Fixed Term Consulting Contracts - HR perspective??

54and56 · 25-02-2016 1:39pm #1

Hi,

I provide a niche professional service and I have an opportunity to commit to helping a client company execute a long term strategy which will take up to 6 years to complete. I already provide some services to the company and was recently asked by the MD to join them as a full time employee but I don't want to put all my eggs in one basket so we are discussing an option whereby I commit up to 60% of my available working days to helping the company execute it's plan over the full 6 year period and in return the company will commit to a fixed term contract for the 6 year period. We are both making a binding long term commitment to each other. I can't decide to quit if I receive a better offer from another client and the company can't renege on the retainer if for any reason they decide not to continue with the plan they need my assistance with.

I expect this type of long term highly committed contract is unusual but it seems to fit the circumstances here. Both parties want full commitment from the other and are prepared to give that commitment to each other so it's a case that we both jump together and neither of us can bale on the other when the going gets tough.

Has anyone ever heard of or have examples of such highly binding locked in long term contracts? The only 5-6 year fixed term contracts I can think of are professional footballers which probably isn't a good example but we constantly hear of situations where the club and player enter into a fixed term contract and if one wants to break it the other has to be compensated i.e. either the club accept a transfer fee from another club if it is the player who wants to break the contract or the club have to pay up the remainder of the players contract if it is the club who wish to break the contract and get rid of the player. Is there anything similar in the normal business/commercial world?

Is this type of fixed long term consulting contract even viable from a HR perspective? Could it make me an employee or entitle me to holiday pay etc?

I'm genuinely not interested in having employee entitlements and happy to remain an external contractor on retainer but I am interested in how the contract might be interpreted should all not go according to plan and one or other of us breaks it e.g. if I try to break it I guess I could be forced to continue honouring it and if the client breaks it for any reason I'd be seeking to have the remaining retainer payments paid up a la the football analogy above. <- not looking for legal advice of any sort so please don't give any!! I'm just hypothetically curious as it is an unusual situation for me but may not be unusual for others on here with a lot more experience than I have.

Stheno · 25-02-2016 6:03pm

Je_suis_Jean wrote: »

Hi,

I provide a niche professional service and I have an opportunity to commit to helping a client company execute a long term strategy which will take up to 6 years to complete. I already provide some services to the company and was recently asked by the MD to join them as a full time employee but I don't want to put all my eggs in one basket so we are discussing an option whereby I commit up to 60% of my available working days to helping the company execute it's plan over the full 6 year period and in return the company will commit to a fixed term contract for the 6 year period. We are both making a binding long term commitment to each other. I can't decide to quit if I receive a better offer from another client and the company can't renege on the retainer if for any reason they decide not to continue with the plan they need my assistance with.

I'm fairly sure this six year contract has some issues in terms of employment law. Is it a Master services agreement between your company and the customer, or is it a fixed term contract specifically naming you?

54and56 · 25-02-2016 6:14pm

Stheno wrote: »

I'm fairly sure this six year contract has some issues in terms of employment law. Is it a Master services agreement between your company and the customer, or is it a fixed term contract specifically naming you?

Hi Stheno, it's a contract between me as a sole trader and a medium sized limited company i.e. turnover in excess of €10m.

Stheno · 25-02-2016 6:22pm

Je_suis_Jean wrote: »

Hi Stheno, it's a contract between me as a sole trader and a medium sized limited company i.e. turnover in excess of €10m.

Ok, so the contract will state that it is between "Je suis Jean" and "company x" for a period of six years, working three days a week?

54and56 · 25-02-2016 6:44pm

Stheno wrote: »

Ok, so the contract will state that it is between "Je suis Jean" and "company x" for a period of six years, working three days a week?

Close :P

The contract will state that it is between "Je suis Jean" and "company x" for a fixed period of six years, working no more than 12 days a month.

The mutual understanding is that some months I may be required for 5-6 days and other months it could be 14-15 but the average will not exceed 12 days a month.

I'm happy to give this commitment in exchange for a fixed regular income.

Stheno · 25-02-2016 6:54pm

Je_suis_Jean wrote: »

Close :P

The contract will state that it is between "Je suis Jean" and "company x" for a fixed period of six years, working no more than 12 days a month.

The mutual understanding is that some months I may be required for 5-6 days and other months it could be 14-15 but the average will not exceed 12 days a month.

I'm happy to give this commitment in exchange for a fixed regular income.

