Consumers and employees are protected by the law, businesses are not - do you agree?

By: James Townsend

Date: 31 August 2012

Consumers{{}}One only has to look at the newspaper headlines to see how well protected consumers and employees are in the UK.

The banks are in the process of repaying billions of pounds of premiums to individuals who were mis-sold payment protection insurance. People did not understand what they were buying, because the costs (which vastly outweighed the actual risks) were not properly explained to them. Meanwhile there are specialist Employment Tribunals available to employees who wish to bring complaints against their employers. 

From a law-maker’s perspective, the key characteristic shared by consumers and employees is that they are vulnerable to exploitation.

When an employee or a consumer is asked to sign a contract, it will often be assumed by the Courts that they may not be well informed and that they are in a weak bargaining position.   

If an employee is asked to sign an employment contract at the start of an employment relationship, he or she is unlikely to start arguing about the clauses in it owing to the often stronger bargaining position that the employer or "master" holds over the employee or "servant". Typically, the employee wants / needs employment and is in no position to start negotiating terms.

Hence, if a restrictive covenant is contained in an employment contract, for it to be enforceable against the employee, it must be reasonable taking into account the respective bargaining position of the parties. If the covenant seeks to restrict competition, rather than protect legitimate business interests, it will most likely be unenforceable. 

The more limited the restriction, the better the chance the employer has of enforcing it. So, if a non-solicitation clause (preventing an ex-employee from approaching your customers) includes a short specific list of key customers from a defined geographic area, and is limited in duration to say, 6 months, it is more likely to be enforceable than a broad restriction covering large categories of customers around the world for a period of two years.

However, the golden rule for most business-to-business contracts is ‘caveat emptor’ - buyer beware. There is less protection available to an ignorant business than an ignorant employee or consumer who enters into a contract, as it is often assumed that a business will be reasonably well informed and in a reasonable bargaining position when entering into any contract. 

Businesses can often find themselves exposed if they are not careful about the terms of the commercial agreements which they enter into.

There has been a recent surge in consultants offering to reclaim R&D Tax Credits on behalf of businesses, in return for a large share of the proceeds.  

Typically contracts are entered into by businesses with little knowledge of R&D Tax Credits. The contracts often stipulate that as part of the deal the business must use the same consultant for the next three years.  

After entering into such contracts, businesses find out that the claims process is surprisingly fast and easy, that HMRC provides a free helpline to help businesses make the claims, and that perhaps there was limited need for the consultant in the first place.  

Unfortunately for the business that has entered into a contract in ignorance, as matters currently stand, provided that the consultant provides the service in line with the contract, the consultant will stand a good chance of enforcing a claim for damages, if the business does not abide by its contractual obligations.       

It goes without saying that whatever your position, you should never sign a contract and then expect to be able to get out of your obligations simply because you did not understand what you were signing. If you are an employee or a consumer however, you are likely to stand a better chance than if you are a business. 

James Townsend is a partner in the employment team at Buckinghamshire law firm BP Collins LLP.

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