Dear Contractor Doctor,
I’m a first-time IT contractor about to start work on a contract with a major engineering group. I’ve started my own limited company and found this first contract via an agency.
Not having been contracting before, I’m worried about what happens if I have an accident or get really ill and can’t work for weeks on end; might the client come after me or my company for compensation?
Can my client sue me if I get too ill to work?
Thanks
Jasmine
Contractor Doctor says:
Contractors working through a contractor limited company and via an agency do not have a direct contractual relationship with their client, so a client would not be able to sue a contractor personally for compensation if they were too ill to work.
In practice, a client would be more interested in finding a replacement to get the job done than chasing after an ill contractor for compensation, although technically the client could sue the agency, which could then in turn sue the contractor’s limited company.
Communication with the agency and client is key and, in most cases, the contractor would find their contract terminated or, depending on the contract and client, they may have the option of supplying a substitute to cover the period of illness.
The contractual chain
In this case, Jasmine has indicated that her contract is with an agency, and the agency has the direct contractual relationship with the client. This distinction is important because it means that the client cannot take the contractor to court for breach of contract, as there is no direct legal relationship between the client and contractor.
However, if the contract had been directly between the client and the contractor’s limited company, and the contractor had failed to deliver according to the terms of the contract by not completing the work due to illness, then the client could sue the contractor’s limited company.
But because virtually all contractor limited companies will have limited liability, the contractor will not be personally liable. The client could claim against the company’s assets, which are likely to be simply cash in the bank, so the contractor could still effectively walk away and start a new company for the next contract when they have recovered.
Check the wording in the contract
The ideal solution would be for the contractor to supply a substitute for the period of illness. This would require a substitution clause in the contract and for the client to allow the substitution. But in reality, many contractors find that the client refuses to allow a substitution, even if the contract includes a substitution clause. What’s in the paperwork, and the reality of what a client project manager will allow, can often be two different things.
Alternatively there may be a substitution clause in the contract between the agency and the contractor, but the agency’s contract with the client does not have such a clause and because of this the client won’t allow the substitution.
The contract may also include a clause that specifies that the services must be delivered by the named contractor. Although this places a contractor at risk of being found inside IR35, specifying the contractor as the ‘authorised representative’ of the contractor’s limited company, and the individual responsible for delivering the services, is a feature of most contracts.
Early termination and replacement
Most clients and agencies accept that people sometimes fall ill and that the contractor is not trying to deliberately sabotage a client’s project, and so are unlikely to take a contractor to court for non-delivery.
Most clients and agencies accept that people sometimes fall ill and that the contractor is not trying to deliberately sabotage a client's project, and so are unlikely to take a contractor to court for non-delivery
The contractor is likely to find that their contract is terminated early and with immediate effect, while the client will work with the agency to quickly find a replacement to minimise any negative impact on the client’s project.
Of course, if a contractor cannot work because they are too ill, then unlike an employee they won’t be paid by the client, although the contractor might be able to claim statutory sick pay from the state. That’s why it’s a good strategy for contractors to have sufficient cash in the bank, and possibly an income protection insurance product that will provide some income in the event they are too ill to work.
Good luck with your contracting!
Contractor Doctor