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Independent Contractor Agreement

This agreement is made on [AGREEMENT DATE] between [COMPANY NAME], with its principal place of business at [COMPANY ADDRESS] (the "Company") and [CONTRACTOR NAME], [whose principal place of residence is at/with its principal place of business at] [CONTRACTOR ADDRESS] (the "Contractor").

RECITALS:

A. The Company wishes to have the Contractor perform certain services and may request other services in the future.

B. The Company and the Contractor wish to enter into an agreement that will define all the services to be performed and the parties' respective rights and duties.

The parties agree as follows:

1. The Services. Effective [EFFECTIVE DATE], the Company engages the Contractor to provide, and the Contractor shall provide, [[DESCRIPTION OF SERVICES] / the services described in the applicable statements of work] (the "Services").

2. Changes to Services. The Company may, with the Contractor's prior written consent, modify the nature and extent of the Services at any time.

3. Compensation

3.1. Rate. The Contractor shall perform the Services at the rate [of [SERVICES FEE] / stated in the applicable statement of work] [and not exceed the total estimated amount specified in the statement of work].

3.2. Taxes, etc. The Company will not be responsible for any tax-related or other legal obligations applicable to the Contractor.

4. Invoices and Payment

4.1. Invoices. The Contractor shall deliver its invoices for Services to the Company [bi-weekly/monthly][ as detailed in the applicable statement of work][ after performance of the related work].

4.2. Payment. The Company shall pay the invoice amount within [PAYMENT DUE DAYS] business days after receipt of the invoice.

4.3. Overdue Payments. Interest on overdue payments will accrue at a rate of [DEFAULT PAYMENT RATE]% per year, calculated monthly.

5. Expenses

5.1. Reimbursement. The Company shall reimburse the Contractor for all pre-approved, reasonable, and necessary expenses incurred in performing the Services.

5.2. Receipts, etc. The Contractor shall provide the Company with satisfactory documentation supporting all expense requisitions.

5.3. Payment. The Company shall reimburse the Contractor promptly following receipt of each properly documented expense requisition.

6. Independent Contractor Status

6.1. Status. The Contractor is an independent contractor. Nothing contained in this agreement creates a partnership, joint venture, employer/employee, principal-and-agent, or any similar relationship between the parties.

6.2. No Authority. The Contractor has no authority to, and shall not, act as agent for or on behalf of the Company or represent or bind it in any manner.

6.3. No Benefits [For individual Contractors]. The Contractor will not be entitled to any of the benefits afforded to Company employees.

7. Contractor's Representations

7.1. No Conflicts. The Contractor is under no restriction or obligation that may affect the performance of the Services.

8.  Contractor's Warranties

8.1. Performance. The Contractor shall perform the Services in a professional and workmanlike manner.

8.2. Original Work. All of the Contractor's work under this agreement will be original work.

8.3. No Infringement. In providing the services, the Contractor shall not infringe, misappropriate, or violate any intellectual property or other right of any person or entity.

9. Confidentiality

9.1. Definition of "Confidential Information." In this agreement, "Confidential Information" includes all [material] [non-public] [business-related] information, written or oral, disclosed or made available to the Contractor,[ directly or indirectly,] through any means of communication [or observation] by [the Company[ or any of its affiliates or representatives] to[ or for the benefit of] the Contractor.

9.2. Confidentiality Obligations. The Contractor shall hold all Confidential Information in confidence in accordance with the terms of this agreement.

9.3. Use only for the Purpose. The Contractor shall use Confidential Information solely for the purpose of providing the Services.

10. Intellectual Property

10.1. Definition of "Work Product." In this agreement, "Work Product" includes all information, work product, and other results, systems, and information developed in connection with the Services and any resulting intellectual property rights.

10.2. Ownership of Work Product. The Contractor acknowledges that all Work Product will, to the extent permitted by law, be a "work made for hire" within the definition of Section 101 of the Copyright Act (17 U.S.C. 101) and will remain the Company's sole and exclusive property.

10.3. Assignment

(a) Assignment of Work Product. To the extent that any Work Product is not deemed to be a work made for hire within the definition of the Copyright Act, the Contractor with effect from creation of any and all Work Product, agrees to assign and hereby assigns to the Company all the Contractor's right, title, and interest in and to the Work Product.

