How to Draft an Independent Contractor Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Creating an independent contractor agreement is of paramount importance for any business dealing with contractors. A well-crafted agreement can safeguard both parties from potential disputes or legal action in the future, and so it is critical that businesses and independent contractors take their time to understand the significance of drafting an independent contractor agreement and what components are essential.

As a lawyer with years of experience in composing and negotiating these kinds of agreements, I have witnessed firsthand how businesses and independent contractors often overlook the importance of having an agreement in place, leaving out clauses that could protect them should a disagreement or dispute arise. Below are some key provisions that must be included in any such document.

The scope of work must be outlined clearly; outlining the tasks expected of the contractor as well as when they should be completed by. This ensures both parties understand their obligations going forward, and also allows for businesses to know exactly what services they will receive from the contractor. Payment terms should also feature prominently within the document; detailing how much money will be given to their contractor at which intervals, as well as any additional fees or expenses they may occur during this process.

Confidentiality is important to protect a business’ confidential information from being used against them by a former contractor; therefore non-solicitation clauses should also be made clear within an agreement to prevent this from happening whilst ensuring both parties’ interests remain protected. Termination clauses also need to figure on any contract so that either party understand when it can end, safeguarding them from potential liabilities even if one party decides to end things prematurely. And finally - dispute resolution clauses are vital; allowing smooth proceedings rather than costly court battles if disagreements arise between both parties down the line.

In conclusion, understanding why drafting an independent contractor agreement is worthwhile along with which key elements need to be included is imperative for businesses and individual contracted alike - ensuring relations remain harmonious while guarding against potential risks down the line with clarity and conviction offered on all sides by way of an official documented contract… If you’re seeking guidance on this process then The Genie AI team can help - offering step-by-step guidance on creating your own comprehensive legal documents without requiring you even register or open an account – plus access our template library today!

Definitions (feel free to skip)

Applicable laws and regulations: Laws, rules, and guidelines that have been established by a government, organization, or other entity and must be followed by parties involved in the independent contractor agreement.

Identify the parties involved: To name and provide information about both the independent contractor and the business that are part of the agreement.

Clarify the roles and responsibilities: To clearly outline the tasks each party must do and the obligations each party has to the other.

Establish a timeline: To create a plan with a start date and end date for the completion of the work, as well as any other important dates or deadlines.

Set payment terms and amounts: To determine how and when the independent contractor will be paid, as well as the amount of payment.

Establish any limits of liability: To define the responsibility each party has for any losses or damages that may occur as a result of the agreement.

Provide an indemnification clause: To outline the circumstances under which either party may be held liable for any losses or damages incurred.

Outline any confidentiality requirements: To create rules or restrictions that both parties must follow regarding the sharing of information or trade secrets.

Define any ownership rights to the work product: To determine who owns the rights to any products or intellectual property created as a result of the agreement.

Include a termination clause: To outline the conditions under which either party can end the agreement and the associated consequences.

Establish a dispute resolution clause: To determine how any disagreements between the parties will be resolved.

Provide an option to terminate the agreement: To include a provision that allows either party to end the agreement if the other party does not meet its obligations.

Include a force majeure clause: To protect both parties from liability in the event of an unexpected event that is out of their control.

Establish a choice of law clause: To specify which laws will be used to settle any disputes between the parties.

Draft the agreement: To write the agreement that includes all of the elements outlined above.

Review the agreement: To look over the agreement to make sure it meets the needs and requirements of both parties.

Revise the agreement, as needed: To make any changes to the agreement that are necessary before it is signed and executed.

Sign the agreement: To physically sign the agreement with all parties’ signatures.

File the agreement, as needed: To submit the agreement to a government agency based on the laws of the applicable jurisdiction.

Distribute a copy of the agreement to all parties: To make sure that all parties have access to the same agreement.

