms and conditions without seeking to renegotiate the entire relationship!

Standard Terms and Conditions

Terms and conditions have in some quarters become unwieldy given the length of the AWR clauses inserted which not only appear to add a couple of pages to the length of the contract, but generally put off a lot of agencies (and arguably clients alike). Is it necessary?

Terms of business should ensure that the client complies with AWR generally, provides whatever information the agency requires with respect to AWR (and any other legislation it must comply with for that matter), pays for any AWR related pay and benefits that apply, and takes responsibility for any failure in providing AWR information or providing incorrect information (whether deliberate, negligently or recklessly) to the agency.   This can be accommodated in a couple of paragraphs, rather than a couple of pages!

Client imposed terms and conditions

In all honesty I have not seen very much change in the behaviour and form of client imposed terms since AWR.   Where clients were more reasonable in their drafting and negotiation of terms, this is reflected in their AWR requirements; they are therefore still willing to discuss and consider changes if an agency doesn’t feel the client’s terms and conditions do not give effect to AWR.

Of greater concern are those industry sector clients who have remained as robust and aggressive with respect to where responsibility and liability lies (i.e. entirely with the agency) as they were before AWR, and therefore unsurprisingly broad and unfavourable indemnities are being imposed on agencies particularly through MSP and RPO arrangements.

In the past tax and NI indemnities and employment status indemnities were fairly common and generally accepted by agencies, usually on the perception that such cases were more easily controlled by the agency (mitigating legal costs incurred by clients being joined to claims), cases were less common (certainly for limited company and employed temporary workers of larger recruiters) and the level of financial risk was considered low and fairly remote (where agencies had established and unambiguous contractual terms and relationships with their contracting staff).  More often than not blanket indemnities for legal costs of the client (irrespective of whether the client was ultimately at fault and responsible for the claim) were therefore included and accepted.

AWR claims however have a different feel about them and given the number of claims starting to make their way through the tribunal system the risk is far from remote and the idea of claims having multiple parties of 3+ (think about it; end client, MSP, PSL agency, and umbrella company potentially) creates a different potential headache in terms of legal costs and who bears those costs.

All agencies should be vigilant on client imposed terms and conditions and continue to scrutinise the extent of any indemnity on AWR to ensure that they are not responsible for fees or damages arising from claims which are caused by the act, error, omission, or failure of the client.

Indemnities – Hidden Pitfalls

Beware the sheep in wolf’s clothing!!  I have seen many indemnity clauses that are titled (whether deliberately or not) as employment status or tax indemnities yet the drafting of the indemnity is so wide or poor that AWR claims can be interpreted to fall within their scope.  Sometimes the ambiguity is overlooked.  I can bear witness to a number of scenarios where an issue has arisen, the agency has had to recover the signed contract from the dusty cupboard, and nightmares are uncovered in the reading of the contractual terms!

Always ensure that any commercial decision taken to sign terms and conditions is based upon a correct analysis of the contractual risk so that everyone who is party to the decision signs up with a full understanding of the risk v reward!  If you are in doubt as to the extent of any indemnity, always seek advice.

Lastly, top tip, don’t just focus your attention on potential risks under new contracts.  Have you assessed what risk you may have under pre-existing signed contracts?  If you are an agency who has a number of historical non-standard client imposed contracts I would recommend you undertaking an audit so at least you have comfort as to the level of risk you may be carrying as an organisation.

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