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Running a business as an independent contractor is a huge challenge. Looking for clients, exceeding customer expectation, and charging them the correct fees are just but a few of the challenges the independent contractor must face each day. The challenge increases manifold when you consider that some of the contractors have employed several individuals to work under them. For these reasons, the contractor needs everything in place to run the business successfully. One of the factors needed to enjoy success is an independent contractor contract. 

The contract helps all independent contractors

It defines all elements essential to maintaining a healthy contractor-client relationship. It defines the responsibilities and duties of the client vis-à-vis the contractor. The contract defines who the contractor is clearly. It leaves no room for any sort of ambiguity. Everything is clearly spelled out, and the independent contractors begin working as one safe in the knowledge that their status will not change, especially later when they have to file their tax returns. The contract is essential for the success of any arrangement or project between contractor and client. 

Independent contractor agreement template
Credit: rocketlawyer.net

The contract goes into detail while explaining the relationship between the two parties. 

Before preparing or signing the contract, it is good to check what the local laws have to say. For example, what do state laws say regarding independent contractors? Other than that, the two parties also need to specify everybody’s duties and responsibilities. Additionally, issues regarding compensation (remuneration) also need to appear on the independent contractor contract. What is more, the contract needs to stipulate the kind of reports that need to be written in the course of the project. 

Who is in charge of out-of-pocket expenses? This issue also needs to appear on the contract. Where the out-of-pocket expenses are concerned, the independent contractor contract should be clear on questions regarding the “what” and the “how.” It should define what these types of expenses are. It should also highlight how these expenses will be handled. As previously stated, it is worth reiterating the fact that the contract indicates that the client is dealing with an independent contractor rather than an employee. 

A detailed contract also goes into issues regarding what to do to terminate it. When can the contractor or client terminate the contract? Will the person terminating the contract have to pay fines or penalties? At some point, the relationship between the contractor and client may need reevaluating. While reevaluating it, one or both of the parties may arrive at the conclusion that the relationship is no longer tenable. When this happens, the only solution would be termination of the contract. 

A good independent contractor contract anticipates that the relationship may run into some problems 

Therefore, it lays the procedure regarding what to do when this happens. 

As the contract clearly stipulates, it is harder to fire an independent contractor. As previously stated, an independent contractor is different from an employee in definition, status, and other parameters. After all, the contractor’s services are only required on a project-by-project basis. This is different from employees whose services are required every day regardless of where their services are needed for any particular project or not. This situation demonstrates why it is easier to fire employees rather than independent contractors. 

The closest a client comes to firing an independent contractor is by canceling the contract

Confidentiality is an important factor in any contractor-client relationship. Confidentiality often involves maintaining trade secrets. It involves not sharing what the client does not want the rest of the world to know until the right time. Some clients come up with new products they want to launch at the right time. Timing is everything with any product launch. Confidentiality has both legal and practical significance to the business an independent contractor runs. It has the same significance to the clients the contractor serves. 

A company’s trade secrets together with its confidential information represent two of its most important assets. All businesses must do whatever it takes to protect itself. The need for protecting its assets has gone a notch or two higher, especially now that Internet has become such a major platform for sharing or finding information quickly. An independent contractor might share something regarding an on-going project only to jeopardize something the client wanted to keep away from the public until an opportune moment. 

example of independent contractor agreement
Credit: letter-templated.org

All businesses must value confidentiality since they all have information they; 

  1. Bought
  2. Developed
  3. Created
  4. Improved
  5. Enhanced
  6. Benefited from

Any precious or sensitive information a business has is worth something substantial. 

Confidentiality is not something to worry large companies alone. 

Therefore, the independent contractor contract must clarify the issue of confidentiality. 

What about inventions, improvements, and innovations? Should the independent contractor contract touch on these issues too? Yes, it should. In fact, it should not only touch on but also specify these crucial issues. Any new product or way of doing things the contractor come up with while working on a client’s project need protection. Here, the contract should not leave the issue in abeyance. Instead, it should clarify matters, so all parties know what is required of them for the duration of the project. 

The other issue that should appear on the independent contractor contract is how to manage issues regarding conflicts of interest. Talking about these issues on the contract helps everybody. The client and contractor do not have to wait for the conflicts to arise to start looking for solutions. A healthy relationship between the two hinges on their ability to anticipate trouble and doing whatever it takes to work their way through it. In fact, the ability to manage conflict of interest determines your success

Do not sign a contract that does not handle conflicts of interest and hope for the best. 

