Restraint of Trade

Restraint of Trade

Didn't find your answer?

Can a recruitment agency transfer fee be regarded as an unreasonable restraint of trade, or are such fees permitted (enshrined in law) under the Employment Agencies Conduct Regulations, 2003?

Issue:

supplies to .
supplies to (hirer) under the hirer's control.

Thus, Subcontractor and Company acts as an Employment business.

Year of supply: 2003 (before Conduct Regulations, 2003 were in operation).
Employment Agencies Act 1973 applies.

Company and subcontractor agree clauses: 10D and 10E in terms and conditions

10D: The Company agrees that during the Agreement period and for a period of twelve months from the date of termination or expiry thereof, it will not enter or seek to enter into any Agreement with the Client, Consultant or any other party, to supply the names Consultant, to perform Computer Related Services, to the Client or any Associated Company of the Client, without express written permission of the Subcontractor.

10E: If the Company breaches clause 10D, above, it agrees to pay the contractor as liquidated damages the margin the Subcontractor would have earned on the basis that the supply of the Consultant had continued via a contract between the Company and the Subcontractor for a continuous twelve month period, with standard hours worked by the Consultant and the Company had received the same daily Rates as specified in Part One of the Agreement and the cost to the Subcontractor of obtaining the services of the Consultant had remained the same.

breaches agreement and supplies to , cutting out of the loop.

sues .

cries - 10D is restraint of trade - unlimited in geographic location, computer related services too wide and 12 months too long.

and 10E is a penalty clause.

Apart from stating: This was a company-company restriction and not company-employee restriction it protects its legitimate business interest
The geographic location is irrelevant as the client is identified (a single client + associated companies),
12 months was reasonable and the term computer related services was clear to all parties (no legal definition exists), as he was an IT Consultant.

Can Subcontractor defend as follows:

Employment agencies act 1973, accepted there is a legitimate business interest
and allows transfer fees. Conduct Regulations 2003 define transition rules and indicated transfer fees are permitted, can be any value as long as agreed.

Hence 10E is a transfer fee, part of the contract and thus not a penalty.
Also, since it's part of the contract, they can claim interest under the late payment of commercial debts act, 1988 (it's not a true liquidated damages clause - it formed part of the contract - an agreed transfer fee).

Hence restraint of trade and penalty clauses cannot be considered a defence as the Employment Agencies Act allows the clauses to stand.

Regards

Mark Brown

Replies (6)

Please login or register to join the discussion.

avatar
By carnmores
15th Nov 2007 20:08

rather a lot to think about
basically 10D is not enforceable as it is far to wide and out of step with precedent so the 10E IS WORTHLESS

Thanks (0)
avatar
By carnmores
19th Nov 2007 16:57

and another thing
one of my best friends sits on the EAT so i have a fairly good idea of whats what in that realm - when it comes to the law on restrive practices / gardening leave i know enough about it to comment. you comment on Farr but not on the hundreds of other cases that do not supprt it - why do you think its relevant here - you simply have not given an enough information.

we do not know the sums and trade secrets involved either nevertheless i still find it hard to believe that such arestriction is enforceable particularly with the contractor company in mind.

just get on with it and let them sue if they think they have such a right

Thanks (0)
avatar
By NeilW
18th Nov 2007 14:53

The Law and Reality
it depends on the individual, what level they work at and what alternatives are available to them. What does the individual get for agreeing to the restriction? There is no payment is there. What other employers are there in the area?

The Employment Agencies Act 1973 does not sanction unlimited transfer rates. It just says that the Regulations don't apply to contracts in place before the activation date.

You have to remember that what we are dealing with here is not just common law, but the Unfair Contract Terms Act. You have to be consistent with that as well.

Transfer fees under the employment agency legislation usually relates to individuals being transferred between agents and payments by the client to retain the individual directly. Remember that the base legislation prevents charges to the individual for finding work.

Best approach for the IT contractor in question is of course to liquidate the wrapper company and start another one. Damn all the recruitment agent can do then.

NeilW

Thanks (0)
avatar
By carnmores
19th Nov 2007 13:45

Mark you really dont deserve another answer
after your dismissive remarks. tom farr was md i believe and it is not clear tha this case has any relevance - if you want legal advice go elsewhere

Thanks (0)
avatar
By NeilW
19th Nov 2007 19:39

Unlikely
I find it unlikely that any court of law would interpret a shambolic piece of legislation such as the Employment Agencies Act in such a was as to override the basic premise that restraints of trade are void unless reasonable.

I've had meetings with the guy who drew up the Regulations when they were being drafted and I can guarantee you that the intention was to limit the capability of agents to restrain each other and consultants not widen them.

What you are asking here is a very fine point of law that would challenge the mind of some of the finest English Barristers. Perhaps you should consider engaging one of them.

NeilW

Thanks (0)
avatar
By carnmores
20th Nov 2007 16:46

OK Mark
good luck - is there any chance of the veil of incorporation being lifted etc

Thanks (0)