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Old 13.02.2008, 21:30
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non-payment of a contract - what next?

Hi,

I have a legal question regarding a business contract. I have not been paid as per the contract for work performed and don't know what to do next.

Details:

I am an IT contractor based in England. I entered into a 4 month contract with a Zurich based recruiting company (name has suffix AG), which had payment terms of monthly invoices, 30 days payment. I was subcontracted out to a German client and performed work in Germany. I finished the work at the end of December 2007.

I have been paid for the first 3 months work, always around 40 days after invoicing. However I have not been paid for the last month. This is now 60 days after raising the invoice.

When I call or email them, they say there books are in a mess and they have just replaced their office manager, and will look into it. From what they say, I suspect embezzelment or incompetence of previous manager. The company is still operating.

I have been told a few times over email that the final payment was made around day 50, however I have not received this so do not believe them.

I am now getting no details in any response from them when I email or phone, they just say they will get back to me, but they don't.

So my question is - what next?

Based on another thread (Non-payment by previous employer -
Non-payment by previous employer
) it appears I need to write a letter via registered post repeating the request and warn of inpending legal action.

And if they still don't pay then I engage a lawyer in relevant juristiction / canton?

I don't think this is employment law, but breach of contract law - am I on the right track?
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Old 14.02.2008, 08:32
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Re: non-payment of a contract - what next?

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Hi,

I have a legal question regarding a business contract. I have not been paid as per the contract for work performed and don't know what to do next.

Details:

I am an IT contractor based in England. I entered into a 4 month contract with a Zurich based recruiting company (name has suffix AG), which had payment terms of monthly invoices, 30 days payment. I was subcontracted out to a German client and performed work in Germany. I finished the work at the end of December 2007.

I have been paid for the first 3 months work, always around 40 days after invoicing. However I have not been paid for the last month. This is now 60 days after raising the invoice.

When I call or email them, they say there books are in a mess and they have just replaced their office manager, and will look into it. From what they say, I suspect embezzelment or incompetence of previous manager. The company is still operating.

I have been told a few times over email that the final payment was made around day 50, however I have not received this so do not believe them.

I am now getting no details in any response from them when I email or phone, they just say they will get back to me, but they don't.

So my question is - what next?

Based on another thread (Non-payment by previous employer -
Non-payment by previous employer
) it appears I need to write a letter via registered post repeating the request and warn of inpending legal action.

And if they still don't pay then I engage a lawyer in relevant juristiction / canton?

I don't think this is employment law, but breach of contract law - am I on the right track?
You indeed are because you are not employed by them. I take it that they did not take any deductions either. As to your next step this will depend on the jurisdiction stated in the contract and the law under which the contract falls. You are assuming Switzerland and Swiss law but that is by no means guaranteed.

Also I am afraid that to give you the correct advice you are going to need to give quite a bit more detail - maybe you want to PM this.
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Old 14.02.2008, 09:32
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Re: non-payment of a contract - what next?

I had a similar problem several years ago while working for UBS via a swiss consultancy. After waiting for 4 months for money to be paid I sent them an email copied to UBS and surprisingly received all monies due the next morning. ash
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Old 14.02.2008, 09:41
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Re: non-payment of a contract - what next?

If you care to name the company we might be able to comment on their reputation, and so how you should follow this up.
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Old 14.02.2008, 09:50
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Re: non-payment of a contract - what next?

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If you care to name the company we might be able to comment on their reputation, and so how you should follow this up.
By PM only please - we don't want EF involved in legal proceedings too...
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Old 14.02.2008, 10:26
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Re: non-payment of a contract - what next?

Thanks for the replies so far.

I re-checked and the 13 page contract does specify that the jurisdiction shall be Zurich. It is quite thorough and has almost certainly been drawn up by a lawyer. I think the contract is a fair one, and there are no unusual clauses.

I believe the relevant clause is "the client shall be invoiced on a monthly basis at the end of each month according to work performed against an itemised bill or record. The terms of payment are agreed at 30 days net of receipt of invoice."

