Offering specific skills and expertise beyond an existing workforce, consultants represent a more flexible working arrangement for businesses. Consultancy agreements manage the relationship between a client (generally a business) and an individual acting as an independent self-employed contractor or a company, with an individual carrying out the work acting through their company. Compared to employment contracts, consultancy agreements come under much less statutory regulations when establishing the important terms and obligations of both clients and consultants.

Consultancy agreements can take two forms:

• Self-employed: the most common form of agreement which involves an individual consultant in business independently and providing services for a client.
• Service company: individuals are engaged to perform services for a client often through a personal service company (PSC) – wholly or partially owned by the contractor.

Key elements to consultancy agreements

There are many terms you might need to include in a consultancy agreement, with some potentially applicable only to you because of the industry you are in. Generally, a consultancy agreement should address the following key terms as a minimum.

General terms

Set out the consultant’s employment status (i.e., the individual is self-employed and not a worker or employee). Do be aware, however, that if the terms of the engagement (including what happens in practice) are more akin to an employment relationship, it is possible that the courts would find that they are indeed an employee despite what the agreement states. Establish too if you are part of a group, and what your main business purpose is. You will also want to include details of all the parties to the agreement.

Scope of engagement

Outline clearly the details of the consultant’s duties and obligations to you. This includes the timeframe of the engagement or whether the arrangement is based on the completion of a particular project and whether (and how) the engagement can be terminated on notice. It is important to set out the obligations of the consultant, including the services you wish the consultant to undertake. Also specify what (if any) of your policies they will need to comply with and, if they are involved in other activities whilst engaged by you, whether you consent to this (although bear in mind that this may affect their employment status).

You should also consider whether they will be able to provide a substitute to perform the services if they are unable to do so, and the implications of that. Do remember that having a substitute or not, including whether that substitute can only carry out the work with your consent, might affect the employment status of the consultant. Establish the terms of the fees too, including when (and when not) and how this will be paid.

Client protections

Consultancy agreements should set out what insurances you wish the consultant to take out, and you should make sure that this insurance covers you. Indemnities may also be provided to cover any losses because of a consultant’s actions or omissions, as well as indemnities related to changes to employment status arising out of allegations or claims, and other claims related to tax status.

Intellectual property

You may wish to include provisions requiring the disclosure of IP, ownership provisions, or access licenses to you. While clients may wish to express control of IP through a consultancy agreement, this can be indicative of employee status rather than independent self-employed contractor.

Confidential Information

You should consider what confidential information you would like to protect (if any), and whether you wish to impose restrictive covenants on the consultant after the engagement has ended. Do be aware, however, that should a consultancy agreement impose restrictive covenants on a consultant, this could be a factor that indicates that the individual is in fact an employee under employment law.

Data protection and consultancy agreements

Consultants are considered data subjects under UK GDPR, so are afforded associated rights and protections when their personal data is handled by a client. Depending on the type of service provided, a consultant may be a data processor or controller. Processors in particular are required to comply with direct obligations and liabilities. The restrictions on appointing sub-processors severely limit the function of substitution clauses in consultancy agreements. We recommend seeking legal advice to fully understand the implications of data protection frameworks on your consultancy arrangements.

Is a consultant a ‘commercial agent’?

Under the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) (“Regulations”), a consultant can be classified as a “commercial agent” and if this is the case a general consultancy agreement will not be sufficient for your purposes. If the consultant holds “continuing authority” to negotiate or conclude the sale or purchase of goods on behalf of another party, they will be a commercial agent for the purposes of the Regulations. As a Commercial Agent, consultants are entitled to certain protections, including indemnity and compensation in the event of contract termination, notice periods, and other forms of renumeration.  You should obtain advice if this applies to you before drafting any consultancy agreement.

Ensuring a well drafted and bespoke consultancy agreement is in place at your company at the outset of a working relationship with a self-employed contractor is crucial to try to limit any potential risks, while establishing a mutually productive and commercially successful arrangement. Do remember that the above is only a brief guidance of what information should go into a consultancy agreement – there will be more, particularly if you operate in a specialised industry. If you’d like advice relating to your consultants or help with developing your consultancy agreements or further information about employment law, we are here to help.

Our insights, articles and guides do not, and are not intended to, constitute legal advice or be an exhaustive review of all legal developments. Although every effort is made to ensure that the information provided in this article is accurate as of the publication date, please be aware that this is area of law may be subject to change. Please seek legal advice before applying the information provided to any specific circumstances, transactions or legal issues.