Ok.

Here are some of the issues I can see with this:

1. Revenue may consider you an employee of this company, particularly given the length of the contract. This could affect you if you were audited, and the company your contract is with.
2. Under employment law after four years of fixed term contracts, you are entitled to a contract of indefinite duration so the company are putting themselves in a position of vulnerability here to be honest (they actually sound naive in suggesting it and unaware of very basic employment law)
3. The clause about you not being able to terminate the contract is imo unenforceable.
4. After two years of the fixed term contract you may be entitled to redundancy
5. You would be eligible for holidays, and other benefits other permanent employees get.

http://www.citizensinformation.ie/en/employment/employment_rights_and_conditions/contracts_of_employment/fixed_term_or_specified_purpose_contracts.html

I'd be spending a bit of cash talking to an employment solicitor about this tbh if I were you. And a tax specialist.

54and56 · 25-02-2016 8:24pm

Thanks Stheno,

I very much appreciate the info and yes, I think I will indeed get some professional input. It sounds like it would be a wise investment even though it is the company who are pushing for me to make this commitment.

To broaden my understanding of your comments I hope you don't mind the following:

Stheno wrote: »

1. Revenue may consider you an employee of this company, particularly given the length of the contract. This could affect you if you were audited, and the company your contract is with.

In my naivety I thought most of the downside risks to being deemed an employee would be with the company i.e. they would have to pay any unpaid employers PRSI etc but I can see how expenses I may seek to set off against income could be disallowed if I was deemed an employee and therefore result in a marginal tax bill for the difference between what Rev Com deem I should have paid and what I did actually pay. (How the other 40% of my income would be treated is an interesting question but one I will reserve for some professional advice. Perhaps the other 40% would be deemed a hobby

Stheno wrote: »

2. Under employment law after four years of fixed term contracts, you are entitled to a contract of indefinite duration so the company are putting themselves in a position of vulnerability here to be honest (they actually sound naive in suggesting it and unaware of very basic employment law)

I know this sounds selfish (and I don't have that type of relationship with them) but isn't that something they need to satisfy themselves about not me? They are the big multi million Euro business, I'm a one man band trying to do a bit of research here and elsewhere online.

Stheno wrote: »

3. The clause about you not being able to terminate the contract is imo unenforceable.

Why would two parties entering into a fixed term contract without a termination clause be unenforceable? Isn't that the entire point of a fixed term contract? Isn't that why footballers entering into fixed term contracts can't just have them terminated by the club with X months notice and end up having the remainder of their contract paid up if the club do want to terminate early e.g. Spurs having to pay up the £5m remainder of Adebayor's contract in order to terminate it. http://www.theguardian.com/football/2015/sep/13/tottenham-release-emmanuel-adebayor (This is the most curious/interesting point for me as it's the foundation of the proposed contract. We both make a mutually binding commitment for a fixed term. If they can simply terminate then I'm not really entering into a fixed term contract and the income security I think I'm getting in exchange for my own commitment isn't in fact real.)

Stheno wrote: »

5. You would be eligible for holidays, and other benefits other permanent employees get.

Again I assume this is an issue which the company needs to satisfy itself in relation to rather than me? I don't see any downside for me in relation to this but I'm happy to sign these rights/benefits away if asked/required.

Stheno · 25-02-2016 8:39pm

Je_suis_Jean wrote: »

Thanks Stheno,

I very much appreciate the info and yes, I think I will indeed get some professional input. It sounds like it would be a wise investment even though it is the company who are pushing for me to make this commitment.

To broaden my understanding of your comments I hope you don't mind the following:

In my naivety I thought most of the downside risks to being deemed an employee would be with the company i.e. they would have to pay any unpaid employers PRSI etc but I can see how expenses I may seek to set off against income could be disallowed if I was deemed an employee and therefore result in a marginal tax bill for the difference between what Rev Com deem I should have paid and what I did actually pay. (How the other 40% of my income would be treated is an interesting question but one I will reserve for some professional advice. Perhaps the other 40% would be deemed a hobby

https://www.google.ie/?gws_rd=ssl#q=self+employed+versus+employee

Check out the first two links in the google search above, some of the wording of the criteria is very very ambiguous

I know this sounds selfish (and I don't have that type of relationship with them) but isn't that something they need to satisfy themselves about not me? They are the big multi million Euro business, I'm a one man band trying to do a bit of research here and elsewhere online.