I won't mention the company, however I would describe them as a small fish, but one with large aspirations. I estimate they would have 10-30 employees and a similar number of contractors.

I am trying to contact other contractors to see if they are being treated similarly. I have also considered contacting their client and even any professional associations they may be members of - I imagine as they are a recruiter and a consultancy they must belong to something.

There has been no allegation by them that I haven't performed the services as per the contract, or that they have any deliberate reason to withold payment. They are just not responding to specific questions about the lack of payment.
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Old 14.02.2008, 10:57
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Re: non-payment of a contract - what next?

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Thanks for the replies so far.

I re-checked and the 13 page contract does specify that the jurisdiction shall be Zurich. It is quite thorough and has almost certainly been drawn up by a lawyer. I think the contract is a fair one, and there are no unusual clauses.

I believe the relevant clause is "the client shall be invoiced on a monthly basis at the end of each month according to work performed against an itemised bill or record. The terms of payment are agreed at 30 days net of receipt of invoice."

I won't mention the company, however I would describe them as a small fish, but one with large aspirations. I estimate they would have 10-30 employees and a similar number of contractors.

I am trying to contact other contractors to see if they are being treated similarly. I have also considered contacting their client and even any professional associations they may be members of - I imagine as they are a recruiter and a consultancy they must belong to something.

There has been no allegation by them that I haven't performed the services as per the contract, or that they have any deliberate reason to withold payment. They are just not responding to specific questions about the lack of payment.
In that case if the law is not defined as in something that says "The contract will be governed by English Law" then Swiss law can be assumed.

The now correct step is to give them a notice of x days to make full settlement of the outstanding amount or you will thereafter without any further notice take legal action to recover the money.

Sent registered. Typically notice shall be between 7 and 14 days.
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Old 14.02.2008, 14:27
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Re: non-payment of a contract - what next?

This has not happened to me in a long time. But when it does, I usually respond as follows:

- Step 1: Contact them in writing and give the 48 hours to get the cash on my account.

- Step 2: After 48 hours, contact their client and in form him that since I have not been paid he no long has the right to use the software you delivered and he will be hearing from your lawyer.

- Step 3: Never got this far.... put if I did I would get a lawyer to write to both the agency and the client.

Good Luck,

James
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Old 14.02.2008, 14:44
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Re: non-payment of a contract - what next?

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- Step 1: Contact them in writing and give the 48 hours to get the cash on my account.

- Step 2: After 48 hours, contact their client and in form him that since I have not been paid he no long has the right to use the software you delivered and he will be hearing from your lawyer.
This course of action might leave you open to a lot of trouble since it might be impossible to transfer the money over in 48 hours particularly if there is an international transfer involved. You must act reasonably in any action you take particularly when dealing with customer's trust and reputation. And that is even if the contracting company is being unreasonable...
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Old 14.02.2008, 14:45
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Re: non-payment of a contract - what next?

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- Step 2: After 48 hours, contact their client and in form him that since I have not been paid he no long has the right to use the software you delivered and he will be hearing from your lawyer.
I have yet to see a contract that states anything other than any code written whilst working at the client remains property of the client. I'd frankly be amazed if this worked.
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Old 14.02.2008, 15:01
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Re: non-payment of a contract - what next?

Its possible that the end client has delayed paying them for whatever reason. Simply informing them that if the payment is not made in N working days otherwise you will contact the end client should be enough, after all they will almost certainly not want to lose future business and no one would employ a consultancy whose finances are suspect. Just out of interest they are not a Swiss subsidiary of a German company from Heidelberg by any chance? ash
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Old 14.02.2008, 15:08
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Re: non-payment of a contract - what next?

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I have yet to see a contract that states anything other than any code written whilst working at the client remains property of the client. I'd frankly be amazed if this worked.
It indeed would work if the client has not paid for the services that produced the software.

