When working with freelancers, it is essential to sign a legal contract which covers all of the important clauses.
This article is part of our guide on independent contractors’ agreements.
The importance of establishing freelance terms and conditions
This is part of a series of articles about Contractors Agreement.
Contracts are legal agreements that are designed to protect both parties — the freelancer and the hiring company — throughout the work relationship and beyond.
As a hiring manager, establishing freelance terms and conditions gives you a guarantee that the freelancer will deliver the work according to the timeline and specifications that you agreed upon. At the same time, the freelancer gets a guarantee that you will pay them according to the agreed upon terms, such as the amount, payment method, currency, and timeline.
There are a few other important reasons to draft and sign a contract for every freelancer your hire:
- Avoid misunderstandings. Contracts help you avoid conflicts that could arise down the road about who is responsible for certain things, such as covering business expenses, providing training, or issuing equipment. When writing a contract, you can address all of these questions from the start and make sure there is no room for ambiguity or misunderstanding.
- Protection in court. Since contracts are legal documents, they can be used in court should one party breach the agreement. For example, you will have grounds to sue the freelancer if they disappear without delivering the work, and they can do the same if you fail to pay them. Hopefully, you can avoid this situation, but in the event your relationship with a freelancer goes sour, you will have your bases covered.
You can also add a jurisdiction clause or an arbitration clause that defines what legal actions can be taken in case there are claims of a breach. After all, being dragged through a legal process in a different state or a foreign country can be incredibly complex and expensive.
- Work “by the book.” Contracts show stakeholders outside of your company (such as investors) that you are doing everything by the book and in an orderly manner. During due diligence audits, such as before receiving funding or going public, all of your vendor and freelance contracts will be reviewed.
- Comply with labor laws. In some US states and other countries, it is against the law to work with a freelancer without signing a contract. For example, New York passed the “Freelance isn’t Free” act in 2016, which requires freelancers and hiring companies to sign contracts, among other obligations.
What should a freelance contract include?
Comprehensive freelance terms and conditions should cover all aspects of the work relationship. This usually includes the following:
- Contact details for the freelancer and client. This includes the full names, phone numbers, and email addresses for both parties. Additional information like the freelancer’s EIN or business number and the company’s mailing address are also usually included.
- Project scope. Describe the work you are hiring the freelancer to do, including the purpose of the project, the length of time it will take, and the number of hours the freelancer is expected to work.
- Deliverables. Clarify exactly what the freelancer is expected to complete or produce.
- Pricing and rates. This section is all about how much you will pay the freelancer for their work. What is his or her rate? Do they charge by the hour or do they work on a flat rate per deliverable?
- Payment schedule and options. Here, you will define the payment method, timeline, and currency for paying the freelancer.
- Deadlines and timeline. While it doesn’t always make sense to list exact deadline dates within the contract, you will at least want to state when the work relationship begins as well as when you expect the work to be done. It is also a good idea to indicate if there would be any repercussions if the freelancer misses a deadline.
- Ownership/copyright. This clarifies who actually owns the work after it is completed. Usually, the freelancer retains the rights to the work until you pay them for it. Once the freelancer receives the payment, he or she cannot use or resell the work to anyone else.
- Legal terms. Provide definitions of important legal terms and concepts to ensure both the freelancer and hiring manager understands their legal obligations.
- Kill fee and cancellation terms. Provide terms for compensating the freelancer in the event that you need to cancel the project before it is finished. For example, you will pay the freelancer a specified rate for the number of hours they worked so far.
- Equipment and expenses. Freelancers who are hired to do certain types of work may need to purchase specific tools, software, equipment, or training. In this section, you should spell out who is responsible for bearing those costs — your company or the freelancer.
- Signatures. Last but not at all least, both parties’ signatures are what make freelance terms and agreements a binding legal document. In other words, the contract is only valid if both parties sign.
Additional legal documents your freelancer should sign
In addition to the standard work contract, you may also want the freelancers you hire to sign additional legal documents, such as:
- Non-disclosure agreement: Also known as a confidentiality agreement, this is a legally binding contract that establishes a confidential relationship between your company and the freelancer. It ensures that the freelancer will not share any sensitive information they may obtain with others.
- Intellectual property (IP) agreement: This agreement establishes the transfer of intellectual property rights from one party to another. In the case of working with freelancers, this usually means that the freelancer is transferring the IP rights of their work to the company.
- Non-compete: A non-compete agreement is a contract in which the worker agrees not to work with other companies that are considered competitors of the hiring company for a specified period of time after the work relationship ends. These agreements also prohibit the worker from revealing proprietary information or company secrets to anyone outside of the hiring company.
- Data protection agreement: If a freelancer needs access to sensitive company data in order to complete their work, you will want them to sign an agreement that compels them to comply with your company’s data secrecy and security policies.
Legal counsel should review the contract
If all of this feels like too much legal jargon, don’t worry. Your legal team will be more than happy to weigh in. In fact, they will definitely want to be involved in the process of enlisting freelance talent to ensure compliance with company policies and legal requirements.
After identifying the right freelancer for a job, make sure to inform your legal team and get their input on which legal documents you should be signing. In many cases, they will already have approved templates for you to use, or will prefer to draft a new contract themselves, depending on the purpose and nature of the work. At the very least, allow someone on your legal team to read and approve your contracts before giving them to the freelancer to sign.
Always cover your bases
Freelance terms and agreements may seem like generic legal speech or just another obstacle to circumvent before you can dive into the work. But it’s important to remember that contracts are there to protect your company and the freelancer. They provide essential assurances, help both parties define expectations and requirements, and ultimately strengthen the freelancer relationship.
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