Before early-stage startups have funding to hire a team of employees, the team usually consists of the founders and a number of independent contractors. Since these contractors are building the minimum viable product and laying the foundation of the company, it’s important to get the contract right. Every startup should have a solid independent contractor agreement.
These agreements can take many forms, but below are the bare minimum terms that your startup should include in its independent contractor agreement:
- Scope of work
- Payment terms
- Confidentiality
- Intellectual property rights
- Timeframe
- Termination rights
- Independent contractor status
Of course, every company is different, so it’s worth hiring legal counsel to both draft and educate you on the independent contractor agreement. If you are looking for legal counsel, feel free to reach out to us here.
Independent Contractor Scope of Work
Defining the scope of work is an essential part of any independent contractor agreement. This section should clearly outline the services that the contractor will provide, including specific tasks and deliverables.
When defining the scope of work, it is crucial to be as detailed as possible to avoid any confusion or misunderstandings later on. Make sure all parties are clear on what is expected and what is not included in the project.
If there are specific timelines or deadlines associated with the project, include them in this section.
By defining the scope of work upfront, you can ensure that both you and the independent contractor are on the same page and working toward a common goal.
Payment Terms
It is important to clearly outline payment terms in an independent contractor agreement. This section should detail how and when the contractor will be paid for their services.
To begin, determine the rate of pay, whether it is a flat fee or an hourly rate. Once the rate has been agreed upon, outline the invoicing procedures and payment schedule.
Invoicing procedures should be simple and easy to follow. Specify what information must be included in each invoice, such as dates of service, hours worked (if applicable) and any expenses incurred. Also, indicate how often invoices must be submitted (e.g. weekly or monthly) and how they should be delivered.
Next, establish a payment schedule that works for both parties. Will payments be made in installments or in one lump sum upon completion of the project? If there are specific milestones associated with the project, consider tying payments to those milestones.
By clearly outlining payment terms upfront, you can avoid any confusion or disputes down the line. Make sure all parties agree with the payment plan before moving forward with the project.
Confidentiality
Confidentiality is a crucial part of any independent contractor agreement, especially if the contractor will be handling sensitive information. In this section, you should specify any confidential information that the contractor may encounter during their engagement and how they are expected to handle it.
First, define what constitutes confidential information. This may include trade secrets, customer data, financial information or other proprietary data. Be as specific as possible when describing the type of information that is considered confidential.
Next, describe how the confidential information can be used. As a general rule, it should only be used to provide services to the company.
Then outline the steps that the contractor must take to protect this information. This may include requirements for secure storage, password protection or encryption. You may also want to specify who has access to this information and under what circumstances.
Finally, consider including a clause that prohibits the contractor from disclosing any confidential information to third parties without your explicit permission. This can help ensure that your data remains secure and protected at all times.
By taking the time to clearly define confidentiality expectations upfront, you can help prevent breaches of sensitive data and protect your business from potential legal issues down the line.
Intellectual Property
As a general rule, the creator of intellectual property owns it, unless it is transferred to another party. Therefore, a startup may hire a contractor to work for the company, but that company may not own or be able to use the deliverables from that contractor. To avoid this nightmare scenario, it is crucial to address ownership of any intellectual property created during the term of an independent contractor agreement. This section should clearly outline who will own the intellectual property created by the contractor and how it will be handled.
Start by defining what is considered intellectual property. This may include inventions, patents, trademarks, copyrights or trade secrets. But it may also include notes, designs, processes and final deliverables. Be specific when describing the types of intellectual property that are relevant to your project.
Then, specify who will own the intellectual property created during the agreement. Will the startup or the contractor own it? When will ownership be transferred from one party to the other? Does the other party have any rights? If ownership is shared, consider outlining specific terms for each party’s use and distribution rights.
It is important to consider how disputes over intellectual property will be handled. Include a clause that outlines a process for resolving disputes and specifies which jurisdiction’s laws will apply.
Defining ownership and handling of intellectual property upfront can avoid confusion and legal issues in the future. Make sure all parties agree to these terms before moving forward with the project.
Timeframe
Defining the timeframe is a critical aspect of any independent contractor agreement. This section should clearly outline the start and end dates of the contract, as well as any milestones or deadlines that must be met.
Start by specifying the project start date and when the contractor is expected to begin work. This will ensure that everyone knows when work can start.
Next, define the project or engagement end date. This may be tied to specific deliverables or simply a set period of time for work to take place.
In addition to start and end dates, consider outlining specific milestones or deadlines that must be met during the project. This may include intermediate deliverables, stakeholder meetings or other key events critical to project success.
By defining clear timelines upfront, you can ensure that all parties work toward a common goal and that expectations are aligned throughout the project. Make sure all parties agree to the terms before proceeding with the engagement.
Termination
Have a termination section in any independent contractor agreement. This section should outline the reasons for termination and the notice period required.
To specify the grounds for termination, describe the conditions that would trigger it such as breach of contract, non-performance or simply for convenience. Be clear and specific.
Next, outline the notice period required for termination. This might be a certain number of days or weeks. Ensure that both parties understand the requirement and what needs to be done during this period.
Finally, consider what happens upon termination. Will any outstanding payments still need to be made? Will any intellectual property created during the contract term be transferred? Consider these questions carefully and ensure that all parties agree to the terms.
Independent Contractor Status
Use clear language in the agreement to distinguish an independent contractor rather than an employee of the company. Failing to do so could lead to legal problems concerning misclassification.
In this section, define the relationship between the company and the contractor. Clearly state that the contractor will work independently, providing their own tools and equipment, and setting their own schedule.
Additionally, consider including a clause that specifies that the contractor is responsible for paying their taxes and obtaining any necessary licenses or permits. This can further confirm the independent contractor status and prevent any confusion or misunderstandings down the line.
By clarifying the independent contractor status upfront, you can protect yourself from potential legal issues related to misclassification. Ensure that both parties understand and accept these terms before starting the project.
