Independent Contractor Agreements: The Basics
To freelance or not to freelance? That is a question workers in dynamic, project-oriented professions are asking themselves more often.
The “slings and arrows” of employment leave many to conclude freelancing is a superior option. That may be true in many respects, but anyone considering becoming an independent contractor should consider basic aspects of this relationship.
An independent contractor agreement establishes a contractual, business relationship whereby one party agrees to provide services in exchange for compensation. Like any other agreement or contract, an independent contractor arrangement raises a number of questions that should not be answered verbally, by handshake, or with a form contract.
Prospective contractors in particular often ask themselves and lawyers whether they should hire counsel and actually negotiating a written agreement. The answer is (emphatically): Yes! Anyone involved with an independent contractor arrangement should have a written agreement with detailed, not pro forma contract with terms and conditions. A poorly worded agreement will often haunt a contractor for a long time, in particular where the contracting company or party has the benefit of counsel.
Although terms and conditions in an independent contractor agreement mimic employment agreement in some respects, the distinctions are critical. Among other reasons, employees are entitled to far greater protections under state and federal law, starting with wage and rate laws, workers compensation, and tax compliance. In fact, workers are sometimes misclassified by as independent contractors when, in the eyes of the law, they are employees. Setting those issues aside, a typical independent contractor agreement will set forth, among other things:
- Description of Services: What the Contractor will be doing. This section should be specific, not generic, and set forth the exact nature and parameters of work to be completed.
- Fee Payment: How much and how often the Contractor will be paid. Some agreements will set forth a fixed, periodic fee payment while others will be based upon time worked and invoiced. The agreement should also provide, as needed, for expense reimbursement.
- Insurance and Indemnification: These provisions work in tandem to establish responsibility for risks and liabilities arising within the scope of the agreement. They often mean the contractor agrees to “hold harmless” the contracting entity or company and obtain liability insurance naming that entity as an insured or “additional insured.”
- Term: How long the contract will last. Depending on the situation, this may be a fixed term, or an indefinite term tied to a specific benchmark or goal.
- Confidentiality: This provision should address both parties’ responsibilities to maintain confidentiality pertaining to proprietary or sensitive information, intellectual property, data, customer lists, or other information disclosed in connection with the agreement. It should also set forth the duration of confidentiality obligations and mechanisms for exceptions and permitted disclosure.
- Workflow: This is a critical and overlooked aspect of independent contractor agreements. Depending on the situation, the contracting entity or party should ensure the contractor is obligated to provide periodic, interim project updates or work product or satisfy established benchmarks.
- Dispute Resolution and Choice of Law: Forum, venue and alternative dispute resolution (e.g., mediation or arbitration) agreed by the parties pertaining to disputes related to the agreement. Many independent contractor agreements specify that, e.g., rules of the American Arbitration Association apply to such disputes. Like other agreements, independent contractor agreements should also specify what jurisdiction’s law applies to any disputes.
- Taxes: The agreement should specify that the contractor is responsibility for payment of income taxes, FICA, etc.
- Non-competes. As with employment and severance agreements, an independent contractor agreement may limit the contractor’s ability to perform certain work for a stated duration in a specific geographic area. (Here is more information about non-competes.)
This content is provided as background and does not constitute legal advice. For more information or to schedule a free consultation, contact us at info@lalorattorneys.com / 646.818.9870.
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