Are notice periods in contractor or freelance contracts a good idea?

Posted on May 27th, 2015 | Contracts

Are notice periods in contractor or freelance contracts a good idea?, image of someone writing

When putting together a contract for a new freelance client, there are lots of clauses you should consider. Payment terms, kill fees, substitution clauses and more should be on your radar.

Another element you should consider – and one that provokes vigorous debate in self-employed circles – is notice periods in freelance contracts. On the face of it, an equal right for you and the client to step out of a contract looks like a good thing to have. But are they really worth anything?

IR35 status

A full-time employee has to have a right to receive notice if they are to lose their job and has to give notice of their intention to leave it. If your contract has no notice periods in it, then clearly you are not an employee, which can be beneficial when determining your IR35 status.

If your client has to give you notice, that implies that potentially they have to pay you for working when, in fact, there is no work for you to do: after all, if there were they wouldn’t be letting you go. That in turn implies a degree of Mutuality of Obligation – a bad thing if you’re trying to stay outside IR35.

However, as with most things, it’s not all about IR35.

The commercial issues

As a small business owner, you would obviously like to be able to drop a contract for any of a number of reasons. Problem is, if you are being paid to deliver something and that something hasn’t yet been delivered, why are you looking to leave?

Would you take on a builder to fit your new kitchen knowing that they could decide halfway through that they wanted to leave? Probably not. That’s why substitution clauses can be handy in these situations: if you have to get out, you can provide an alternative supplier.

From the client side, clearly, they want you to stay until the end of the agreed contract to do the job. Equally, they want to be able to drop you instantly if your services are no longer required; that’s why they’re using a contractor in the first place.

So perhaps an asymmetric notice arrangement is the answer; you need to give your client some weeks notice of leaving while they only need give you some days. That, at least, covers the business risk to both parties in a reasonably fair manner and shouldn’t damage your IR35 position.

Negotiating a settlement

Finally, if you have no right to notice, that doesn’t mean the contract can’t be terminated early by your side. You just have to negotiate a settlement position that suits both sides.

But consider: elsewhere in that contract will usually be a clause that the engagement can be terminated with immediate effect at the client’s sole discretion for any number of reasons. So like it or not, you actually never do have an effective notice period from the client anyway.

So why worry about it in the first place?

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Written by Crunch Accountants

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