You do not have to be a pacifist to find ways of managing conflicts of interest. The goal here is to do your part in ensuring the relationship survives minor hiccups and moves on to the next level. You have the choice of handling conflicts of interest in a functional or dysfunctional manner. Conflict of any kind, even if its conflict of interest, is neither good nor bad. How it pans out depends on the approach you take in solving the conflict in the first place. That is what determines whether the conflict works for your good or harm. 

The main goal of talking about conflicts of interest in the independent contractor contract is to find a way of deescalating it. You cannot de-escalate what you work so hard to avoid. In many instances, it is nearly impossible to try to avoid conflict of any kind. In such cases, what you need is a way of deescalating the whole thing. You can learn a few tips that make you effective at deescalating conflict. When any party to the contract notices the conflict of interest, the first thing is to avoid going defensive or attacking the other one excessively. 

Other tips to follow include: 

  1. Avoid overgeneralizing everything
  2. Find a middle-ground the two of you can reach at or start negotiating from
  3. Do not play the blame game
  4. Do not seek to be right all the time
  5. Avoid attacking the other party’s character or personality 
  6. Do not choose to stonewall as a way of closing down communication lines

An independent contractor contract should also explain or talk about the expectations regarding hiring or non-hiring. Does the client have a problem with an independent contractor who hires or delegates the work to more personal? Does the client have a problem with sub-contracting? Alternatively, the contract should indicate the positions that are open or available for hire. Independent contractors should never assume that they have a leeway to do whatever they want. 

Good contracts also talk about issues such as the right to an injunction. 

Feel free to check and learn from these few right to injunction samples

At times, the client or contractor might contemplate a merger. Nothing is wrong with mergers. However, none of the parties can proceed with this path without informing the other one. More importantly, the steps to take in case a merger is in the pipeline are also worth anticipating. The best way to take care of everybody’s interest is by ensuring the contract talks about what to do in case mergers are contemplated. An issue worth negotiating in such situations is that of successions and assigns. 

Abstract of an independent contractor contract example
Credit: kontractr.com

At times, the parties may opt to stop the project for some time until the merger is complete. 

Everything is possible only if it all appears on the independent contractor contract. 

It is also good to include a clause that talks about arbitration in the contract. Arbitration is just one of the ways of solving a conflict between clients and contractors. First, start by reviewing the contract in detail to discover what it stipulates regarding arbitration. Next, organize a meeting between the two of you to negotiate a way out of the quagmire. Find a professional to help mediate the dispute. Mediation is more structured. It should happen if a meeting between the two feuding parties bears no fruit. 

Choose an independent and unbiased mediator. 

Mediation involves making compromises until a mutually beneficial agreement is reached. 

A mediation agreement is necessary to prove the two parties arrived at an understanding. 

Arbitration usually happens when the two parties have tried to negotiate without any success. It arises when everything else becomes unproductive. It requires the services of an independent third party known as an arbitrator. The arbitrator plays the role of a judge. The success of arbitration depends on several factors. The most important factor is that both parties have to agree to arbitration. It requires mutual consent to proceed. Both parties have to take part in selecting an arbitrator too. 

If arbitration fails, the client and contractor would be justified in going for litigation, but only if the contract has a provision for this option. Litigation is always the last resort in conflict resolution. It revolves around court proceedings. Litigation happens when one of the parties feels compelled to seek the court’s help in enforcing legal rights. It also happens when one of the parties needs court’s assistance to defend legal rights that are under threat. Litigation is always structured. The court dictates the whole process. 

Litigation is effective. The process is also costly and capable of consuming too much time. 

Litigation ends the moment the judge makes a decision. 

The court may require whoever is unsuccessful with the litigation to pay all or part of the legal costs incurred by the other party. The successful litigant may recover part of the money spent paying for legal fees. However, clients and contractors should spend time trying to find other ways of solving the conflicts before dashing to the courts. Litigation has several disadvantages, as you may have noticed above. It will keep the clients away from a product that should be out being sold and earning more money for them. It prevents contractors from making money too. 

Lastly, check what the independent contractor contract says about amending some of the provisions. Additionally, it should also talk about the measures the client and contractor intend to take to enforce the contract. It goes without saying that both parties have to agree to all provisions and stipulations in the contract. Do not forget to invite lawyers to help draft the contract. If you feel hiring a lawyer is an expense too many for both of you, find a pre-defined contract, which is readily available online. Search for one on the Internet. 

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