Companies who cut Contractor rates could now be sued

Cut Contractor Rates
Cut Contractor Rates

Cut Contractor Rates

There are quite a few companies who cut contractor rates during the downturn. In fact some, especially at the major banks had two bites of the cherry and cut contractor rates twice.

Sometimes they cut rates by 10% across the board and sometimes by 20%.

This was despite the contractors having valid contracts. The contractors and their agencies were told by the banks etc. that they could like it or lump it, that they had to accept it or get out by the end of the week.

As could be expected contractors were extremely annoyed by this but most decided that they had no choice but to lump it.

It left an extremely bad taste in the mouth though.

Group Actions by Contractors

Now the banks and other companies who did this are at risk of group actions by the contractors.

The reason is that some of the contractors, especially those inside IR35, may have been covered by legislation which saw them as temporary employees with rights that normal employees have. That includes not having their wages cut under (Wages Act applies).

The law now sees two types of Temps:-

1. PAYE workers who are paid by the agency or the provider
2. Contractors who have limited companies or are part of umbrella companies

Of course, as we well know, the Treasury sees many contractors as disguised employees.

Temps and Employment Rights

It used to be thought that Temps were neither employees of the client or the staffing company.

However, recent court verdicts seem to suggest that this is untrue and that temps in some categories may have employment rights – including the right not to have their income cut.

A good example of this is in the Dacas v Brook Street case where it stated that many categories of Temp would have employment rights against the client as a normal state of affairs.

This would be especially true where the temp‘s work was under the control of the client.

Contract of Employment

The Dacas judgment said that even when it was considered that the client was not the employer of the contractor, the contractor could still have employment rights if it was deemed that there was a contract of employment.

That is bound to make the big banks and other companies nervous about their cutting contractor rates. They may be in danger of class action by contractors – if contractors could ever get their acts together.

However, it also means that clients would have to be far more cautious in doing this in any future downturn.

At the time it had the reek of the Wild West about it, i.e. that they were doing it without really looking at the consequences.

If any contractors were brave enough to take them on then they may get their comeuppance.