Supply chain · 7 January 2019

Will a restrictive covenant cost me thousands of job opportunities?

restrictive covenant
To be enforceable, restrictive covenants need to be reasonable

Can an agent withhold payment from a self-employed contractor who has breached a restrictive covenant?

Following his series of articles drawing the distinctions between agents and distributors, Grid Law founder David Walker responds to a reader locked in a dispute with their sub-agent.

Question

Hi, I wonder if you could help me at all.

I’m a self-employed contractor working through an agent who in turn works for another main agent. It is this main agent who works directly with the end client.

The rules for working with the end client have changed and the main agent can no longer sub-contract out all of the work. However, the sub-agent I’m currently working for is not a main agent so is not allowed to bid for the end client’s work.

My contract expires at the end of the month and I have been approached by a main agent to work for them.

I’ve accepted a position (but haven’t yet started work for them) but now my current agent has suspended all payments to me. They say I have breached my contract by accepting a new position with another agent because I have a restrictive covenant in my contract.

They also want compensation for a contract they were never going to have.

To date, I haven’t received any payment from them for two months. Can they do this?

If they can, it means that I will lose out on 1,000s of job opportunities because of the industry I work in.

Any help and advice you can provide is greatly appreciated.

Thanks

Answer

Thanks for your question.

To be enforceable, restrictive covenants need to be reasonable and go no further than is necessary to protect a legitimate business interest.

From what you have said, it appears that the agent you are working for is losing their business through no fault of yours (or theirs), but simply due to a rule change.

You shouldn’t be penalised for this and my view is that it would be unfair to stop you from working for someone else when they are in no position to provide you with any work.

Without knowing all the details or seeing the whole contract I can’t give you any definitive advice, but there doesn’t appear to be any grounds on which they can legitimately withhold the payments that are due to you.

To recover these payments, you should first make a formal demand for payment. Explain that you are not in breach of contract, that the restrictive covenant is unenforceable in these circumstances and there’s no legitimate reason why they should withhold payments to you.

Give them a time limit for paying and threaten that if payment isn’t made by the deadline you will commence legal action against them.

If the deadline passes and you still haven’t received payment, you can start legal action against them.

If this is a small claim (valued at less than £10,000) it should be relatively quick and easy to pursue through the Money Claim Online system.

Prior to issuing legal proceedings, you should check whether the agent is still solvent. If they’ve just lost a major client they could be in a very difficult financial position and this may be a reason why they’re withholding your money.

If they are in financial difficulties, make your claim as quickly as possible as their position is only likely to get worse. However, if there’s no chance of being paid then you will have to carefully consider whether it’s worth pursuing them and potentially throwing good money after bad.

I wouldn’t worry about their threats of claiming compensation from you. These appear to be groundless and have probably been made in the hope that they will put you off making a claim against them.

I hope this helps and if you need any further advice, please feel free to email me again at editors@businessadvice.co.uk.

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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