Independent Contractors Agreement
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What is a Contractors agreement?
A contractors agreement (or contractor contract) is an agreement between a business (the principal) and a service entity (the contractor) where the contractor agrees to provide a service to the business in return for a fee. The contractor agreement can be for a one-time service, or an ongoing service for a specified period of time.
It’s important to put in place a legally binding contract between your business and your contractor and to make sure you have proper and adequate legal provisions in the contract to make sure the business is protected.
We recommend obtaining legal advice before entering into a contractors agreement.
Read on to find out more
What should be included in an Independent Contractors Agreement?
1) Independent contractor vs employee
It’s important to differentiate independent contractor from employee, and to make this clear in your agreement.
2) Verbal agreements
Verbal agreements may be legally binding and may potentially be supported by documents such as emails, quotes or notes about discussions. However, there are risks associated with verbal agreements, therefore we recommend always putting your agreements in writing.
3) Fundamental information: who are the parties?
Your agreement should identify each of the parties, include both businesses’ ABN numbers (or ACN), specify that the contractor is not an employee, and be signed and dated by each of the parties.
4) Description of services
Your agreement must specify what, when and where work will be done. It’s important to be very clear and give plenty of detail.
5) Payment
Your agreement must contain how the contractor is to be paid. i.e. fixed fee, per hour, per month, or on completion of the job.
6) Settling disputes
It is important to outline how issues will be handled in case of a dispute. Your agreement should specify your dispute resolution process for solving disputes without needing to go to court. For example, this may include: an informal discussion, followed by formal negotiation, followed by alternative dispute resolution.
What else should I include in my Contractor’s Agreement?
Intellectual property
The contractor will own any intellectual property they produce, unless the business that engages them specifies ownership of intellectual property in the agreement.
Confidential information
Your agreement should contain a clause to protect important confidential information such as client lists, prices, profit margins, or trade secrets.
Indemnity
Indemnity clauses usually involving transferring risk from the hiring business to the contractor. Alternatively, it may state that the contractor is not liable for risks or losses that the hiring business has control over.
Insurance
It is important to specify whether the contractor is covered by the hiring business’ insurance or whether they must carry their own insurance, for issues such as public liability, property damage, personal injury, negligence, or professional indemnity.
Subcontracting
Your agreement should specify whether any or all of the work done by the contractor can be subcontracted, and any restrictions on what can be subcontracted. This may include a clauses stating that the subcontractor must be preapproved by the hiring business, or that the subcontractor is liable for any work done by the subcontractor.
Exclusivity
An exclusivity clause prevents either party from entering into a similar arrangement with other businesses or contractors.
Restraint of trade
A restraint of trade clause prevents the contractor from taking the hiring business’ clients or competing with the hiring business, during the time the contractor is working for the business and for a specified period after this time. Note, the clause may be reasonable to be legally enforceable.
Variations
In a contract that covers a long duration of time, either party may wish to make an alteration to the agreement. A variations clause usually sets out that for any change to the agreement needs to be agreed in writing and signed by both parties.
Ending the agreement early
Your agreement should specify when and how the agreement can end. This may include: on completion of the work, ending early because one party has breached the agreement, or ending early for other specified circumstances agreed by both parties.
Independent Contractor Agreement: Video
What should you consider when engaging a contractor?
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Independent Contractor Agreement FAQs
What types of industries use independent contractor agreements?
Almost every industry engages independent contractors and would use an independent contractor agreement. Whether it’s because specialised skills are required or a client simply needs assistance with project management or requires consulting services.
The below are a few examples of industries that use independent contractors and some key terms to include in independent contractor agreements.
Website or Software Development:
- Make it clear which party holds the intellectual property of the work produced by the contractor;
- Ensure the client has the ultimate control over the website or software and can access it at any time, like being provided with the relevant passwords to the domain etc and has access to the wireframe of the website or software;
- Ensure the client must provide necessary approvals for work conducted;
- If the contract is terminated, ensure that the contractor must hand over all access to the website or software and all materials and files created up to the date of termination to the client; and
- Ensuring the contractor indemnifies the client for any loss or damage caused by the contractor while carrying out the services.
Computer and IT
- Ensure the client must provide necessary approvals for work conducted;
- Ensure the contractor indemnifies the client for any loss or damage caused by the contractor while carrying out the services; and
- Ensure the client is provided with relevant passwords for various software.
Medical and Health
- ensure the contractor has the required qualifications to provide the medical and health services in question
- Include restraint provisions to prohibit the contractor from poaching any patients or clients; and
- Ensuring the contractor indemnifies the client for any loss or damage caused by the contractor while carrying out the services.
What is the difference between a contract employee and an independent contractor?
A contract employee is engaged for a certain term to provide services as an employee. This may be due to the fact that the employee is hired to work on a specific project which has a defined commencement and end date.
Unlike an independent contractor, a contract employee performs work under the direction and control of their employer on an ongoing basis, they use their employer’s resources and equipment to perform their duties, they are entitled to superannuation and paid leave such as, annual leave, personal/carers’ leave and long service leave and are not able to subcontract their work to a third party.
Independent contractors are very different to employees as they are self-directed, run their own business, can work for multiple clients at a time, can delegate work to subcontractors (if permitted under the Independent Contractor Agreement), generally use their own resources and equipment to provide their services and can determine when they are available to provide their services and how the services are carried out.
What does “independent contractor” mean in legal terms?
A legal entity trading as a sole trader with an Australian Business Number (ABN) or a company with an Australian Company Number (ACN) that provides a service to a client under agreed terms, usually documented in a contract, commonly referred to as an Independent Contractor Agreement.
Can I write my own independent contractor agreement?
Drafting your own independent contractor agreement, without having had any legal training isn’t advisable because there are numerous legal considerations to account for in the agreement, which would not come naturally to a lay person.
You may have an idea of the commercial terms to include in the agreement, but wording around limiting liability, indemnities, disclaimers, intellectual property, confidentiality, dispute resolution, among many others, should be legally drafted to ensure your business is adequately protected.
Our contract lawyers provide a range of contract review, drafting and dispute legal services.
Should I use a free independent contractor agreement template?
There’s always a risk to using an independent contractor agreement template obtained online with the intention of making changes to it yourself. This is due to the fact that the template was not drafted with your particular situation in mind and may be missing a number of key areas that would protect your business.
Having the agreement drafted by a lawyer is best practice to ensure your business is protected to the highest degree possible.
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