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A good independent contractor agreement will provide strong protection for the interests of both the company and the contractor. The following information provides additional details and clarification on some of the key aspects in the agreement.

Party Information and Dates

Begin by entering the full legal names of the contractor and the company. Note that the company can be either an individual or a business entity. If the company is a business, be sure to include the type of business entity in the name of the company; for instance, "eSupply, LLC."

Job Description

Next, add the job description by detailing the relevant services that the contractor will perform. There is no need to include every individual service the contractor will be responsible for because the agreement allows the company to assign new duties that are reasonable within the scope of the agreement. Simply including the general job duties will suffice.

You will also be able to select whether or not the contractor is allowed to engage in outside employment for other businesses while performing the services under this agreement. This term is usually negotiated upfront with the contractor to ensure all parties are on the same page.

Compensation and Benefits

You have complete flexibility in tailoring how the contractor is paid, including by hourly wage, salary, salary plus commission, solely on commission, or your own custom payment structure.

You will then have the option to list any benefits the contractor will receive. This part is optional since you can always agree on benefits at a later time with the contractor or in a different agreement.

It is not necessary to include all the company rules and information regarding each benefit you include. Instead, you may simply name the benefit and briefly describe any major characteristics associated. Further details of each benefit are normally elaborated in the company's official policy documentation and may be subject to change.

Ownership of Intellectual Property

Under the terms of the agreement, the company will retain all work produced under the agreement. This is legally known as "works made for hire."

However, if the works or services provided are generic in nature, you may want to reword this provision so that the contractor will retain ownership and the company will only be granted a non-exclusive limited right to use any intellectual property produced by the contractor.

Dispute Resolution

It is usually recommended that you include an arbitration provision when prompted. This will require disputes to be settled through binding arbitration and avoid the time and expense of going through the formal court system.

Next, you will indicate which state's laws will govern the agreement. Usually, the company lists its principal place of business as the governing state. Other options include using the company's state of incorporation or the state where the two parties are conducting any business together.

Non-Compete

Choosing to include a non-compete clause will prohibit the contractor from engaging in similar work as he or she performed for the company. If the contractor works in an occupation that has many clients at once (e.g. financial advisers or attorneys) or holds a relatively narrow expertise, courts may not enforce such a provision if it is seen as an overly burdensome restriction on the contractor's ability to find work.

No matter what the contractor's occupation is, however, it is important that the non-compete clause is tailored to be as narrowly restrictive as possible. If the company operates in a rapidly changing industry, such as in the IT industry, then it will be hard to justify a non-compete term lasting longer than six months or a year. In most cases, if you insert a non-compete term longer than two years, then you will be running a higher risk of a court someday shortening it down or invalidating it altogether.

Confidentiality and Non-Solicitation

Confidentiality provisions will prevent unwanted disclosure of the company's confidential information and trade secrets by the contractor. You can choose to limit the non-disclosure requirement to a fixed period of time after the parties' relationship ends or only while the agreement is in effect. If these options will serve to protect the company's interests, then it may be a good idea to limit the term. However, if the contractor will be learning confidential information and trade secrets that will hurt the company's business if exposed, then it is likely a good idea to prohibit their disclosure indefinitely.

A non-solicitation provision prevents the contractor from adversely interfering with any of the company's business relationships; for instance, by trying to lure away the company's own employees or business contacts. The term of the non-solicitation should be limited as much as possible to not be overly burdensome on the contractor while still protecting the company's interests. Courts generally accept anything between one month and two years depending upon what is reasonable under the circumstances.

It is usually a good idea to include these provisions unless you want to outline them in a separate agreement. However, these provisions will likely need to be negotiated between the parties upfront.

Termination

Next, specify how much advance notice is required when a party decides to end the contract. In many industries it is customary to require at least two weeks' notice of termination. However, it is completely acceptable to not require any notice.

Note that if a party is terminating the agreement due to a violation of the agreement by the other party, then the agreement states that no notice will be required to terminate it.

Additional Terms

You can add additional terms and conditions as desired. You have complete flexibility to tailor the document to reflect the specific situation and true intent of the parties, but be sure to preview the agreement first so that you know what has already been included for you.

As an example, you might require the company to pay a cancellation fee (or "kill" fee) to the contractor if the company decides to end the contract early. However, if the term length is indefinite, then you will not be able to require a cancellation fee. Instead, consider requiring severance pay.

How to Execute Your Agreement

  • Have each party to the agreement sign and date the signature lines where indicated. Electronic signatures are allowed by the terms of the agreement. The parties may also sign copies sent to each other by e-mail, fax, or other electronic means. If you included an arbitration provision, make sure that each party signs the arbitration exhibit as well.
  • Make sure that all parties get a copy after it is executed.
  • That's it! You have completed and executed a stellar independent contractor agreement!

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