What should I look out for in my Contractor Agreement?

Miniseries: What should you look out for in your contract
Offer Letter | CIIAA | Residential Lease | Equity Agreement | Contractor Agreement

For freelancers, a Contractor Agreement usually creates gainful employment and a client relationship. Our final installment in the miniseries covers the significant and growing sector of the workforce: contracted workers that navigate a very wide range of contracts, from deceptively simple to ostensibly convoluted.

1. Long payment cycles

   As a contractor, you’ll need to provide regular invoices (receipts of your work) for your client’s finance team to process and provide payment. For vendors, it’s common to operate on net 30, 60, or even 90 day cycles, meaning you can be paid over 90 days after services are rendered. Clients can sometimes view freelancers the same way, subjecting individuals to significantly delayed payment. However, freelancers can and should request payment cycles closer to that of a regular employee, such as invoicing every 2 - 4 weeks with net 7 - 14 payment.

   
   

2. Termination terms that aren’t reciprocal

   Contracted employment will always specify the terms of termination, providing the notice period either side has to give to end the relationship. The notice periods will differ if it’s due to something going wrong like a material breach of the contract (which can allow for a grace period to ‘cure’, or resolve the problem and prevent termination) vs. without reason. The important nuance here is whether you and your client have reciprocal terms, i.e. if they can terminate without reason with 7 days notice, so should you, which isn’t always the easiest term to negotiate when you’re just starting out.

   
   

3. Confidentiality clauses that hinder portfolio building

   Your portfolio is the life blood of your customer acquisition, so it’s important that maintaining confidentiality of your client’s business does not block your ability to build your business portfolio. While clients may require prior written consent before such disclosure, it’s best to negotiate items such as logo disclosure ahead of time so you’re not blindsided at the end of your project with nothing to show for it.

   
   

4. Force Majeure clauses that don’t account for pandemics

   Covid-19 has redefined many norms, including a clause that most people take for granted to account for anything catastrophic. Force Majeure clauses include by name events such as war, terrorism, and natural disasters such as fires, which allow for these special circumstances to create exceptions to contract obligations. Due to the confusion of how such clauses apply for pandemics like Covid-19 (see the American Bar Association’s analysis), it’s important to be protected by naming pandemics directly in the clause.

   
   

5. Compensation that doesn’t cover all your client-specific expenses

   Contracted work typically operates on a project-based or hourly rate. While your client will not be providing benefits reserved for full-time employees such as insurance and 401(k), you should negotiate ahead of time for any significant and regular expenses to be covered if they’re required for completion of the scope of work. These expenses may include commuting, work supplies, and business travel.

   
   

6. Non-solicitation and non-competition

   Similar to (3), it’s expected that freelance employees maintain a roster of clients, often in related industries, for their livelihood. Depending on the state, these clauses that limit your business’ ability to grow are not only frowned upon but may be unenforceable, and they should always be proportional to the work you’ve done. For non-solicitation clauses where they are enforceable, make sure that it’s reciprocated, so that your clients cannot solicit your subcontractors on the same terms you must abide by.

   
   

7. Indemnification and liability

   Indemnification is a gnarly-sounding word that means you will be responsible for losses your client suffers due to your actions. Such risk of liability is one reason contractors carry business insurance. However, liability should come with guardrails, with a rule of thumb being that losses should not exceed the value of your contract except in cases of personal injury, death, or physical damage.
   
   

I’m always looking at legal docs, I’m a one man shop, my own legal person. Legal is a huge pain point for me. I've never had so much clarity in a legal doc before. Thank you so much for putting this together for me :)

- Freelance UX Designer, Nevada

For advocacy and beyond!
The Ask Ginkgo Team