How to manage risks when employing contractors

If you’re not ready to employ another member of staff or if you have a shortterm project to complete, engaging a contractor could be a great option for your business.

However, this can pose some risks!

In my experience of advising businesses, some of the questions they are asking are: How can I ensure the correct employment status is in place? Can a Contractor Represent My Brand Correctly? What If they poach my client? What if the relationship goes wrong?

Don’t panic! This article will answer these questions for you.

How can I ensure the correct employment status is in place?

One risk of engaging a contractor is if they could be considered an employee. In 2021, Uber was challenged in a landmark case to define employment status.

Uber considered its drivers to be self-employed contractors. They insisted they only acted as a booking agent between the drivers and the passengers.

Following a dispute, the Supreme Court ruled that due to the fundamental nature of the working relationship, drivers were, in fact, workers.

This ruling had significant implications for Uber. They now need to meet the core employment rights and employer costs for all their workers. They may face compensation costs and have to pay minimum wage and holiday pay. The decision of this ruling will influence the employment status of many selfemployed people.

It’s important to have the correct documents to define the employment status. However, labels are not enough. It’s how the relationship is managed in reality that will ultimately determine employment status.

How Can I Ensure A Contractor Represents My Brand Correctly?

You’ve worked hard to build your brand, attract, and nurture client relationships. You want to be sure that everyone in your business works to your values and represents your brand correctly.

Working with a contractor means they are not employed directly by the company, and so may not align with your brand. This could impact your customer loyalty and your profits.

You can take steps to help a contractor work to your values and represent your brand correctly.

You should ensure your contractor signs up to your code of conduct. This can form part of your agreed contract with them. It gives clear expectations of the required behaviours and service delivery.

If you think a contractor has not followed your code of conduct, you can consider this a breach of terms and can start a dispute resolution process to fix the problem.

What If a Contractor Poaches My Client?

Poaching is when a contractor steals your clients and works with them directly - leaving you with a loss of clients and future revenue.

This is a potential risk when working with contractors as they have access to confidential information about your clients. They may also provide the same kind of work as your company and can sometimes offer lower rates as a self-employed contractor.

You can include a non-poaching clause, also known as a non-solicitation clause, in your contract to protect clients from being ‘poached’. It’s a type of restrictive covenant that aims to stop a contractor from taking your clients. It can also try to stop a contractor from poaching your staff too.

A word of caution! For a non-solicitation clause to be enforceable, it must be considered reasonable. This usually refers to the scope and timescale of the restriction.

Generally, a restriction with no end date would be considered unreasonable. The restrictions should only be in force for a set time following the end of the contract. Six months is a common timeframe.

Also, depending on the nature of the project delivery, you should also maintain some visibility with your clients. I have seen cases where contractors are the only point of contact for clients. They attend all meetings, send all emails, and are the brand’s only visible presence on clients’ sites. This may be problematic for you and makes it easy for your clients to be poached, especially if the Contractor is not trustworthy and looking to undercut you.

What If There Is A Breach Of Terms? Am I Liable?

A breach of terms is when one party breaks the legally binding terms of an agreement. Reasons for breaches can vary, but examples may include:

● Misunderstanding of the work to be provided

● The quality of the work is not as expected

● Delivery deadlines not being met

● Issues with payment terms and processes

A good contract should include clear guidance on the expected quality of work, including who decides when the required quality has been achieved.

You should also include specific timescales. Clarity over payment levels and processes is also important.

If one party believes the other has breached the terms of the contract for services, you may wish to resolve this informally initially before deciding to raise a dispute.

Including a dispute resolution process will help to clarify expectations, resulting in a more amicable resolution. It will also help to save time and costs by following a pre-agreed process.

What If It Goes Wrong?

Sadly, there are times when a contracting relationship goes wrong. Either party can raise a dispute, and dealing with an escalated dispute can be a long and costly process for both parties.

A fair and transparent dispute resolution process helps maintain good relations, so you may be able to continue the working relationship, and including details of how to manage a dispute in your contract will help save time and money.

A dispute process can follow several stages. These may start with informal solutions and progress to more formal action. An informal internal resolution is obviously the best way in terms of saving time and money. Mediation with a neutral party could also help facilitate a settlement negotiation, or you could proceed to court if the breach is substantial and could not be resolved internally, but you first weigh the cost involved and also any potential for damage to your brand’s reputation.

Once the dispute is settled, you will need to consider if the contractual relationship can continue. If it was a minor breach, you may put aside the dispute and carry on. However, if there were multiple issues or the dispute has damaged the relationship, you may need to terminate the contract. It’s important to gain legal advice before ending a contract. ■

Tutu Popoola Founder and Managing Director of Sleek HR www.sleekhr.co.uk