Contents

• Research applicable laws and regulations
• Identify the parties involved
• Clarify the roles and responsibilities of both parties
• Establish a timeline for performance of services
• Set payment terms and amounts
• Establish any limits of liability
• Provide an indemnification clause
• Outline any confidentiality requirements
• Define any ownership rights to the work product
• Include a termination clause
• Establish a dispute resolution clause
• Provide an option to terminate the agreement
• Include a force majeure clause
• Establish a choice of law clause
• Draft the agreement
• Review the agreement
• Revise the agreement, as needed
• Sign the agreement
• File the agreement, as needed
• Distribute a copy of the agreement to all parties

Get started

Research applicable laws and regulations

• Research relevant local, state, and federal laws, regulations, and statutes that apply to independent contractors in your jurisdiction
• Familiarize yourself with laws regarding employee classification, taxes, and other relevant topics
• Understand the scope and limitations of an independent contractor agreement
• Research case law pertaining to independent contractors

Once you have a good understanding of the applicable laws and regulations, you can check this step off your list and move on to the next step.

Identify the parties involved

• Determine who the contracting parties are and the roles they will play in the agreement
• Collect the relevant contact information, including full names, business names, addresses, phone numbers, and email addresses
• Document the type of organization the contractors are representing (sole proprietorship, LLC, etc.)
• When complete, confirm that the relevant contact information and organization type are correct

Once you have identified the parties involved, collected their contact information, and documented the type of organization they represent, you can check this step off your list and move on to the next step.

Clarify the roles and responsibilities of both parties

• Establish a clear outline of the services to be performed by the independent contractor
• Clarify the scope of services and any limitations on the independent contractor’s authority
• Specify the payment terms, including how much will be paid, when payments will be made, and the currency in which payments will be made
• Outline the rights and obligations of both parties
• Establish a process for dispute resolution
• Describe any additional requirements, such as confidentiality, intellectual property rights, and non-compete agreements

You’ll know you can move on to the next step when you have included all of the necessary details in your independent contractor agreement regarding the roles and responsibilities of both parties.

Establish a timeline for performance of services

• Decide on the overall timeline for the performance of services
• Define the specific milestones and dates for those milestones in the timeline
• Specify whether the timeline is flexible or rigid
• Determine if the timeline can be changed and, if so, how
• Establish consequences if the timeline is not met
• Agree on the date of completion
• Once all of the above is established, include the timeline details in the independent contractor agreement

How you’ll know when you can check this off your list and move on to the next step:

• Once all details of the timeline have been established and included in the independent contractor agreement, you can move on to the next step.

Set payment terms and amounts

• Specify the payment amount: This should include the total amount, the payment schedule (such as a flat fee or an hourly rate), and any additional fees.
• Specify the payment method: This should include the method of payment, such as cash, check, credit card, or bank transfer.
• Specify any additional payment terms: This could include any additional payments, such as commissions, bonuses, or reimbursements.
• Include payment dispute resolution: If a payment dispute arises, it should specify the process for resolving the dispute (such as mediation or arbitration).

When you can check this off your list: You can check this step off your list when you have included all of the necessary payment terms and amounts in the agreement.

Establish any limits of liability

• Consider the type of work being done and the potential risk to your business before setting a limit of liability
• Decide whether you want the contractor to be held liable for any damages caused to your business
• Draft a clause that specifies the limits of liability for the contractor, including any applicable caps on the amount they may be held liable for
• Include a clause that states the contractor is not liable for any indirect or consequential damages
• Have the contractor sign and date the agreement to signify that they accept the limits of liability

Once you’ve established the limits of liability, you can check that off your list and move on to the next step.

Provide an indemnification clause

• Draft language that outlines who will protect the other from any losses or damages incurred from the independent contractor’s work
• Include a clause that states the independent contractor is responsible for any costs, liabilities or damages that may arise out of the services provided
• Make sure that the clause provides a clear explanation of the precise scope of the indemnification requirements
• Specify whether the indemnification requirement extends to the contractor’s negligence
• You can check this off the list when you have drafted a clause that clearly outlines who will be responsible for any losses or damages incurred from the independent contractor’s work.

