Cutting through the legalese

Those paying close attention may notice that employers often like to delete the following words from standard (JCT) contracts: “the Employer’s interest in the Retention is fiduciary as trustee for the Contract (but without obligation to invest)”. It’s apparently the norm to delete these words (which begs the question as to why the standard forms persist in including them) but what is “fiduciary interest” anyway?

A fiduciary relationship is one in which A acts on behalf of B in circumstances giving rise to a relationship of trust and confidence. Allowing the Employer to hold back anywhere between 2-5% of money he acknowledges you are owed, certainly shows a degree of trust placed by the Contractor in the Employer.

Contractors are trusting Employers not to run off with the money, and to pay it back at the appropriate time.
That position remains, even with the word “fiduciary” omitted. What is reduced is the obligation for the Employer to comply with the four key fiduciary duties:
1. No conflict
2. No profit
3. Undivided loyalty
4. Confidentiality
For most Employers, that is a step too far.

In summary, it is very common to delete the “fiduciary” wording within standard form contracts, and contractors and employers should be mindful that even with this amendment, retention is due to the contractor in the same way as any other sum due under the contract.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.