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INDEPENDENT CONTRACTOR AGREEMENT
A well-drafted Independent Contractor agreement will:
- Provide a description of what services the independent contractor has been engaged to perform for the Corporation.
- Set the duration of the independent contractors services to the Corporation.
- Establish the details of the independent contractor's relationship to the Corporation.
- Require the independent contractor to maintain the confidentiality of all customer names and other business records of the Corporation.
- Provide that the independent contractor shall be responsible for its own expenditures, taxes, etc.
- Provide for indemnification to the Corporation, for claims arising out of the independent contractor's acts or omissions.
- Prevent the independent contractor from impairing the reputation or goodwill of the Corporation.
- Prevent the independent contractor from competing against the Corporation both now and for two years after the termination of the contract.
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Information & Benefits:
Engagement
Describes exactly what the Contractor will do for Principal. Generally, an Independent Contractor enjoys a great deal of autonomy with respect to how he gets the job done. However, the cost of such freedom is being forced to pay for many of the resources required to get the job done.
Duration
Often, an Independent Contractor's term with a Company is based upon the amount of time needed for the Contractor to complete the job he was hired to do. However, terms of one or more years can be utilized.
Compensation
Usually, paid a commission or fee per job, but may also be based upon an hourly wage. However, Contractor can potentially deduct much more from job-related expenses than an employee. NOTE HOWEVER: The Company is not required to withhold taxes from the earnings of an Independent Contractor. Therefore, the Contractor is responsible for paying his own income taxes and for procuring his own benefits such as health and dental insurance.
Representations & Warranties
Describes exactly what each party expects from the other and offers assurances that such expectations will be met. Company may want Contractor to represent himself as an "Independent Agent of the Company" or may want the Contractor to perform his functions and duties in accordance with the rules and dictates proscribed by the Company and according to ordinary business custom. Note that in an Exclusive Agent Contract, the Company is bound by a non-circumvention clause, which limits its ability to negotiate with anyone inside the contractor's territory ensuring the contractor doesn't lose out on earnings/commissions, etc.
Sales Territory
Describes exactly the territory for which the Contractor Salesperson is responsible. Both parties need to be aware of this provision. The Company may have other agreements with Contractors that promise specific territories - don't want to overlap! Also, Contractor wants to take full advantage of contacts and relationship-building in a particular territory.
Independent Contractor Relationship
Important for Company to distinguish this hire from that of an employee of the Company to avoid any tax liability in the future. This provision stipulates that the Contractor shall retain sole and absolute discretion in the manner and means of carrying out the services contemplated in the contract and that no partnership or joint venture is being established by the hiring. In addition, the Company puts the onus of responsibility on the Contractor for payment of social security or federal or state income taxes. Contractor acknowledges that it is his/her legal responsibility to pay all applicable federal and state income taxes (including estimated taxes), social security, Medicare and all applicable federal and state self-employment taxes.
Expenses
Who is responsible for expenses. Usually, the contractor is responsible for all expenses incurred in performing the job, but often the company will reimburse Contractor for additional costs such as necessary travel expenses.
Restrictive Covenants
Such restrictive covenants offer the Principal statutory remedies for violation and often prevent the Contractor from unfairly competing against it or disclosing its confidential business information. As always, ensure any such restrictive covenant is within statutory parameters.
Covenant Not to Compete To prohibit one party from unfairly competing against the other. Very often, specific statutory language limits their scope. In Florida, such restraints of trade or commerce are specifically valid and limited only to statutory guidelines. However, many states, including New York still rely on the three-prong common law rule, which judges the reasonableness of the restriction in protecting a legitimate business interest. Still other states like California specifically prohibit covenants that prevent or otherwise "restrain" a person from engaging in their profession or trade.
Non-Solicitation Clause To prohibit one party from soliciting (for business purposes) staff from the other party.
Confidentiality Clause To prohibit one party from using the other party's business information to compete with them.
Non-Impairment of Goodwill Clause To prohibit one party from disparaging, in any manner or respect, the other party or it's financial soundness and responsibility, personnel or practices of it's business.
Insurance
For liability purposes, the Company may require the Contractor to carry any and all manner of insurance policies including: general liability insurance, automobile, bodily injury, property damage, worker's compensation, with coverage in amounts and form satisfactory to company.
Mediation and Arbitration
Mediation and Arbitration should always specify a location in Client's jurisdiction (preferably, in the same county where they run their business). Mediation is a non-binding way to settle the dispute quickly and amicably. If unable to settle in mediation, arbitration is first option available. Arbitration is the preferred alternative to litigation because of speed, cost, and ability to maintain low profile (no info is publicly available).
Governing Law
Always stipulate that the contract will be governed under whatever law the Client ordinarily conducts business. Always make sure that venue and jurisdiction are as convenient to client (Buyer) as possible.
No Modification or Waiver
No modifications except those specifically agreed upon by the parties in writing. Any waiver of a term or provision will not act as a waiver of any other provision.
Notices
Notices should always list the current and best addresses where each party may contact the other for whatever reason.
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