A Closer Look at Independent Contractor Relationships & Agreements
Independent contractor (IC) arrangements are as diverse as they are commonplace in today’s business. An IC may be engaged to perform a simple, limited project, such as providing flowers for a conference, or to lead a more complex project, perhaps as an architect or software developer.
For this and other reasons, there is no “one size fits all” IC agreement. Each agreement between a company and its consultant will vary depending upon a number of considerations, including the work to be performed and by whom, the terms upon which the work will be accomplished, deliverables, compensation, and the necessary risk protections. However, as a general rule, IC agreements tend to include a number of key provisions, which I will review in this 2-part blog post.
One important point before we dive in: prior to entering into an IC arrangement, it is essential to confirm with legal counsel that the provider of the service can indeed be properly considered an IC under applicable law. The laws governing the classification of a party as either an independent contractor or employee are complex and vary from state to state. Simply labeling a person or company as an IC does NOT make them one under the law; and there can be significant unforeseen consequences in the case of misclassification.
With that said, here are the core provisions of an IC agreement:
IC agreements can be written for a single engagement or for longer-term relationships in which multiple projects are anticipated, similar to a master services agreement where statements of work (SOWs) are periodically added to the original agreement to signify new projects. In this situation, the term of the IC agreement is typically evergreen and will expire naturally upon termination or expiration of all outstanding SOWs. Utilizing this structure allows the parties the freedom of not having to go back to the drawing board each time there’s a new project or new services to be provided.
Nature of relationship
As discussed above, a general statement about the nature of the relationship between the parties, including a clear assertion that the contractor is not an employee of the company, is NOT enough to guarantee a similar finding under applicable law. Nonetheless, this provision does help to clarify the intent of the parties. Along the same lines, regardless of whether the IC is a company or an individual, this provision should also make clear that the company is not responsible for the payment of benefits of any kind to the consultant or its employees.
Scope of work
This provision is the nucleus of the agreement. It provides all of the details relating to the specific work or services to be performed, the responsibilities of each party relating to such work, deadlines and/or project timelines, expected deliverables, and finally, the billing, payment and expense provisions. The scope of work can be addressed in either the primary agreement or in the SOWs if the engagement will involve multiple projects with different terms. In the latter case, the provisions in the agreement relating to these items will be generic and simply refer to the details laid out in the statement of work.
Not all IC agreements will have the same protective provisions. The scope of work and relative risk to each party will drive which protections are necessary, such as those addressing intellectual property rights, non-competition and/or non-solicitation obligations, and indemnification and insurance requirements. Additionally, in situations where the independent contractor has access to personally identifiable information belonging to the company or its employees, agents, clients, customers or other third parties, data privacy and security issues may also need to be addressed, especially in light of the quickly evolving laws in this area.
As one would expect, protective provisions tend to be highly negotiated in comparison to other IC agreement terms. In Part 2 of this series, I will explore such provisions from the viewpoint of each party and share common points of compromise.
If you would like more information about independent contractor agreements, please contact Kristin Kreuder at email@example.com or 203-803-8714.
Kristin Kreuder is a Member of our NY-area team with over 20 years of legal and business experience in both public and private corporations and in major NYC law firms. Kristin handles a wide range of legal matters, including mergers and acquisitions; commercial transactions; technology, media, licensing and sponsorship; capital markets, venture capital and private equity transactions; and a variety of general corporate and governance matters.