However, if the client paid the agency then the dispute is between the agency and the programmer and not between the client and the programmer hence any claims against the client would be void.
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Old 14.02.2008, 15:12
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Re: non-payment of a contract - what next?

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It indeed would work if the client has not paid for the services that produced the software.
I'm not so sure, part of the non-disclosure agreement between the contractor and client normally voids all IP rights. It's like digging a hole in somebodies garden then telling them they can't fill it with water until they pay up.
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Old 14.02.2008, 15:54
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Re: non-payment of a contract - what next?

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I'm not so sure, part of the non-disclosure agreement between the contractor and client normally voids all IP rights. It's like digging a hole in somebodies garden then telling them they can't fill it with water until they pay up.
I am.

Ever heard of breach of contract? If a contract is breached then the substantial part of the contract is no longer valid.

In this case there is the requirement to pay for services rendered. If you don't pay, despite prolonged efforts and without good reason, then you are in breach of the contract and have no legal right to the services or goods that were offered in exchange for payment and indeed if they are tangible will need to return them and/or pay a penalty for use.
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Old 14.02.2008, 16:38
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Re: non-payment of a contract - what next?

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I am.

Ever heard of breach of contract? If a contract is breached then the substantial part of the contract is no longer valid.

In this case there is the requirement to pay for services rendered. If you don't pay, despite prolonged efforts and without good reason, then you are in breach of the contract and have no legal right to the services or goods that were offered in exchange for payment and indeed if they are tangible will need to return them and/or pay a penalty for use.
IANAL, but as I see it:
  • You have provided a service which they have consumed.
  • Under the original terms of the contract (with the recruiter) it would have stated an hourly or daily rate for your time which you have worked and cannot get back, maybe if you were paid on delivering a certain application it would be different.
  • Whatever code you have written most likely cannot leave their premises and even if tangible has no value to you.
  • You pursue the recruiter legally for not paying you for the hours you have already worked as per the terms of the contract.
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Old 15.02.2008, 09:33
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Re: non-payment of a contract - what next?

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IANAL, but as I see it:
  • You have provided a service which they have consumed.
  • Under the original terms of the contract (with the recruiter) it would have stated an hourly or daily rate for your time which you have worked and cannot get back, maybe if you were paid on delivering a certain application it would be different.
  • Whatever code you have written most likely cannot leave their premises and even if tangible has no value to you.
  • You pursue the recruiter legally for not paying you for the hours you have already worked as per the terms of the contract.
Hold on there are two things here and maybe you are getting your wires crossed!

This is the relationship as I see it:

Client - agency - contractor.

If the client pays the agency then the contractor has no grounds to do anything with the client - the contractor must then take action against the agency.

If the client does not pay for services rendered and they are tangible, such as physical or logical assets then they cannot use them unless they pay in some way. Technically the contractor can inter alia sue the Client for unlicensed use of software - ie complain to FAST or the equivalent in the country where the customer is based. This is not somewhere any client would want to go as FAST are worse than the CSA...

Furthermore, despite the client not having paid the terms of the contract with the agency are such that they must still take the hit for the client not paying ie cannot use that as a defence against a suit from the contractor.

Note also the value of the code to an individual is immaterial - unless the code is open source you cannot use it without the express or implied permission of the writer. If this permission is given through a contract which is breached then there is no permission hence use of it is illegal without paying licensing fees.

This is all rather basic contract law. For your services which you have provided there is an agreement of a consideration which is further defined in the contract. For example it probably says I will write your code for CHF 100 per hour. This is then an obligation on both sides you to write client to pay. If one side of the agreement is not met then there is a breach of the contract as both of theses obligations are conditions. If you write the code and it does not work then this might be something different ie it is not necessarily a breach of contract.

Anyway I don't want to get into too much detail about the ins and outs of contract law as I don't have a copy of the contract to hand - can't see it, and I think this ie your example, was hypothetical anyway. In which case I can only suggest if you don't accept what I am telling you, which is basically the contractor can under the right circumstances(ie no privity of contract) sue both the client and the agency for breach of contract, then I suggest you get a book on Swiss contract law and read it seeing as this might be in German/French/Italian you could look at English contract law which is very similar.
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Old 15.02.2008, 09:58
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Re: non-payment of a contract - what next?

