What to Consider When Drafting an Independent Contractor Agreement

By James Woods
Managing Partner

In today’s economy, many businesses rely on the services of independent contractors to carry out tasks or complete projects. While these contractors are not considered full-time employees, they are still essential to the business model. 

As such, businesses must have a formal independent contractor agreement that outlines the arrangements between both parties. 

Whether you run a small business or a large corporation, effective independent contractor agreements can make all the difference and protect both parties.

Terms To Include

As with any business contract or agreement, the terms will largely depend on the nature of the relationship and the type of work. However, most independent contractor agreements should address the following elements:

  • Scope of work
  • Confidentiality
  • Payment terms
  • Business liability
  • Intellectual property
  • Tax information
  • Governing law
  • Restrictions
  • Termination 

Transparency is critical when drafting an independent contractor agreement. A clear contract can help prevent future legal issues and ensure that both parties are on the same page regarding services, terms, wages, and responsibilities. 

Types of Contracts 

Depending on the nature of the job and business, an independent contractor agreement will likely fall under the scope of the three main types of arrangements:

Time and Materials Contracts

These contracts are standard in fields where an independent contractor must often front the costs for work materials, tools, and other assets. As such, these contracts outline an hourly wage and any financial compensation to reimburse expenses, as needed.

Fixed-Price Contract

Some independent contractors are paid a lump sum for their services rather than an hourly wage. As such, fixed-price agreements establish the agreed-upon value delivered to the contractor for fulfilling the agreed-upon duties. 

Cost-Plus Contract

Under cost-plus provisions, the business and contractor agree on a fixed sum for the services and special reimbursement for materials and expenses.

Preventing Misclassification

An independent contractor agreement can help a business prevent issues related to contractor misclassification by clearly defining the nature of the relationship between the business and the contractor.

Even a simple agreement should specify that the individual is not a legal employee and outline their responsibilities and obligations. These clauses should establish that the contractor has control over their work and the methods they use to complete it, which is one of the critical factors in determining independent contractor status.

Non-Compete Agreements

One of the most common provisions in independent contractor agreements is a non-compete clause. This clause prohibits the contractor from working for a competitor or starting their own business in the same field for a specific time after the contract ends. 

Non-compete clauses can help protect a business’s trade secrets and prevent contractors from taking their skills and knowledge to a competitor.

Negotiating an Agreement

Both parties must be clear about their expectations and requirements when negotiating an independent contractor agreement. The agreement should outline the scope of work, payment terms, and other vital details. 

It’s also essential to discuss any potential challenges, such as delays or unexpected expenses, and have a plan to address them.

Terminating and Renewing Contracts

Contractor agreements are typically designed for a specific period. However, a business should include provisions for terminating the contract early if necessary. 

For example, if the contractor is not meeting the agreed-upon deadlines or performing the work to the required standard, the business may choose to terminate the agreement.

When renewing an independent contractor agreement, reviewing the original terms and making necessary updates or changes will help keep the relationship in good standing.

Protect Your Business from Legal Action

Employment laws are constantly evolving, making it crucial to have informed representation. Our NYC business attorneys are committed to resolving employment-related disputes both promptly and professionally. We collaborate closely with employers to create and review employment policies and agreements, aiming to minimize the risk of litigation. However, when litigation is unavoidable, we have a significant experience defending employers against the full range of federal and state employment claims.

At Woods Lonergan PLLC, we prioritize a friendly and informative approach, ensuring our clients feel supported throughout their legal journey. Reach out to us for experienced guidance and assistance in navigating the complexities of employment law.

About the Author

James Woods, Managing Partner of Woods Lonergan, holds more than 25 years of experience in corporate, real estate, and business legal matters. His expertise in handling negotiations, litigation, jury trials, and all forms of alternative dispute resolution spans multiple areas, including corporate, real estate, and commercial litigation. James actively represents dozens of Cooperative and Condominium Boards and serves as counsel to many Corporate Boards. Prior to founding the firm, James proudly served as an Assistant District Attorney for Nassau County and handled both jury and bench trials. With experience that also covers sophisticated transactions and complex acquisitions, James also serves as counsel to several domestic companies in a range of industries and commercial arenas, including real estate, insurance, banking, transportation, and construction. If you have any questions about this article you can contact attorney James Woods through his biography page.

Disclaimer: The information in this article and blog post (“post”) is provided for informational purposes only, and may not reflect the current law(s) in every jurisdiction. No information contained in this post should be construed as legal advice from Woods Lonergan PLLC or the individual author(s), nor is it intended to be a substitute for legal counsel on any subject matter. Nothing herein shall be construed to create an attorney-client relationship with Woods Lonergan PLLC. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s jurisdiction. This post is attorney advertising.
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