Yes but I'd question if you can have a 6 year long fixed term contract full stop, given the law around fixed term contracts not being allowed to exceed four years without then being CIDs./

Why would two parties entering into a fixed term contract without a termination clause be unenforceable? Isn't that the entire point of a fixed term contract? Isn't that why footballers entering into fixed term contracts can't just have them terminated by the club with X months notice and end up having the remainder of their contract paid up if the club do want to terminate early e.g. Spurs having to pay up the £5m remainder of Adebayor's contract in order to terminate it. http://www.theguardian.com/football/2015/sep/13/tottenham-release-emmanuel-adebayor (This is the most curious/interesting point for me as it's the foundation of the proposed contract. We both make a mutually binding commitment for a fixed term. If they can simply terminate then I'm not really entering into a fixed term contract and the income security I think I'm getting in exchange for my own commitment isn't in fact real.)

I'm fairly sure that during the recent transfer window in the UK football world, a number of footballers were "released" early from their contracts, but anyway, I'm not sure it's a good analogy. I was looking at it more from your perspective, committing to something for six years in a fixed term contract (which may not be legal anyway) is a big leap for an individual to take. You may due to circumstances beyond your control, become unable to fulfil that six years. What would happen in that scenario? The company cannot prevent you from terminating early is my point.

What if you are unexpectedly ill for six months and unable to work?

Again I assume this is an issue which the company needs to satisfy itself in relation to rather than me? I don't see any downside for me in relation to this but I'm happy to sign these rights/benefits away if asked/required.

Yes and no. You cannot legally sign those rights away in my opinion.

Spending money on a solicitor/tax specialist will be well worth it.

54and56 · 25-02-2016 9:38pm

Stheno,

You are really opening my eyes here, thank you very much.

Unsurprisingly I have more questions/observations as follows but please don't feel obliged to teach me to suck eggs!!:-

Stheno wrote: »

https://www.google.ie/?gws_rd=ssl#q=self+employed+versus+employee

Check out the first two links in the google search above, some of the wording of the criteria is very very ambiguous

Mmmm, I tick quite a few boxes for determining I will be an employee but even more boxes (I think) for not being an employee. Definitely not black and white. I will definitely get some professional advice in relation to this or submit the proposed terms to Revenue for them to rule/advise on.

Stheno wrote: »

Yes but I'd question if you can have a 6 year long fixed term contract full stop, given the law around fixed term contracts not being allowed to exceed four years without then being CIDs./

I guess that would only be the case if the fixed term contract was indeed deemed to be an employment contract e.g. what if I had twenty identical six year fixed term contracts for one day a month with twenty different companies would I be deemed to be an employee of all twenty companies? (An extreme hypothetical example obviously but the rule has to be capable of being applied to all kinds of weird situations)

Stheno wrote: »

I'm fairly sure that during the recent transfer window in the UK football world, a number of footballers were "released" early from their contracts

Yes they were, it happens every transfer window and they all get their contracts paid up unless they agree to another arrangement which might be more beneficial to them e.g. to allow them to sign with another club on lower wages but which combined with the compensation they receive actually results in a net gain for them over the equivalent of the remainder of the contract being terminated.

Stheno wrote: »

I was looking at it more from your perspective, committing to something for six years in a fixed term contract (which may not be legal anyway) is a big leap for an individual to take. You may due to circumstances beyond your control, become unable to fulfil that six years. What would happen in that scenario?

If a force majeure event happened e.g. I become incapacitate or the company goes into receivership it would be outside the control of either party and is a risk both parties would have to live with, a bit like being struck by lightening. The company can mitigate against such a risk by taking out a key man type insurance policy on the contractor and I'm sure I could take out some form of insurance a la trade credit insurance against the company failing if I really wanted to.

Stheno wrote: »

The company cannot prevent you from terminating early is my point.

Yes they could, they could apply for an order of specific performance e.g. http://legal-dictionary.thefreedictionary.com/specific+performance

Stheno wrote: »

What if you are unexpectedly ill for six months and unable to work?

The company can insure against such an event via critical illness/key man insurance as outlined above.

Stheno wrote: »

Yes and no. You cannot legally sign those rights away in my opinion.

OK, I guess if the contract is deemed to be a contract of employment then these rights automatically apply. I suppose I'd just have to live with the days off and other benefits

Stheno wrote: »

Spending money on a solicitor/tax specialist will be well worth it.

