When you need a job that falls outside of your team’s expertise done quickly and well, hiring independent contractors (IC) may seem like an easy solution. In many respects it is.
You don’t have to pay taxes on their income, set them up with benefits, or guide them through a project. Plus, there’s no heavy paperwork, just a simple agreement. Sounds as easy as pie, right?
However, it’s not always simple. The fact is, the IC agreement is the only piece of legal paperwork you’ll have to contend with, but it is…the ONLY piece of legal paperwork you’ll have to contend with.
The rights, responsibilities and expectations of each party must be stated explicitly in that single document. Employers and IC’s are forever getting into legal disputes due to murky terminology and vague clauses.
For this reason, it is crucial that you draw up your IC agreement properly. Below, I help you get started by going over the 10 most important things to include in an IC agreement.
1. Introduction/Definition of Agreement
This is the first section of the document. It includes a few main features:
- Statement of Independent Contractor Agreement - This can take the form of the document’s title (“Independent Contractor Agreement”) or part of the first sentence (“This Independent Contractor Agreement between…) It is very important to specify the independent contractor’s status, as this can have a huge effect on the outcome of legal disputes.
- Date of the Agreement - Self-explanatory, but still crucial. The date the agreement is signed is the date that the contract begins. It can be referred to hereafter as the “Effective Date” or something similar, provided you establish the reference here: “The Fourth of March, 2014 (the ‘Effective Date’)”
- Legal Identities of Each Party - This includes the legal names of the Employer and Contractor. If the Employer is a company, the identity should include a brief description of its legal jurisdiction and principal location.
- Definition of Agreement - To put it archaically, this is reductio ad absurdum. This part is the legal keystone of the agreement, meaning each infinitesimal component must be starkly defined. Below we’ve included each part in legalese, with an English translation.
WHEREAS, the Company requests the Contractor to perform services for it and may request the Contractor to perform other services in the future (1)
The Company is asking the Contractor to do, make or provide thing(s) (and may do so in the future).
WHEREAS, the Company and the Contractor desire to enter into an agreement, which will define respective rights and duties as to all services to be performed, (1)
Both Employer and Contractor are in on this.
WHEREAS, the Contractor affirms that he or she understands all of the provisions contained in this Agreement, and in the case that he or she requires clarification as to one or more of the provisions contained herein, he or she has requested clarification or otherwise sought legal guidance,(1)
The Contractor understands what the Employer is asking for.
2. Work to Be Performed
This part describes the task(s) the Contractor agrees to perform. It should be as detailed as possible. If it’s lengthy, just tack it on as an appendix and reference it within this section.
Give it a title to which it can be referred later in the document, such as “Specified Work” or “The Project.” (Try to resist the urge to make it sound too sci-fi.)
3. Materials & Labor
This section specifies who is responsible for providing materials and labor. (Normally this is the independent contractor). The section also verifies that said materials/labor are up to scruff by industry standards (of “new or good quality”) and that the workers are at least as skilled and knowledgeable as the Contractor.
This bit is pretty simple, but it must be precise. The lump sum or rate of pay should be defined, along with the Employer’s legal promise to pay it. For example: [Employer] agrees to pay [Contractor] a total of [amount] for the completion of the Specified Work.”
It must also mention that the Contractor, as an independent contractor, is responsible for paying taxes on said compensation.
5. Definition of Independent Contractor Status
This section is important because it protects the interests of both parties. An Independent Contractor is not an employee. The Employer has no right to take control of the Contractor’s schedule, materials, or methods – he/she only has a say in the final product.
In turn, the Contractor is not entitled to any benefits issued to Company employees, such as worker’s compensation, health insurance, etc. The definition should explicitly state that:
- The Independent Contractor is that, and only that – nothing in the contract should be indicate otherwise.
- The Contractor is not entitled to employee benefits. He/she also has no authority to speak or act on the Company’s behalf. The Company is not liable for anything the IC says or does, drunk or sober, related to Company business.
6. Confidential Information
This part states that the Contractor and his/her workers must never, ever,ever repeat confidential Company information to an unauthorized soul. Not during the working relationship, and not afterwards either.
Seems de-facto, but it’s actually important to spell it out in the agreement. Some people think that confidentiality has an expiration date. This way, if they ever act on that assumption, you will see them in court.
7. Intellectual Property
This clause exists to define what part of the “Specified Work” belongs to whom. The terms must be explicit. I can’t emphasize this enough. Murky intellectual property clauses are a leading cause of Contractor-Employer disputes.
Here’s an example. Let’s say an employer hires an IC programmer to create a social media website. Let’s say the website is wildly successful and wipes Facebook off the map.
Soon it’s worth billions, and the Employer, looking to cash in, sells it and pockets the cash. The Contractor is understandably furious when she finds out. But does she have a right to be? The answer can only lie in the Independent Contractor agreement.
The details of your clause will depend on the terms of your agreement, but it is crucial to spell out the following:
- who holds the copyright to what;
- who may use what and how;
- who may sell what, when, why, and possibly to whom.
This clause gets the Company off the hook for anything weird that the Contractor does. It also states that the Contractor works at his or her own risk.If one of the Company’s clients is crazy, it’s not the Company’s fault.
It’s also neither party’s fault if anyone becomes injured in the course of the Specified Work – physically, emotionally, or financially. Here’s a chunk of legalese to give you a better idea:
EXCEPT WITH RESPECT TO THE PARTIES’ INDEMNIFICATION OBLIGATIONS, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES ARISING FROM OR RELATED TO THIS AGREEMENT, INCLUDING BODILY INJURY, DEATH, LOSS OF REVENUE, OR PROFITS OR OTHER BENEFITS, AND CLAIMS BY ANY THIRD PARTY, EVEN IF THE PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING LIMITATION APPLIES TO ALL CAUSES OF ACTION IN THE AGGREGATE, INCLUDING WITHOOUT LIMITATION TO BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, AND OTHER TORTS. (1)
The “Indemnification obligations” referred to above vary by jurisdiction. You’ll want to check your state, county, and city websites to see if any laws or bylaws apply.
9. Duration, Scope & Severability
This specifies when the contracted job begins (usually right away) and how long, if not indefinitely, it will be in place. It also defines the terms by which each party may end the agreement.
For example, the Company might agree to give the Contractor 48-hours notice before cutting a project short. The clause also certifies that the agreement is functionally written in stone, supersedes any other prior discussions/agreements, and may not be altered unless [specific requirement]. (Normally, [specific requirement]. consists of each party’s agreement and signature.)
10. Sign-Off – Definition of Governing Laws, Signatures & Date
Here, each party agrees “irrevocably” to abide by the laws of the agreement’s jurisdiction. You’ll also want to specify the location of the courts where disputes, if any, may be settled. The parties also confirm that they are still in on this:
“Intending to be legally bound, the parties have hereto caused this Agreement to be executed as of the Effective Date.” (2)
(You’ll recall that the “Effective Date” is the date named in the beginning of the contract.)
After this is done, each party signs his or her name (legibly) and dates that too. And there you have it, one legally binding Independent Contractor Agreement.
You don’t need a lawyer to draw up an IC agreement. You just need to know what to include within the agreement. This article should give you an idea of the level of detail you’ll need.
As for layout, there’s no need to start from scratch. Legal documents have standard formats, and it’s a good idea to adhere to them. I actually recommend grabbing an independent contractor agreement template off the internet and using that as your basis. Good luck!
Post contributed by Joseph Oni, the founder at Guestbloggingtactics