(b) Cooperation. The Contractor shall further provide all assistance that the Company reasonably requests, both during and after the Term of this agreement, in establishing, preserving, and enforcing the Company's rights in and to the Work Product.

10.4. Moral Rights. The Contractor also agrees to waive and hereby waives all moral rights relating to the Work Product (including any rights (a) of identification of authorship, (b) of approval, restriction, or limitation on use, and (c) to subsequent modifications).

10.5. Return of Work Product. Upon the expiration or termination of this agreement, the Contractor shall promptly deliver to the Company all tangible manifestations of the Work Product (including all originals and copies).

11. Non-Solicitation. During the Term of this agreement and for a period of [NON-SOLICITATION PERIOD] following the termination of this agreement, the Contractor[, on the Contractor's own behalf or in the service or on behalf of others], shall not

(a) induce or attempt to induce any officer, director, or employee to leave the Company, or

(b) solicit the business of any customer[ or consultant] of the Company.

12. Indemnification

12.1. Indemnity. The Contractor shall indemnify the Company[ and its officers, directors, employees, agents, and affiliates,] against all claims, liability, costs, and expenses (including attorneys' fees) arising from any third party claim or proceeding against the Company that alleges any negligent act or omission or willful conduct of the Contractor[ or its directors, officers, employees, agents, or affiliates].

12.2. Notice of Claim. The Company shall promptly give Notice to the Contractor of any claim or potential claim for indemnification under this agreement.

13. Insurance

13.1. Coverage. Throughout the Term of this agreement, the Contractor shall, in connection with its performance of the Services, maintain (a) workers' compensation insurance in the amount required by law and (b) comprehensive general liability insurance with coverage of at least $[INSURANCE COVERAGE] per occurrence for bodily injury, property damage, or other losses.

13.2. Additional Insurance. The Contractor acknowledges that specific projects may require it to obtain additional insurance. The Contractor shall provide details about the additional insurance on the applicable statement of work.

13.3. Proof of Insurance. At the Company's request, the Contractor shall provide the Company with

(a) certificates or other acceptable evidence of insurance evidencing its coverage in compliance with this section, and

(b) Notice of any material change to that coverage.

14. Term. This agreement will begin on the date that appears at the top of the first page of this agreement and will continue for a period of [TERM PERIOD] (the "Term"), unless terminated earlier in accordance with this agreement.

15. Termination

15.1. Notice of Termination. Either party may terminate this agreement for any reason, and with or without cause, at any time before the end of the Term by giving [TERMINATION NOTICE PERIOD] notice of termination.

15.2. Payment upon Termination. The Company shall pay the Contractor for all Services performed through to the date of termination.

16. General

16.1. Entire Agreement. This agreement contains all the terms agreed to by the parties relating to its subject matter. It replaces all previous discussions, understandings, and agreements.

16.2. Further Assurances. Each party, upon receipt of notice from the other party, shall sign (or cause to be signed) all further documents, do (or cause to be done) all further acts, and provide all assurances as may reasonably be necessary or desirable to give effect to the terms of this agreement.

16.3. Amendment. This agreement may only be amended by a written document signed by both parties.

16.4. Binding Effect. This agreement benefits and binds the parties and their respective heirs, successors, and[ permitted] assigns.

16.5. Assignment. Neither party may assign this agreement, or any of their rights or obligations under this agreement, without the prior written consent of the other party.

16.6. Third Party Beneficiaries. The Indemnification terms of this agreement confer rights and remedies upon the Company's officers, directors, employees, agents or affiliates. No person has any rights or remedies under this agreement other than those beneficiaries and the parties themselves.

16.7. Notices

(a) Form of Notice. All notices and other communications between the parties must be in writing.

(b) Method of Notice. Notices must be given by (i) personal delivery, (ii) a nationally-recognized, next-day courier service, (iii) first-class registered or certified mail, postage prepaid[, (iv) fax][or (v) electronic mail] to the party's address specified in this agreement, or to the address that a party has notified to be that party's address for the purposes of this section.

(c) Receipt of Notice. A notice given in accordance with this agreement will be effective upon receipt by the party to which it is given or, if mailed, upon the earlier of receipt and the fifth day following mailing.

16.8. Remedies Cumulative. The rights and remedies provided to a party under this agreement are cumulative and in addition to, not exclusive of or in substitution for, any rights or remedies otherwise available to that party.

