EM Law | Commercial Lawyers in Central London
Consultancy agreements solicitors
Our solicitors have extensive experience in advising on consultancy agreements for use where the consultant is working both locally and internationally and in particular in the delivery of complex projects.
Types of consultancy agreements
The classic form of consultancy is an agreement between an individual consultant and the client for whom the consultant performs services. The arrangement is based on the fact that the consultant is genuinely self-employed (so, in business on their own account) and is not an employee of the client.
Consultancy via a service company
It has become increasingly common for the client to contract with a service company (the consultant), which then supplies the services of an individual or individuals. Often a service company is wholly owned by the individual, who may also be its employee and sole director. In these circumstances the service company is sometimes referred to as a “vehicle” company.
The use of service companies has increased because it has a number of advantages for the individuals working under the arrangement: they can limit their liability, and, if appropriately structured, receive the consultancy fee in a more tax-efficient manner (for example, as a dividend).
The service company structure involves a potential disadvantage for the client company, which will not have a direct contractual link with the individual. A direct link can be valuable when enforcing important terms of consultancy agreements, such as confidentiality and intellectual property provisions. A side letter is a possible solution to this issue.
Drafting consultancy agreements
The relationship between client and consultant is a simple contractual one. It is subject to less statutory regulation than employment contracts so there is more scope for flexibility in the terms of consultancy agreements.
Parties should be aware that consultancy agreements cannot be used to hide a different type of relationship. The Supreme Court has made it clear that written contractual terms that do not reflect the true agreement between the parties may be disregarded when determining employment status. Therefore, while the terms of consultancy agreements will be important to determine the scope of consultancies, it will not be possible to insert terms (such as substitution clauses) that do not accurately reflect how relationships work in practice, to try to negate employment status.
There are a number of key clauses that are present in most consultancy agreements, as well as clauses that it will be beneficial to one or the other side to include.
Consultant’s duties in a consultancy agreement
A duties clause normally:
- Sets out how much time the consultant is contracted to perform services for the client.
- Gives details of the service being provided.
- Stipulates that the consultant is obliged to carry out the services with due skill and care (although a consultant will be under an implied duty to work with due skill and care).
- Sets out other obligations such as providing information to the client regarding the consultant’s service.
A substitution clause will give the consultant the right to send a substitute to provide the services in his or her place. This will be useful in establishing self-employed status, particularly if the right is exercised in practice. However, it may not always be viable commercially, as the client will often only want the expertise of the individual consultant chosen.
Tax and NICs
It is common for consultancy agreements to provide that the consultant must account for his or her own tax and NICs (and VAT, if applicable) on the consultancy fee.
Unlike employees, consultants are generally under no implied obligation of confidentiality. Therefore, it is important to include express confidentiality provisions in consultancy agreements.
The client should consider whether to include a clause in its consultancy agreements providing for consultants to maintain appropriate insurance.
Indemnity provisions in consultancy agreements may include any loss sustained by the client as a result of:
- The consultant’s acts or omissions in the course of providing the services.
- The consultant supplying materials that infringe the intellectual property rights of a third party.
- Any liability to tax or NICs on the consultancy fee.
Statement on employment status
The agreement may provide a statement excluding the consultant from employment status. While the provisions of consultancy agreements will not be determinative of employment status, it is useful to evidence the parties’ intentions on the face of them.
The client may wish to protect its commercial interests by imposing restrictive covenants on its consultants, to apply for a limited period after the consultancy agreements have terminated. While it is very rare to impose a strict non-competition covenant on a consultant (not least because it might be indicative of employment status), other types of restrictive covenants are more common.
It is crucial for consultancy agreements to include appropriate provisions dealing with intellectual property rights. Unless otherwise stated, the consultant will generally be the owner of any IP that he or she creates during the assignment.