Contractor & Consulting Agreements
**Please note: The information presented here does not constitute legal advice.**
The topic of independent contracting has very much been in the news lately. The question of whether startups in the so-called sharing economy are improperly classifying their service providers as independent contractors rather than employees is yet to be answered definitively. The California Labor Commission recently answered this question affirmatively in a non-binding decision, ruling that Uber drivers are indeed employees and not independent contractors, but this issue is far from settled.
Setting aside arguments over misclassification of workers, the fact remains that many sectors of the economy are still reliant on independent contractors. And in many cases, serving as an independent contractor or as a consultant makes perfect sense for everyone involved. If you provide services as an independent contractor or as a consultant on a regular basis, you are probably familiar with the types of agreements that companies typically want you to sign before you begin work. If you are new to the field, some of the standard provisions may be unfamiliar to you.
Your Independent Contractor Agreement
Regardless of whether you are a seasoned independent contractor or a newbie, you should always review your independent contractor agreement or consulting agreement carefully before you sign it. Failing to do so could cause you major problems down the road, sometimes long after your work has ended.
When you receive an agreement from a company that wants to hire you as a contractor, always assume that it’s written in a one-sided manner. This is true even if you know and trust the company and the people you are dealing with. A one-sided contract is just a fact of life in the business world so don’t be surprised or offended if you receive such a contract even from moral, trustworthy and perfectly nice people. It’s nothing personal.
Negotiate, Negotiate, Negotiate
So what should you do when a company sends you an agreement to sign? The first thing to remember is that an unsigned contract is not set in stone. You can and should push back on contract provisions that you find problematic. Depending on how much the company needs your services, you may have more leverage than you think to negotiate particular terms and ensure that the contract isn’t stacked against you.
Negotiating on your own behalf could feel very uncomfortable, particularly if you tend to shy away from conflict. Nevertheless, you should always try to respectfully approach the other side to discuss contractual provisions that could be harmful to you. You’d be surprised to find that many times the other side didn’t give the harmful provisions a second thought and would gladly change them. Other times, they may insist on keeping certain provisions in the contract but will agree to make changes that you can live with.
Things To Be On The Lookout For
Many independent contractor and consulting agreements share similar characteristics and include common provisions. Although you should always carefully review the entire contract, the following are contract provisions that you may want to pay particular attention to if they are present in your contract:
Statement of Work
A poorly written statement of work could set you up for failure before you even start. A good statement of work, on the other hand, would clearly set the expectations and allow you to utilize your skills and expertise in the best possible way. Beware of vague or overly broad statements of work, because that could lead to uncertainty by the parties as to when you have fulfilled your contractual obligations which entitles you to get paid.
Non-disclosure of Confidential Information
Non-disclosure agreements or NDAs are very common and in many instances they are justified. If you perform work for a company, which gives you exposure to sensitive and confidential information, it makes perfect sense that the company would want to limit your ability to use and disclose that information. However, you want to make sure that the NDA isn’t so broad or vaguely written that it sweeps within it and protects every piece of information under the sun. You want to make sure, for example, that the NDA clearly states that common knowledge or publicly available information is not protected, even if you had also come across that information in the course of your work. The risk for you as an independent contractor is that a company, instead of using an NDA as a shield to protect itself, will turn it into a sword to fight you and try to prevent you from performing work for others.
Non-Compete and Non-Solicitation
Similar to NDAs, non-compete clauses are becoming more prevalent and more comprehensive. If a non-compete and non-solicitation clause is so restrictive and the company is unwilling to budge, you might want to think twice before signing on the dotted line. The amount you will get paid for the contract may simply not be worth the risk of limiting yourself from performing similar future work for others. When faced with a non-compete clause, one of the first things to look for is who does the company want to prevent you from doing concurrent or future work for and how long the restriction would last. When negotiating your contract, you’ll want to limit these restrictions as much as possible and if you determine that the restrictions are untenable, walking away from the contract is always an option.
Rights and Assignment of Rights
You want to make sure that whatever your contractor does for you belongs to you or that you are assigned the right to use it. For example, if you hire a salesperson, the leads that are gathered by him or her during the project or term should belong to you only. Similarly, if a software developer purchases a third-party plugin to integrate with your software, you should own the license for that third-party software. The rights can go as far as an idea that comes out of work that the contractor was doing for you. You may want to take ownership of that idea to make sure you are not creating gaps in your product/business, where you may rely on a continuous engagement with the contractor.
Indemnification clauses have proliferated in many types of contracts including in independent contractor and consulting agreements. Indemnification clauses are almost never good news for the contractor. They are often written in such a broad manner that shifts all risk from the company to the contractor and requires the contractor to “hold harmless”, defend, and basically take the fall for anything that causes the company damage or loss. If you can’t eliminate an indemnification clause altogether, you should at least try to revise it in a way that only requires you to indemnify the company for damages and costs it legitimately sustained due to your grossly negligent or reckless actions or omissions.
The bottom line is that an independent contractor agreement is just like any other agreement - it’s not set in stone and you have the right to request modifications. When presented with a contract, always remember to do the following: review, revise, negotiate, and repeat the process until you are ready to sign.
And if necessary, hire a lawyer.