16.9. Survival. The [Confidentiality, Intellectual Property, Non-Solicitation, and Indemnification] terms survive the expiration or termination of this agreement.

16.10. Severability. If any part of this agreement is declared unenforceable or invalid, the remainder will continue to be valid and enforceable.

16.11. Waiver. No waiver of a condition or nonperformance of an obligation is effective unless it is in writing and signed by the party granting the waiver. No waiver by a party affects the exercise of any of its other rights or remedies. Any failure or delay in exercising any right or remedy will not constitute, or be deemed to constitute, a waiver of that right or remedy. No single or partial exercise of any right or remedy will preclude any other or further exercise of any right or remedy.

16.12. Injunctive relief. The Contractor acknowledges that his or her breach or threatened breach of any obligation under this agreement would not be susceptible to adequate relief by way of monetary damages only. Accordingly, the Company may, in that case, apply to court for any applicable equitable remedies (including injunctive relief), without the need to post any security.

16.13. Governing Law. This agreement will be governed by and construed in accordance with the laws of the State of [STATE OF GOVERNING LAW], without regard to its conflict of laws rules.

16.14. Interpretation

(a) References to Specific Terms

(i) "Including." Where this agreement uses the word "including," it means "including without limitation," and where it uses the word "includes," it means "includes without limitation."

(ii) Statutes, etc. Unless specified otherwise, any reference in this agreement to a statute includes the rules and policies made under that statute and any provision that amends, supplements, supersedes, or replaces that statute or those rules or policies.

(b) Number and gender. Unless the context requires otherwise, words importing the singular number include the plural and vice versa; words importing gender include all genders.

(c) Headings. The headings used in this agreement and its division into sections,[ schedules, exhibits, appendices,] and other subdivisions do not affect its interpretation.

(d) Internal References. References in this agreement to sections and other subdivisions are to those parts of this agreement.

16.15. Counterparts. This agreement may be signed in any number of counterparts, each of which will be deemed to be an original and all of which, taken together, will constitute one single document.

This agreement has been executed by the parties.

[COMPANY NAME]

By:___________________________________

Name:

Title:

Date

[CONTRACTOR NAME]

By:___________________________________

Name:

[Title:]

Date

Overview

An Independent Contract Agreement is between an Employer and a contractor hired to provide a specific work product for the Employer.

The Independent Contractor Agreement specifies that the contractor is intended to be hired as an Independent Contractor, rather than a typical Employee.

Using an Independent Contractor Agreement lets an Employer combine, on the one hand, the financial, tax, and liability benefits of using an Independent Contractor over Employees, with, on the other hand, the ownership of final work product that by default only comes from using Employees, and not Independendent Contractors.

What do These Terms Mean?

An Independent Contractor is a non-employee, hired to provide specific certain goods or services.

For example, if your company needed a new logo you might contract an outside designer to design your website. This person would very likely be an Independent Contractor.

An Employee is exactly what you think it is; it is the person working retail at the mall, the CEO of a Fortune 500 company, and the pilot flying a commercial jet.

Why is the Distinction Important? Ownership of Work Product, Financial Consequences, and Tort Liability

Ownership of Work Product

Whether someone is an Independent Contractor and an Employee determines who owns the work product made by the “hired” party: does the “hired” party—the Independent Contractor or Employee—own the work, or, does the “hiring” party own the work?

A work made by an Employee is known as a Work Made for Hire, and is an exception to the general rule that the person who actually creates a work is the owner of that work. A Work Made for Hire is owned by the Employer, not the Employee, who actually made the work.

On the other hand, the defualt ownership rules apply to Independent Contractors, who own whatever work product he or she delivers—often, this ownership is in the form of copyright over a creative work. Of course, this is only the default rule. 

Indeed, a core purpose of an Independent Contractor Agreement is to overwrite this default rule, so that ownership of work products delivered by an Independent Contractor are assigned to the Employer. 

There are financial, tax, and liability reasons for Employers to use Independent Contractors instead of Employees (which will be spelled out below). Using an Independent Contractor Agreement an Employer gets the best of both worlds: by assigning ownership of the work product to the Employer, the Employer can both take advantage of the financial, tax, and liability benefits of using Independent Contractors, and have ownership over the work product, as if the contractor was a typical Employee.

