Your client cancels your contract – what now?
Getting culled by a client is no fun. It can deal a huge blow to your cashflow and confidence. Whether you’re at fault or faultless, it pays to know what to do when a client calls time on your contract. In this blog, we show you how to conquer contract cancellation (without reaching the end of your tether).
We’re optimists here at Intouch, but even we accept that the very crème de la crème of contractors will probably experience a client pulling the plug on their contract at some point.
Regardless of your client’s reasons for cancelling your contract, you should always try to part ways with some of your priorities firmly intact.
For one thing, you’ll want your fees paid up to the moment of termination. You’ll also benefit from being able to use your client as a referee and, crucially, you don’t want to burn your bridges with this (or any other) client.
Why do clients cancel contracts?
Your client can cancel your contract for a whole host of reasons – even on a whim (usually covered by an all-encompassing “for any reason” termination clause).
Here’s some of the more common reasons clients decide to call it quits:
- Incompetence (unsatisfactory service quality, missed milestones/deadlines, etc)
- Misconduct (theft, abuse and so on)
- Changing business needs (using in-house staff to provide the contracted service)
As a result, many clients insist on contractors inserting contractual clauses that cover these eventualities and many more besides.
What rights do you have if your client cancels your contract?
Having your contract terminated before time isn’t a good look regardless of your employment status.
But as a contractor or freelancer, you won’t enjoy the same rights as an employee. Regardless of your IR35 status, you’re entitled to be paid for the work you’ve done plus any expenses. You can also exercise the following rights (assuming they’re in your contract):
- Cancellation rights – where your client pays you a sum of money if your contract is cancelled at short notice (before it gets underway)
- Compensation rights – this is based on a ‘kill fee’ clause, where your client pays you a set fee if they cancel or ‘kill’ your contract. Popular in the editorial industry – where some writers receive payment on publication – it ensures that, even if your masterpiece doesn’t see the light of day, you won’t be left out-of-pocket
- Payment covering your notice period
That said, contractors and freelancers aren’t generally entitled to:
- a minimum notice period
- unfair dismissal rights
Most of your rights stem from your contract, so make it tight!
How can you enforce your rights when your client cancels your contract?
When you’re contracting via a Limited Company, your company should have a contract in place with your client.
If your client bails out of your contract prematurely, contract law will try to put you in the position you would have been in had your client continued the contract.
Depending on whether your client’s cancellation of your contract amounts to a breach of its terms, you may be able to sue for damages but, before you call in the legal eagles, there’s a couple of preventative steps you can take.
1. Talk to your client
BT’s slogan – “it’s good to talk” – is definitely onto something.
Legal action can be costly, time-consuming and energy-sapping. Plus, a court case can always go either way, so you’re effectively taking a punt that you’ll land on the right side of a judge’s gavel.
With this in mind, why not reach out to your client to negotiate an out-of-court settlement? If your efforts fail and you eventually end up in court, you’ll receive credit for going down the more amicable road first. Court should always be a matter of last resort.
2. Write to your client
If peace talks don’t do the trick, try writing to your client outlining your concerns about the breach of contract, which you’ll seek damages for if uncorrected.
Typically, such a ‘letter before action’ is enough to kick-start negotiations.
Take legal action against your client
If your appeal to negotiate with your client falls on deaf ears, it’s time to take matters into your own hands:
- The quickest and cheapest way to recover £100,000 or less in fees (plus costs) is to use the HM Courts and Tribunals Service Money Claim Online platform
- Hiring a Credit Services Association-registered debt collection agency is probably the next best option in terms of cost and convenience
- Finally, you can use the Law Society’s Find a Solicitor online service to appoint a solicitor, so you can potentially “have your day in court”
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This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.