This guide provides an overview of the key considerations that go into creating an independent contractor agreement.
Start by providing some basic party information, including the names and addresses of the contractor and the company. The company can be either an individual or a business.
You will need to include a job description, which can be as general or specific as needed. However, there is no need to go into great detail about everything the contractor will be responsible for. The terms of the agreement allow for the company to assign additional duties in the future so long as they fall within the general scope of the contractor’s job description.
Choose whether the contractor may engage in outside employment with other businesses during the term of the agreement. It is important to agree on this upfront so that the company will know how the contractor will be spending his or her time.
Next, specify how the contractor will be paid, such as hourly, salary, salary with commission, commission only, or another payment structure. Also, include any benefits that are part of the contractor’s compensation.
The agreement states that the company will own all intellectual property rights to work produced by the contractor for the company under the contract. If this is not the case, you can amend this language after downloading the agreement.
Companies commonly require that any disputes be resolved via binding arbitration. This is when an independent arbitrator acts similarly to a judge and issues a legally binding ruling concerning the parties’ dispute. The advantage with arbitration is that it is usually much faster and less expensive than using the court system. You will also need to select the state law that will be applied to any disputes that occur. This is typically the state where the parties are transacting business or where the company is located or incorporated.
In most states, you have the option to prohibit the contractor from engaging in competition during and after the term of the agreement. However, the company will need to negotiate this with the contractor. If the contractor normally has a lot of clients within the company’s industry (e.g. lawyers, accountants, and financial advisors) or has specific expertise, then a non-compete clause may not be enforceable. Courts can refuse to enforce non-compete clauses when they are overly restrictive on a contractor’s ability to find work.
Regardless of the contractor’s industry or job type, the non-compete clause must not be too restrictive. For instance, companies in rapidly changing industries like IT would have a hard time justifying a non-compete restriction lasting more than six months or a year. It is usually a good idea to keep your non-compete term at two years or less in order to minimize the risk that it is invalidated in the event of a dispute.
A confidentiality clause will require the contractor to maintain the secrecy of the company’s confidential information. This requirement can last only during the parties’ business relationship or can continue after the term of the independent contractor agreement. Requiring confidentiality indefinitely may be a good idea if the company will be disclosing trade secrets and highly valuable confidential information to the contractor.
Under a non-solicitation clause, the contractor is prevented from interfering with the company’s dealings by encouraging the company’s employees, clients, or other parties to end or change their relationship with the company. As with non-compete clauses, you should limit the length of the obligation as much as possible in order to ensure that it will be upheld if contested in court or arbitration.
These clauses offer valuable protection for the company and should normally be included unless the company wishes to use a separate confidentiality agreement.
Select the amount of advance notice required in order to terminate the agreement. Often, two weeks is customary, although there is no legal requirement that any amount of advance notice be provided. Even if you choose to require advance notice to terminate under normal circumstances, no notice will be required in the event that the agreement is being terminated due to a violation by one of the parties.
You may include your own custom terms and conditions. This provides you with the ability to further tailor the agreement to your needs. However, it is a good idea to review the agreement prior to doing so in order to know what terms are already included. For example, the company may be required to pay a cancellation fee, or “kill fee,” if it wants to end the contract early.