Are you considering hiring independent contractors? While there are financial advantages to doing so, such as reduced payroll costs and flexibility in staffing, there are risks, particularly with regard to your business’ proprietary information. In order to avoid or minimize these risks and protect your assets, you should draw up a comprehensive independent contractor agreement that contains, but is not limited to, the following key elements.

Define the Independent Contractor Relationship

If you are considering hiring independent contractors (ICs), it is critical that you know the difference between ICs and employees, since there can be legal and financial penalties for misclassifying workers. ICs are responsible for handling their own taxes and insurance and are not entitled to employment benefits, unemployment or workers’ compensation. They often set their own hours, work independently, and retain control over the manner in which they perform their duties. If your workers meet these criteria, they likely qualify as independent contractors. It is critical, therefore, to clearly establish within your agreement that you are not entering into an employer-employee relationship and that your workers are, in fact, independent contractors.

Duties and Terms

The agreement should clearly set forth the scope of an IC’s duties and responsibilities, as well as define the term or the length of time expected for completion of all work. The agreement should also contain provisions for extending the term, should the need arise.

Compensation and Expenses

Your agreement should clearly specify whether payment will be based on an hourly or flat rate, as well as establish a payment schedule (weekly, monthly, upon project completion, etc.). Be sure to include a provision that indicates who will be responsible for covering expenses for materials, supplies, travel, etc.

Confidentiality

In the scope of their work, ICs are often privy to confidential information such as trade secrets, formulas, inventions, customer lists, product plans, software, blueprints, and other proprietary information. In order to prevent this information from falling into the hands of competitors, it is important to include a provision in your agreement that requires an IC to maintain confidentiality and prohibits them from disclosing sensitive information to any outside party.

Conflicts of Interest/Non-Compete Clause

Consider including a provision precluding an IC from engaging in any other work that may constitute a conflict of interest, including working for a competitor or starting up a competing business for a specified amount of time. Be sure to limit this clause in scope, however, as you do not want a court to think you are attempting to limit a person’s ability to gain employment.

Since a conflict may not be discovered or may not arise until after the agreement has been signed, include language compelling an IC to advise you should any future conflict arise.

Return of Property

The agreement should also make provisions for the return of all confidential information, equipment, materials, etc. upon termination of the contract.

Intellectual Property (Inventions)

Under US copyright law, rights are generally assigned to the creator or inventor of a work. Therefore, in order to retain rights to the works ICs are paid to create, you must have an executed, written agreement in place before any work begins, which specifies that you are to be assigned all rights over the work.

While there are other elements you may wish to include in your own IC agreement, this list should serve as a good general guideline to get you started. Your business is well worth protecting, so always use an agreement when hiring contractors.