Checklist for creating independent contractor agreements
The following is a basic list of issues to be addressed when creating an independent contractor agreement
This checklist is intended to assist the independent contractor. It could, however, be used by the independent contractor’s client to provide a structure around which an independent contractor agreement can be prepared. Its objective is to assist in the decision-making process as to which clauses should be included and which deleted.
Describe the parties
Provide the full name and street address of the parties to the agreement. If the parties to the agreement are incorporated entities, then set out the ACN number and registered office. Will the contractor be a separate entity owned and controlled by a director/shareholder who will be responsible for delivering the services?
Describe in a nutshell the reason why the independent contractor agreement has been created, and at a high level, the services that the contractor is to provide to the principal. In this part of the agreement, use this as an opportunity to emphasise that the contractor is conducting its own business.
What is the commencement date and will it continue indefinitely until terminated in accordance with the agreement? (include/discard)
2. Provision of services
Set out in Schedule 1 the services which the independent contractor is to provide to the principal. What will be included in the services and what will be excluded? On what days and times will the services be performed and at what locations? (include/discard)
Name of independent contractor
Name the person who is to provide the services.
Name the “delegated person” who is to be the alternative service provider.
Name the person to whom the service provider is to report and provide contact details. While some control over an independent contractor will always be present, it is preferable that it be kept to a minimum. (include/discard)
4. Other Work Permitted
Can the independent contractor provide services to other customers provided there is no conflict? (include/discard)
Set out in Schedule 2 how the fees are to be structured? Is it to be on an hourly rate or daily rate? How many days does the client have to pay the invoice? (include/discard)
What out-of-pocket expenses will be reimbursed to the contractor? (include/discard)
6. Contractor’s obligations
Normally, this will include the independent contractor performing the agreed services in a diligent/professional manner and – if that hasn’t occurred – resupplying the services at no cost.
The independent contractor should also be responsible for paying its own employees/agents as well as paying insurances specified in Schedule 3. This could include workers compensation insurance (where applicable), public liability and professional indemnity insurance, and personal accident/salary continuance. (include/discard)
7. Use of company facilities
Is the independent contractor or its employees or agents to have access to the client premises and facilities including computer systems etc.? Is this to be at the contractor’s own risk? (include/discard)
Agreements of this type will commonly state that the relationship between the parties is that of principal and independent contractor and not that of employer/employee. It will also state that the independent contractor has no authority to contractually bind the principal. (include/discard)
9. Intellectual property
Intellectual property created by the independent contractor during the course of the engagement will normally belong to the client. However, that does not necessarily have to be the case. If the independent contractor is drawing on its own intellectual property in order to provide the services to the client then the contractor should reserve its rights. If the independent contractor is making use of its own intellectual property, then that intellectual property should be defined in the clause. (include/discard)
It is usual for the independent contractor to undertake not to disclose the client’s confidential information, only use it for the purposes of performing services, ensure its staff/agents sign Confidentiality Undertakings, and return the confidential information to the client at the end of the assignment. (include/discard).
11. Post-agreement restraints
There are clients who may insist that the independent contractor accepts non-compete, non-solicit and non-poach obligations once the contractor relationship has come to an end. (include/discard)
Many independent contractors will have no trouble accepting non-poach obligations. In other words, a prohibition against enticing employees or staff away from the client company. Similarly, there will be many independent contractors who will be willing to accept non-solicitation obligations i.e. a promise not to approach customers/suppliers of the client at the end of the term. However, many contractors will balk at a non-compete obligation i.e. an obligation that requires them not to approach competitors of the client. That clearly has the potential to significantly limit the marketplace for the independent contractor’s services.
Clauses of this nature are not desirable but may be requested by clients. They raise many complex issues and need to be carefully considered.
Contracting arrangements often have an indemnity clause that imposes a liability on the independent contractor to make good any loss the client may have suffered to person/property caused by the contractor or its employees/agents. From the independent contractor’s perspective, these clauses are not ideal and could create significant financial exposures. For this reason, they are to be avoided. (include/discard)
13. Termination rights
There is usually reciprocity in the giving of notice. In other words, most termination clauses work on the basis that each party provides to the other the same notice period of (say) 2-4 weeks’ notice. This can occur at any time for any reason and indeed no reason at all. All that is required is that notice is served on the other party.
There is also usually a separate clause enabling the company to terminate in the event of a serious or material breach of the agreement. The independent contractor may also terminate the agreement in the event of failure of the client to pay an invoice.
All independent contractor agreements need to have clear provisions explaining the termination rights of both parties.
Serious consideration should be given to the inclusion of a mediation provision. While such a process would not be inexpensive, it would still be significantly cheaper than having to embark upon common-law proceedings to achieve a litigated outcome in the event of a dispute between the parties. The clause can be drafted in such a fashion that, if no agreement is reached at the end of the litigation process, either party is still free to commence legal proceedings. (include/discard).
Schedule 1 – Provision of Services
Schedule 2 – Fees/Expenses
Schedule 3 – Insurances
It is very important to give careful consideration to the preparation of an independent contractor agreement
This checklist should be used as a starting point for the preparation of a relevant contract. There may well be other clauses not mentioned above that should be included in order to adequately document the bargain struck between the parties. In recent decisions, the High Court has emphasised the central role which the Contractor Agreement plays in regulating the relationships between the independent contractor and the principal/client. The agreement therefore needs to be carefully considered.
If as a contractor you are predominantly providing labour, then you need to be mindful of the Personal Services Income Rules, Superannuation Guarantee Obligations, Payroll Tax and Worker’s Compensation premiums. Depending on how your business is structured and the jurisdiction in which you operate, these liabilities may be avoidable.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice regarding your own situation.