Outline any confidentiality requirements

• Consider if the contractor should be required to sign a confidentiality agreement
• If so, include a clause that explains the confidentiality requirements
• Specify the type of information that must be kept confidential
• Set out the consequences for failing to maintain confidentiality
• When the confidentiality obligations will end
• How to check: Make sure you have included clauses in the agreement that outline confidentiality requirements and the consequences for failing to maintain them.

Define any ownership rights to the work product

• Identify what the contractor will be responsible for creating and who will own the copyright for the work
• Identify any circumstances in which the contractor will transfer ownership rights to the work to the hiring party
• Specify who will own any intellectual property created during the course of the contract
• Include any additional information related to the ownership of the work product

You will know that you have completed this step when you have included all necessary details regarding the ownership rights to the work product in your independent contractor agreement.

Include a termination clause

• Craft a termination clause that outlines the conditions under which the agreement can be terminated, such as violation of contract terms, or completion of the services.
• Include a specific date or timeline for the termination of services so that both parties understand when the services will be concluded.
• Specify whether the contractor will be compensated for services rendered up until the termination date.
• Outline who is responsible for the payment of any outstanding payments or expenses due at the termination of services.
• When the termination clause is complete, review it with the contractor and have them sign and date the agreement.

Once all the parts of the termination clause are included and both parties have agreed to the terms and signed the agreement, you can move on to the next step of establishing a dispute resolution clause.

Establish a dispute resolution clause

• Outline what will happen if there is a dispute between the contractor and the business
• Consider which type of dispute resolution process works best for the agreement, such as arbitration, mediation or litigation
• Specify the state or other jurisdiction laws to be used to resolve the dispute
• Include information on who will pay the costs of the dispute resolution process
• Describe the process and timeline for the dispute resolution process
• When complete, double-check to ensure the dispute resolution clause is clear, comprehensive and understandable

Once all the information is outlined, you will know that you have successfully established a dispute resolution clause.

Provide an option to terminate the agreement

• Define the circumstances and procedures for terminating the agreement
• Include a clause that allows either party to terminate the agreement with notice
• Specify the timeframe for termination in the agreement
• Include a clause to allow for termination without cause
• Include any other conditions, such as payment of a termination fee, specified in the agreement

When you have completed all the necessary steps for providing an option to terminate the agreement, you can move on to establishing a dispute resolution clause.

Include a force majeure clause

• Outline the specific contractual events that would be considered a force majeure, such as natural disasters, civil unrest, etc.
• Specify how the agreement will be amended in the event of a force majeure.
• Determine if any party is to be held liable for any damages incurred due to a force majeure.
• Be sure to include language specifying that the force majeure clause is not intended to excuse performance of any obligations.

You will know you have completed this step when you have included all of the relevant language in your independent contractor agreement and have addressed the issues mentioned above.

Establish a choice of law clause

• Identify the state whose laws will govern the agreement and the interpretation of the contract.
• Research the governing state’s laws and regulations to ensure that the contract is compliant.
• Incorporate the choice of law clause into the contract, which should specify the governing state’s laws and address any dispute resolution.
• Proofread the agreement to ensure the choice of law clause is accurate and compliant.

You’ll know when you can check this off your list and move on to the next step when you have proofread the agreement and confirmed that the choice of law clause is accurate and compliant.

Draft the agreement

• Determine the scope of services that the independent contractor will be providing.
• Outline the payment terms, including the rate of payment, payment schedule, and payment methods.
• Include the term of the agreement and how it can be terminated.
• Draft any applicable confidentiality clauses.
• Consider what type of insurance the independent contractor may need to have.
• Include a provision for independent contractor status.
• Have both parties sign and date the agreement.

When you can check this off your list and move on to the next step: Once you have both parties sign and date the agreement, you can move on to the next step of reviewing the agreement.

Review the agreement

• Review the agreement to ensure that all essential information is included, such as the parties involved, the scope of the project, the payment arrangements, and any other applicable terms
• Read the agreement thoroughly and make sure that the language is clear and concise
• Check for any typos or other mistakes that may be present
• Make sure the agreement is compliant with all applicable laws
• When you are satisfied that the agreement is complete and accurate, you can move on to the next step of revising the agreement, as needed.