Yes it will and it's on my to-do list although I expect before we sign anything the company will also get some input into how best to construct what it is we both want to do although having said that the MD is a bit of a headstrong character who likes to shoot first and ask for forgiveness later. I know that is a major flaw but the attributes which make him a successful business owner have far exceeded the downsides he's had to deal with by following his gut over the years.

Stheno · 25-02-2016 9:48pm

Je_suis_Jean wrote: »

Stheno,

You are really opening my eyes here, thank you very much.

Unsurprisingly I have more questions/observations as follows but please don't feel obliged to teach me to suck eggs!!:-

Mmmm, I tick quite a few boxes for determining I will be an employee but even more boxes (I think) for not being an employee. Definitely not black and white. I will definitely get some professional advice in relation to this or submit the proposed terms to Revenue for them to rule/advise on.

Revenue in some cases will take an individual contract such as this one, and can rule that that falls under employee status, while your other work can be self employed.

I'd not go near the Revenue with the query to be honest, I'd go to a solicitor/tax advisor.

I guess that would only be the case if the fixed term contract was indeed deemed to be an employment contract e.g. what if I had twenty identical six year fixed term contracts for one day a month with twenty different companies would I be deemed to be an employee of all twenty companies? (An extreme hypothetical example obviously but the rule has to be capable of being applied to all kinds of weird situations)

No idea tbh, it's a bit too extreme of an example, but with the way Revenue have constructed their rules, it's not out of the bounds of reality!

Yes they were, it happens every transfer window and they all get their contracts paid up unless they agree to another arrangement which might be more beneficial to them e.g. to allow them to sign with another club on lower wages but which combined with the compensation they receive actually results in a net gain for them over the equivalent of the remainder of the contract being terminated.

That's UK sports employment, I'm not sure how it would work here, you'd need to ask a solicitor.

If a force majeure event happened e.g. I become incapacitate or the company goes into receivership it would be outside the control of either party and is a risk both parties would have to live with, a bit like being struck by lightening. The company can mitigate against such a risk by taking out a key man type insurance policy on the contractor and I'm sure I could take out some form of insurance a la trade credit insurance against the company failing if I really wanted to.

Something to add to your checklist so. However lack of a termination contract in a contract with an individual and not a company, and trying to enforce it if you were to want to leave, would most likely not stand up if challenged legally, there have been previous rulings on peoples rights to move employment in the past

Yes they could, they could apply for an order of specific performance e.g. http://legal-dictionary.thefreedictionary.com/specific+performance

American law, not sure it would apply here tbh.

What you are proposing is extremely unusual in my opinion, so you do need to seek that advice. Also liability insurance is something you need to consider for yourself. Out of curiousity are you from outside Ireland?

54and56 · 25-02-2016 9:57pm

Stheno wrote: »

Something to add to your checklist so. However lack of a termination contract in a contract with an individual and not a company, and trying to enforce it if you were to want to leave, would most likely not stand up if challenged legally, there have been previous rulings on peoples rights to move employment in the past

American law, not sure it would apply here tbh.

Bad example but the principle of Specific Performance is well established in most developed countries including Ireland, see http://www.legalbooks.ie/product_info.php/cPath/32/products_id/279. I haven't read it and don't intend to spend €185 on it!!!

Stheno wrote: »

Out of curiousity are you from outside Ireland?

No, Irish born and bred, Je_suis_Paddy

Stheno · 25-02-2016 10:02pm

Je_suis_Jean wrote: »

Bad example but the principle of Specific Performance is well established in most developed countries including Ireland, see http://www.legalbooks.ie/product_info.php/cPath/32/products_id/279. I haven't read it and don't intend to spend €185 on it!!!

No, Irish born and bred, Je_suis_Paddy

From your link

As well as property contracts, it also covers specific performance of other types of contracts, such as contracts for the sale of shares, partnership agreements, construction contracts, agreements for services and leases.

You need to check if the contract you are entering would be subject to it

I'd be interested to hear the outcome of any professional advice that you get as it's such an unusual situation

wersal gummage · 25-02-2016 10:03pm

Stheno wrote: »

Ok.

Here are some of the issues I can see with this:

2. Under employment law after four years of fixed term contracts, you are entitled to a contract of indefinite duration so the company are putting themselves in a position of vulnerability here to be honest (they actually sound naive in suggesting it and unaware of very basic employment law)
you may be entitled to redundancy

This is not correct. Look up fixed PURPOSE contracts.

