What Clauses Should be Included in an Independent Contractor Agreement?
If you own your own business, you may hire others to work for you as either employees or independent contractors. In most cases, the person hired can perform the same job under either title. The differences are the relationship between this person and your company, how your company handles their taxes (W2 or 1099), and who takes on certain responsibilities and liabilities once they are hired.
The best way to make sure the new hire’s position, relationship with the company, and important duties, obligations, and potential warranties are clearly explained is to have a thorough and clearly written contract between your company and the new hire.
Determining whether someone is working for you as an independent contractor or employee can sometimes be tricky. Florida uses a “right of control” test to determine this. Florida courts have adopted a number of factors to help determine this as well. Some of the factors include: (i) the extent of the right of control by the employer over the details of the work; (ii) whether the person employed is engaged in a distinct occupation or business; (iii) the kind of occupation involved, and whether the work is done under the direction of the employer or by a specialist without supervision; (iv) the skill required in the particular occupation; (v) whether the employer supplies the instrumentalities, tools, and place of work; (vi) the length of time the person is employed; and (vii) whether the work is a part of the regular business of the employer.
If you determine that your new hire will be working as an independent contractor, you will want to include specific clauses in their Independent Contractor Agreement. Some of the important clauses to consider adding include:
Term - The term may automatically end on a specified date, have the option to renew, or may automatically renew on a specified date unless either party terminates.
Services - You’ll want to include a scope of services in the contract or in an attached Statement of Work (SOW), as well as service warranties of the independent contractor, and what happens if the independent contractor breaches any of those warranties.
Relationship of the parties - It’s important to spell out the relationship between the two parties, clearly stating that the worker is an independent contractor with no other relationship to the company and no authority to act on behalf of the company. This section should also include clauses regarding the manner of performance of the independent contractor, equipment used and any attached equipment policies, as well as what is and is not allowed regarding the contractor hiring subcontractors or personnel to perform their services.
Nonexclusive Agreement - In general, when dealing with an independent contractor, you will have a nonexclusive agreement between the parties, allowing the company to engage others to perform similar services and the contractor to provide their services to others.
Compensation - The sections under compensation may include specified payments owed to the contractor for specific jobs or hours worked; expenses contractor incurs and reimbursement policies; invoicing and tracking hours worked, and how payments will be made by company.
Insurance - It’s important to include any insurance requirements for the specific independent contractor being hired. These requirements may include workers’ compensation, general liability, errors and omissions, auto insurance, or others depending on their occupation and specific services offered.
Taxes - It’s important to specify that the contractor will receive a 1099 and will be required to file their own corporate or individual tax returns and pay any appropriate taxes. In other words, the company will not be withholding taxes from their paychecks like they would with an employee.
Confidentiality - Depending on your specific business, a solid Confidentiality Section may be important to include. Among other clauses, this section generally includes what constitutes confidential information, what is excluded from being confidential, how the information may be used and disclosed, what happens if a breach of confidentiality occurs, confidentiality upon termination of agreement, and removal and return of confidential materials.
Intellectual Property Rights - Again depending on the business, IP rights are generally important to lay out. This section may include a “Work made for hire” section, moral rights, enforcement of rights, IP indemnification, and acceptance procedures of contractor’s work.
Non-Solicitation - While including a non-compete clause in an independent contractor agreement is not usually reasonable, you should consider a non-solicitation clause. This generally ensures that the contractor does not solicit your company’s employees or other contractors to quit working for your company and instead work for them. It also should prevent the contractor from soliciting or taking your company’s current clients. Like non-competes, these sections must be reasonable in both term and restrictions, in order to be enforced.
Representations and Warranties - This section should lay out certain reps and warranties of both parties. The main purpose will likely be to ensure the contractor has the authority to enter into the contract and that doing so will not breach any other agreement they are a party to.
Termination - This section should lay out how, why and by whom the agreement may be terminated; what happens upon termination, and any specific timeframes required for written notice to the other party.
Every good independent contractor agreement will also include “boilerplate” clauses such as Indemnification, Limitation of Liability, Force Majeure, and more.
Independent contractor agreements should consider potential future issues and situations that may occur between the two parties and attempt to cover your business from future liabilities and ambiguities.
Because a solid contract is so vital in protecting your business, it’s one area every smart business owner should invest in quality legal assistance. Don’t be tempted to cut and paste your own contract, as the protection comes in the details and personalizing the agreement to your unique needs. Palm Legal is experienced in reviewing, drafting, managing, and negotiating independent contractor agreements and is here to help make sure you have what you need in place.