Financial Consequences

An Employee must pay social security, medicare, and unemployment taxes on Employees, which is does not need to pay for Independent Contractors.

Vicarious Liability

Vicarious Liability means that—and in particular, the doctrine of Respondeat Superior—an Employer can be held liable for an Employee’s actions or omissions. This liability is limited to negligent torts or strict liability crimes by Employees, when the Employee is acting “within the scope of employment.”

In contrast, Employers are generally not liable for actions by an Independent Contractor, with only two exceptions where an Employer may be liable for the torts of an Independent Contractor:

First, where the work assigned to the Independent Contractor is “inherently dangerous.”

Second, where for public policy concerns, an Employer should be responsible for ensuring the safety of its business premises.

Darren A. Feider, Employers May Face Vicarious Liability for Dangerous Acts of Independent Contractors (accessed June 10, 2016).

When is Someone An Independent Contractor, and When is Someone An Employee?

In general, the difference between an Independent Contractor and an Employee boils down to the amount of control the Employer has over the hired party. More control by the Employer, means the hired party is more likely an Employee. Less control by the hired party, means the hired party is more likely an Independent Contractor. There are different tests used to determine Employee/Independent Contractor status, depending on the context, and the agency making the determination. Below are the most common tests. For more on these tests, see Raymond W. Bertrand et al., Structuring Independent Contractor Statements to Avoid Costly MisClassification Liability (accessed June 10, 2016).

Ownership Issues

A Work Made for Hire, by an Employee, is legally created two ways:

(A) When made in the “Ordinary Course of Business”, or;

(B) When the work fits into one of the following nine categories of works, and there is a written agreement between employer and employee that the work is intended to be a work made for hire. The nine categories are:

(1) As a contribution to a collective work;

(2) As a part of a motion picture or other audiovisual work;

(3) As a translation;

(4) As a supplementary work;

(5) As a compilation;

(6) As an instructional text;

(7) As a test;

(8) As answer material for a test;

(9) As an atlus.

United States Copyright Office, Work Made For Hire (accessed June 8, 2016).

If the work product fits into either (A) or (B), we are looking at a Work Made For Hire, made by an Employee, not an Independent Contractor. Thus, ownership of the work product automatically goes to the Employer.

It will be relatively clear when a work satisfies (B)—when it falls into the enumerated list and is evidenced in writing—but determining when work product satisfies (A)—when it is within the “Ordinary Course of Business”—is more complicated, based on an agency test.

The US Supreme Court affirmed that to determine when something is within the “Ordinary Course of Business” a court should apply a common law agency test, which considers the following factors:

(1) Level of skill required to complete the task;

(2) Which party owns any tools used to create the work;

(3) Location of the work;

(4) Direction of the relationship;

(5) Whether the “hiring” party can assign additional work without consent;

(6) Hired party’s role in hiring assistants;

(7) Whether work is in the normal line of business of the “hiring” party;

(8) Whether the “hiring” is in business at all—or is it a non-business entity. A nonprofit would count as a business entity;

(9) Provision of employee benefits;

(10) Tax treatment of “hired” party.

In general, when the factors indicate a higher degree of discretion on behalf of the “hired” party, the “hired” party is more likely to be an Independent Contractor, and the work will not be a Work Made for Hire.

On the other hand, where the “hiring” party has a higher degree of control, the relationship is more likely to be Employer–Employee, and the work a Work Made for Hire.

IRS Uses the “Right to Control” Test, Instead.

The IRS uses the “Right to Control” test—instead of the common law agency test shown above—to determine who is an Employee and who is an Independent Contractor for tax purposes.

The “Right to Control” test has three prongs:

(1) Behavior: Can the Employer control or does it have the right to control what and how the worker does her job?

(2) Financial: Does the Employer control how the hired party is paid, how expenses are reimbursed, or how tools and supplies are provided?

(3) Type of Relationship: Are there written contracts or employee type benefits (pension plans, insurance, vacation pay, etc.)? Is the relationship indefinite or limited to the completion of a particular work product, and is the work performed a key aspect of the Employer’s normal business?

Independent Contractor Status for Liability Purposes

Employees and Independent Contractors will likely be classified for tort and criminal liability purposes the same way they are for ownership issues. That is, it is about the degree of control the Employer has over the hired party. Refer back to the section on determining Employee status for ownership issues, and the common law agency test applied there.