I'm not stating that the rest is correct, but this one just jumps out as incorrect!

Stheno · 25-02-2016 10:08pm

wersal gummage wrote: »

This is not correct. Look up fixed PURPOSE contracts.

I'm not stating that the rest is correct, but this one just jumps out as incorrect!

http://www.citizensinformation.ie/en/employment/employment_rights_and_conditions/contracts_of_employment/fixed_term_or_specified_purpose_contracts.html

See the link above.

Employees on fixed-term contracts have broadly similar rights to those on open-ended contracts. The majority of employees work under open-ended contracts of employment. In other words, the contract continues until such time as the employer or employee ends it. Many other employees however, work under fixed-term contracts.

The term, fixed-term employee, covers employees whose contract ends on a specified date, or when a specific task is completed, or when a specific event occurs. Generally, a fixed-term contract ends on an agreed date. The period of such a contract may range from a matter of months up to a period of a year or more. However, a fixed-term contract can also involve a specified-purpose and so may not end on a specific date. Rather, it is agreed that the contract will finish when a particular stated task is completed, such as replacing an employee while she is on maternity leave.

The expression, fixed-term contract, is used for convenience here. It also includes specified-purpose contracts.

Employees may not be employed on a series of fixed-term contracts indefinitely. There are 2 possible situations where this arises as follows:

If an employee whose employment started before 14 July 2003 has completed 3 years’ continuous service as a fixed-term employee, the employer may renew their fixed-term contract only once for a period of no more than 1 year.
If an employee whose employment started after 14 July 2003 has been employed on 2 or more continuous fixed-term contracts, the total duration of those contracts may not exceed 4 years.

After this, if the employer wishes to renew the employee’s contract, it must be an open-ended contract unless there are objective grounds justifying the renewal of the contract for a fixed term only.

wersal gummage · 25-02-2016 10:17pm

Stheno wrote: »

http://www.citizensinformation.ie/en/employment/employment_rights_and_conditions/contracts_of_employment/fixed_term_or_specified_purpose_contracts.html

See the link above.

You are talking about open ended contracts and successive fixed term contracts. An employer can have an objective justification for a fixed (or specified) purpose contract. Your statement of 4 years equals indefinite duration is not correct.

In any event, this will presumably be drawn up as a contract for services.

54and56 · 25-02-2016 10:32pm

Stheno wrote: »

From your link

You need to check if the contract you are entering would be subject to it

Stheno wrote: »

As well as property contracts, it also covers specific performance of other types of contracts, such as contracts for the sale of shares, partnership agreements, construction contracts, agreements for services and leases.

I believe the piece in bold covers my scenario.

Stheno wrote: »

I'd be interested to hear the outcome of any professional advice that you get as it's such an unusual situation

I'll try to remember to PM you in due course. I do appreciate the light you have shone on these issues for me.

Stheno · 25-02-2016 10:38pm

Je_suis_Jean wrote: »

I believe the piece in bold covers my scenario.

I'll try to remember to PM you in due course. I do appreciate the light you have shone on these issues for me.

Good luck with it. A good solicitor will be able to go through all of those various questions and potentially come up with an approach which will ease putting an arrangement in place.

54and56 · 25-02-2016 10:41pm

wersal gummage wrote: »

In any event, this will presumably be drawn up as a contract for services.

Correct. As I said in my opening post I have some niche skills which I offer to a range of clients on a consulting basis. I have developed a close working relationship with the MD of this business who wants me to commit to a 6 year plan they are executing. Initially I was asked to join as an employee but I pushed back and the compromise is a fixed term consulting contract where I spend up to eleven days a month on average working for this company. The MD wants the comfort of knowing I am tied in for the duration of the plan and in return I want the comfort of knowing I have €x a month income for the next six years. That's the quid pro quo. Unusual as it sounds each party is taking a risk they understand and each party is getting a reward they understand.

54and56 · 25-02-2016 10:43pm

Stheno wrote: »

Good luck with it. A good solicitor will be able to go through all of those various questions and potentially come up with an approach which will ease putting an arrangement in place.

I agree in theory but the more I think about it the more I'm beginning to think that if we both get solicitors involved it will get changed so much that it will never happen so I might be as well off to just agree a contract between us and deal with any issues that arise down the road. I think there is potentially a lot more upside to that than downside but I'll sleep on it.

Time to go to bed.

Night all.

Fixed Term Consulting Contracts - HR perspective??

Comments