Revise the agreement, as needed

• Read the agreement carefully to ensure it includes all of the necessary elements and accurately reflects the agreement between parties
• Check that the agreement includes all of the details of the work to be completed, the payment terms, the duration of the project, any liability and confidentiality clauses, and any other relevant details
• Make any necessary changes to the agreement to reflect the agreement between parties
• Once you are satisfied with the language of the agreement, you can move forward to the next step of signing the agreement.

Sign the agreement

• Both parties should sign the agreement in the presence of a witness
• Both parties should also get a copy of the signed agreement
• The witness should also sign and date the agreement
• Once all parties have signed and dated the agreement, you can check this step off your list and move on to the next step.

File the agreement, as needed

• Gather all necessary signatures from the parties involved in the agreement
• Make sure that all of the signatures are witnessed and dated
• Make a copy of the agreement for each of the parties involved
• File the original agreement with the relevant government body or court, if necessary
• Make sure that you have proof that the agreement was filed
• Check off this step to move on to the next step: distributing a copy of the agreement to all parties

Distribute a copy of the agreement to all parties

• Make at least two copies of the agreement and ensure they contain the same information.
• Make sure the signature lines are filled out with the full names of the parties involved.
• Provide a copy to each party after they have signed the agreement.
• Make sure to keep one copy for your own records.
• You will know you can move on to the next step when all parties have received their copies of the agreement.

FAQ:

Q: What is the difference between an employee and an independent contractor?

Asked by Matthew on June 17th 2022.
A: An employee is a person who works for a company or organization as part of their staff, usually under a contract of employment. An independent contractor, on the other hand, is a person who provides services on a contract basis to another individual or organization. They are viewed as independent business owners who provide services to clients rather than employees of a company. The main difference between an employee and an independent contractor is that an independent contractor typically works more independently from the client, usually under their own terms and conditions and with fewer restrictions on their work.

Q: What are the differences between UK, USA and EU laws for independent contractors?

Asked by John on December 30th 2022.
A: The laws governing the use of independent contractors vary widely across the UK, USA and EU. In the UK, any agreement with an individual to provide services in return for payment must be in writing and should include details such as payment terms and rights to terminate the agreement. In the US, state laws may require that employers obtain workers’ compensation insurance for its employees and independent contractors in certain circumstances. In the EU, there are various laws which regulate different aspects of using independent contractors, such as the Working Time Directive which seeks to ensure that workers receive reasonable rest periods and holidays throughout the year.

Q: Are there any specific considerations I should make when drafting an independent contractor agreement for my industry?

Asked by Sarah on April 18th 2022.
A: Yes – depending on your industry there may be specific considerations which you should take into account when drafting an independent contractor agreement. For example, if you are in the technology industry then it is important to include provisions which protect any intellectual property rights which may be created or transferred during the course of the agreement. Additionally, if you are providing services in a regulated sector then you may need to include additional provisions relating to compliance with relevant regulations. It is also important to consider any specific requirements or expectations that your clients may have in relation to their service level agreements or other contractual obligations.

Example dispute

Suing a Company for Breach of Independent Contractor Agreement

• Plaintiff must prove that a valid agreement was formed between the parties, and that the defendant breached the agreement
• Plaintiff must show that they were harmed by the breach, and quantify the damages
• Plaintiff must demonstrate that the contract was not illegal, invalid or unenforceable
• Plaintiff may seek monetary damages, or specific performance (requiring the defendant to comply with the terms of the agreement)
• Settlement might be reached if the defendant agrees to pay the plaintiff a sum of money or agrees to fulfill their obligations under the contract
• If damages are awarded, the amount is determined by the court based on the extent of the breach, the harm that was caused, and the cost incurred by the plaintiff to remedy the breach

Templates available (free to use)

Consultancy Contractor Agreement

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