Independent Contractor Agreements FAQ

What is an Independent Contractor Agreement?

Similar to an Employment Agreement, an Independent Contractor Agreement is a document signed by two parties (often known as the “Company” doing the hiring and the “Contractor” doing the work) to establish a work-for-hire relationship and lay the ground rules for the labor that will be provided as a result of the transaction. While the form is similar to an Employment Agreement in that it represents a hiring, one main difference is that these contracts come with limited schedules rather than creating or filling an indefinite position.

While these agreements are frequently associated with home contracting (such as hiring a carpenter or an interior designer), they can also be used in a variety of businesses in which the company does not wish to retain an independent contractor’s services on a permanent, employee basis.

Why do I need to sign an Independent Contractor Agreement?

Because many people are used to working for others without a contract being signed beforehand, this question arises often. The importance of this agreement, as is the case with most contracts, is that it provides for an agreement’s enforceability under law. For example, receiving a verbal promise of future payment in exchange for work done today could constitute a verbal agreement under law; the contract, however, is essentially written proof that such an agreement existed in the first place.

Without the Independent Contractor Agreement in place in a new business relationship, both parties could feel uneasy – both the employer and the laborer. Signing this agreement is especially important in these new relationships.

Why do both parties need to be receiving something in an Independent Contractor Agreement?

One frequent legal theme that many people familiar with binding contracts is that of “consideration.” Consideration refers to the benefits found by both parties as a result of the contract – in the case of an Independent Contractor Agreement, one party receives labor while the other receives compensation. Without consideration having been established, it could be ruled that a contract is invalid. That’s the importance of making sure each Independent Contractor Agreement outlines a mutually beneficial business relationship.

Without consideration, it would be theoretically possible to force some people into conducting labor without expectation of monetary gain. This is illegal and therefore contracts like this that are signed can still be considered invalid. (Note: you can find more about consideration under the question “What are the requirements for an Independent Contractor Agreement to be valid?”)

What does a typical Independent Contractor Agreement consist of?

Though the form itself is a relatively simple, straightforward agreement, there are a number of provisions that will have to be satisfied in any Independent Contractor Agreement. For example, both parties must be identified. The services to be rendered should be identified, as well as the term – or schedule of duration – of the agreement. Consideration needs to be addressed – this is the sum of money that the Contractor will receive for his services. Other provisions, such as costs, deal with other specifics such as expenses that each party will be responsible for.

Additionally, it is the status provision that strongly separates an Independent Contractor Agreement from an Employment Agreement. In the status provision, the language of the contract explicitly defines the relationship and points out that the Contractor is not considered an employee. This is important because then the Contractor must know that they are not entitled to the benefits of an employee.

My hire went bad. When can I terminate an Independent Contractor Agreement?

You should find the answer in the Independent Contractor Agreement you signed under the termination provision. This will typically lay out the process and conditions that allow the agreement to be terminated. If the Contractor has not met one of these conditions, you may find that you’ll have a harder time in terminating the contract.

What about confidentiality issues?

Giving a Contractor access to information about your company can feel invasive, which is why the Confidentiality provision in the Independent Contractor Agreement will explicitly state that without the Company’s express written permission, this information is not to be shared. Additionally, other contracts like Non-Disclosure Agreements can also be signed to supplement this language.

When is an Independent Contractor Agreement enforceable?

Provided that the contract is valid (see below), the contract will immediately be enforceable; however, the terms outlined in the “Term” provision will generally guide the enforceability of the contract. For example, if you are unsure that a Contractor has been doing the work they have to do to prepare for the project, but the Term is not over, you may have little recourse in enforceability. If things in your business relationship go bad ahead of the Term’s end-date, then you may be able to refer to the Termination provision and terminate the contract early and end its enforceability.

What are the requirements for an Independent Contractor Agreement to be valid?

The validity of an Independent Contractor Agreement, like many contracts, hinges on signatures, the mental status of the people signing the document (as well as their authority to sign these contracts), and consideration. Consideration is a major issue for the validity of Independent Contractor Agreements because without both parties receiving some sort of consideration as a result of the contract, the contract might be considered invalid. And since the agreement itself hinges on the consideration both parties will receive as a result of their business relationship, it needs to be well-established what each party will be receiving as a result of the transaction.

When is an Independent Contractor Agreement effective?

The agreement will be effective as soon as it is validly signed. Though the term provision of the contract itself will have a strong influence on how the contract is carried out, the contract itself will always be considered effective unless terminated. Once a contract is terminated – assuming it has been validly terminated by its own rules – then the contract will cease to be effective and will also lose enforceability under the law.