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Hold on there are two things here and maybe you are getting your wires crossed!

This is the relationship as I see it:

Client - agency - contractor.

If the client pays the agency then the contractor has no grounds to do anything with the client - the contractor must then take action against the agency.

If the client does not pay for services rendered and they are tangible, such as physical or logical assets then they cannot use them unless they pay in some way. Technically the contractor can inter alia sue the Client for unlicensed use of software - ie complain to FAST or the equivalent in the country where the customer is based. This is not somewhere any client would want to go as FAST are worse than the CSA...

Furthermore, despite the client not having paid the terms of the contract with the agency are such that they must still take the hit for the client not paying ie cannot use that as a defence against a suit from the contractor.

Note also the value of the code to an individual is immaterial - unless the code is open source you cannot use it without the express or implied permission of the writer. If this permission is given through a contract which is breached then there is no permission hence use of it is illegal without paying licensing fees.

This is all rather basic contract law. For your services which you have provided there is an agreement of a consideration which is further defined in the contract. For example it probably says I will write your code for CHF 100 per hour. This is then an obligation on both sides you to write client to pay. If one side of the agreement is not met then there is a breach of the contract as both of theses obligations are conditions. If you write the code and it does not work then this might be something different ie it is not necessarily a breach of contract.

Anyway I don't want to get into too much detail about the ins and outs of contract law as I don't have a copy of the contract to hand - can't see it, and I think this ie your example, was hypothetical anyway. In which case I can only suggest if you don't accept what I am telling you, which is basically the contractor can under the right circumstances(ie no privity of contract) sue both the client and the agency for breach of contract, then I suggest you get a book on Swiss contract law and read it seeing as this might be in German/French/Italian you could look at English contract law which is very similar.
I don't doubt what you are saying at all.

In this specific situation the contractor is interested in getting paid, withdrawing the right to use the software would only be in the interest of the same. The client would probably refuse to stop using the software.

If he were to try to withdraw the software he or FAST (or equivalent) would investigate the client. If the client were found to be using the software without permission they would then take legal action on the agency who had supplied the software without consent of the owner (through breach of the agency-contractor contract in not paying him).

It seems to me that the best course of action is to pursue the agency legally since it is a one step move towards getting paid. Personally (rightly or wrongly and without foundation) I'd rather take an agency to court over non payment than a bank for breach of software license.
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Old 15.02.2008, 10:01
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It seems to me that the best course of action is to pursue the agency legally since it is a one step move towards getting paid. Personally (rightly or wrongly and without foundation) I'd rather take an agency to court over non payment than a bank for breach of software license.
Here you are spot on!

Only it is possibly not his only recourse if the company is not able to pay ie bankrupt, through the client not paying the agency. I have been involved in one of those situations...
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Old 15.03.2008, 13:56
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Re: non-payment of a contract - what next?

Hi all,

The story had a happy ending - I got paid.

I decided to just call them daily asking for updates, and they kept repeating that they have already made the payment. They eventually even sent me screenshots from their payment software.

The culprit turned out to be the 15 days that it took for this particular payment to arrive in my UK based account. Their bank or mine could not explain the delay.

What would I do different next time? Try and get less than 30 day payment terms!

Thanks for all your suggestions. I haven't turned my back on Switzerland due to this - coming back for a CERN visit and Euro 2008!

Rich
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Old 15.03.2008, 15:19
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This course of action might leave you open to a lot of trouble since it might be impossible to transfer the money over in 48 hours particularly if there is an international transfer involved. You must act reasonably in any action you take particularly when dealing with customer's trust and reputation. And that is even if the contracting company is being unreasonable...
Actually it only happened to me the once - a UK agency with a client over here and they sent someone over with a banker's draft.....
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