A startup’s contractor agreement has to do three things: give the company ownership of everything the contractor creates, keep your confidential information confidential, and treat the contractor as a genuinely independent business. Payment, timing and termination are negotiable. The IP clause isn’t, because without a written assignment the contractor, not your company, owns the code and designs you paid for.
Key takeaways
- Use “hereby assigns” language so the company owns work product as it’s created.
- Don’t include a non-compete. Use confidentiality terms and, where state law allows, a narrow non-solicit instead.
- The agreement helps with classification, but how the work actually happens decides whether someone is a contractor or an employee.
- Get it signed before work starts. If that didn’t happen, sign one now that covers the past work.
What must a contractor agreement include?
- Scope and deliverables: what the contractor will deliver, and by when, usually in a statement of work for each project.
- Payment: rate (fixed fee, hourly or milestone), invoicing and payment terms. Fixed-fee or milestone pricing supports contractor status better than a weekly or hourly retainer that looks like a paycheck.
- IP assignment: see below.
- Confidentiality: what counts as confidential, that it’s used only for the work, and that it’s returned or deleted at the end, plus the whistleblower notice required by the federal Defend Trade Secrets Act.
- Contractor status: the contractor controls how and when the work is done, uses their own tools, pays their own taxes and gets no benefits.
- Term and termination: either side can end it on notice, and what’s owed at the end.
- Contractor promises: the work is original and doesn’t infringe anyone else’s rights.
- Non-solicit: a narrow 12-month non-solicit of your employees and the customers the contractor worked with, where state law allows it. California treats most non-solicits as void, and other states have their own rules. Leave out a non-compete. See Non-Solicitation Clauses and Non-Compete Clauses.
- Governing law and disputes.
What must the IP clause say?
By default, whoever creates a work owns it, and a contractor’s work isn’t automatically yours just because you paid for it. The clause should assign the work to the company as it’s created, back that up with “work made for hire” language, and cover any pre-existing material the contractor builds in, which they shouldn’t do without your written consent. Sample language:
“Contractor hereby assigns to the Company all right, title and interest in and to all work product, code, designs, inventions, documentation and other materials Contractor creates in performing the Services (the “Work Product”), including all intellectual property rights in them. To the extent permitted by law, the Work Product is a “work made for hire” for the Company. If Contractor incorporates any pre-existing material into the Work Product, Contractor grants the Company a perpetual, irrevocable, worldwide, royalty-free license to use it as part of the Work Product. Contractor waives any moral rights in the Work Product and will sign any further documents the Company reasonably requests to confirm its ownership.”
See Who Owns What?
What makes contractor status real?
The agreement should say the contractor is independent, but labels don’t decide it. What matters is how the work happens: who controls how and when it’s done, whether the contractor works for others, and whether the work is a core, ongoing part of your business. If a “contractor” works 20+ hours a week on core work for months, plan to convert them to an employee.
Getting this wrong is expensive. If a contractor is later reclassified as an employee, the company can owe the payroll taxes it should have withheld and paid, plus penalties and interest, unpaid minimum wage and overtime, and the benefits the person would have received as an employee, which can include equity. Officers and others responsible for payroll can be personally liable for some of those amounts. See Independent Contractor vs Employee.
What about AI tools and open-source code?
Consider adding a clause requiring the contractor to disclose any open-source components and any significant AI-generated code in the deliverables, and to comply with the open-source licenses. Code under certain open-source licenses can force you to publish your own source code, so you need to know what’s in the product. See Open Source.
How do I respond to a contractor’s redlines?
| Their request | Response |
| Mutual indemnification | Accept, as long as each side covers its own breaches and the contractor still covers infringement in its work. |
| A cap on their liability | Accept a cap at the fees paid, with exceptions for IP infringement, confidentiality breaches and indemnification. |
| IP transfers only on final payment | Refuse. Ownership should pass as the work is created. Their remedy for non-payment is to collect. |
| A license instead of an assignment | Refuse. They can keep genuinely pre-existing tools, but you need a broad license to anything built into your product. |
| Guaranteed minimum hours or billing | Usually refuse. It makes the relationship look like employment. |
| Defining “material breach” with a cure period | Accept. A 15-day cure period helps both sides. |
Do I also need a statement of work or an NDA?
- Projects with a contractor: use a contractor agreement with a statement of work for each project. New projects only need a new statement of work, not a new agreement.
- A separate NDA: unnecessary if the contractor agreement has a confidentiality clause.
- Health data: if the contractor will touch protected health information, you also need a HIPAA business associate agreement.
How do I end a contractor relationship and keep the IP?
Give notice as the agreement requires, and pay for accepted work. The agreement should require the contractor to hand over all work in progress, return your materials, delete your confidential information and confirm in writing that they’ve done so. Revoke their system access. If the original IP clause was weak, ask for a short signed confirmation of assignment.
What if work started before anything was signed?
Sign an agreement now with an assignment that expressly covers everything already delivered. The longer you wait, the harder it is to get a signature, especially from someone who’s moved on or is unhappy.
What changes for international contractors?
Local law may not recognize “work made for hire,” so the assignment language matters even more. Name the currency and payment method, and pick governing law and a dispute process you could actually enforce where the contractor lives. Whether someone is really a contractor is decided by their country’s law, not US law.
Related: Independent Contractor vs Employee · Should I Hire an Employee or a Contractor? · Who Owns What? · Independent Contractor Agreement