Once you determine whether one is an Employee or an Independent Contractor, the following are important to determining the Employer’s potential liability:

If it is an Employee: 

(A) Is the Employee acting within the “ordinary course of business?” Or

(B) Is the Employee acting outside the "ordinary course of business," in the course of his personal life, taking a detour on a delivery, or an unauthorized break from work?

Intentional v. Negligence: If it is a tort, is a negligent tort, or based on negligence? If a negligent tort, and done in the “ordinary course of business,” the Employee will like be liable. Employers are much less likely to be liable for intentional torts by their Employees. The rare situation in which an Employer could be liable for crimes committed by an Employee is if in the ordinary scope of business the Employee commits a strict liability crime, sometimes referred to as regulatory crimes.

If it is an Independent Contractor: It is much less likely an Employer will be liable for actions of an independent contractor. To be liable, either:

(A) The work prformed by the Independent Contractor, from which the action arises, must have been “inherently dangerous.” 

(B) Public policy favors imposing liability on the Employer. Like liability for Employees, this could arise when the action is strict liability. It is generally good public policy to impose strict liability on to Employers, encouraging them to create safe working and business environments, and hiring responsible employees and contractors.

Key Issues In Independent Contractor Agreements

(1) Assignment of Work Product:

The core purpose of many Independent Contractor Agreements is to overwrite the default rule that Independent Contractors retain ownership of the work product. Employers generally prefer the financial and liability treatment of an Independent Contractor to those of an Employee. On the other hand, Independent Contractors retain ownership of their work product. For the Employer, not owning the work product produced under the agreement can hamstring its business.

Therefore, some of the most important clauses of an Independent Contractor Agreement are the Ownership Of Work Product, and Assignment clauses.

(2) Strike The Right Balance of Control:

Too much and you run the risk of mistakenly having formed an Employer/Employer relationship. Too little and you could risk a final work product not to your specifications, or that is too far behind schedule to be useful. To strike this balance:

Do:

Allow flexibility of the Independent Contractor’s work schedule, some discretion over when to work.

Allow the Independent Contractor to subcontract if need be.

Pay on a fixed rate, or by the project.

Have a definite term, perhaps tied to the (timely) completion of the project.

Specify the particular project and/or work product the Independent Contractor is being brought on to complete.

Instruct the Employees who will supervise the Independent Contractor on these guidelines, and limit how Employees can direct the Independent Contractor.

Do Not:

Dictate how or when the Independent Contractor works on a day-to-day basis.

Refer to an Independent Contractor as an Employee.

Pay on an hourly, weekly, or monthly rate, provide employment benefits, or typical bonuses (such as a Christmas bonus).

Provide tools, supplies, or materials for free or on discount.

Provide a uniform.

Hire Independent Contractors to do the work generally done by your company.

(3) Important Clauses

With these do/do nots in mind, here are important clauses to include in an Independent Contractor agreement. Including all the following clauses will leave the parties with a very robust Independent Contractor Agreement.

Definition of Independent Contractor — As with most agreements, referring to something by a certain term does not necessarily make it that thing under law. That said, it will not hurt to explicitly define the hired party as an Independent Contractor, and contrast it to an Employee.

Independent Contractor to Control Performance — The contractor should have the discretion to decide when and where the work is done, so long as completed on time.

Term and Termination — An agreement with indefinate length will look more like an Employment Agreement rather than an Independent Contractor Agreement.

Insurance — Like Benefits, providing insurance will make an agreement look more like and Employment Agreement than an Independent Contractor Agreement.

Non-Exclusivity — The Independent Contractor should be free to also take on other work while working for the Employer.

Compensation and Benefits — Do not pay a sallary. Instead, tie the Independent Contractor's compensation to the completion of agreed-upon milestones in the work product. These milestones should be defined in the clause. Do not include benefits or bonuses standard to Employment Agreements. If anything, link payments to completed portions of the work product.

Services — Let the Independent Contractor determine the means, details, and methods used to complete the services.

Equipment Supplies and Expenses — The Independent Contractor should be responsible for providing his own supplies. 

For more on best practices regarding Independent Contractor Agreements, see Raymond W. Bertrand et al., Structuring Independent Contractor Statements to Avoid Costly MisClassification Liability (accessed June 10, 2016).