Most entrepreneurs will need to hire people to provide services to their business and sometimes their clients or customers. Last month we explored the differences between hiring employees and hiring independent contractors. This month we will explore what your agreement with them might cover.
You may not need an employment agreement with every employee you hire. When you do, you might use a formal employment agreement, or something less formal like an offer letter that the employee signs and returns (both can be legally enforceable). What you include really depends on the situation.
For starters, you’ll usually want to include confidentiality obligations so the employee will protect your confidential information. And you’ll likely want to include a provision that expressly assigns all intellectual property the employee creates to your business. From there, you may include non-solicitation provisions to prohibit them from soliciting your employees and/or clients, and possibly even a non-compete to prohibit them from opening a competing business (which is usually limited in time and geographic scope).
For higher level employees, you’ll be more likely to include provisions related to salary and commissions (if applicable), as well as possibly pre-negotiated severance packages.
And in nearly all cases, you’ll want to clarify that the employment is “at will”, which means that either party can terminate the employment any time, for any (legal) reason.
Even if you don’t use a formal employment agreement, it is often important to capture (at a minimum) the confidentiality obligations in writing using some kind of non-disclosure agreement.
While you may not always need a written employment agreement with employees, you should almost always have a written contractor agreement with independent contractors. The reason is that they are totally separate from your business and there are certain things you’ll need to clarify in writing to avoid ambiguity.
Many of the same terms you might include in an employment agreement (see above) will also be smart to include in a contractor agreement. For example, confidentiality, non-solicitation, etc. But there are some special things to think about here.
To begin, you should absolutely be more thorough in describing the service and payment obligations. You want to be as clear as possible so that both sides know what is expected of them. And if the contractor is paying out-of-pocket expenses and expects to get reimbursed, be sure to include provisions on that as well.
The intellectual property assignment provision is also more important to get right here since there is a good chance your contractor will own their IP rights unless they assign them to you in writing.
And you’ll also need to fully outline how each side can terminate the relationship, whether they must provide advance written notice to do so, and what happens after termination (will there be any refunds, will there be any additional payments due, etc.).
Moreover, while it may not be controlling in a court, it is certainly helpful to outline the relationship of the parties. You should clearly state that the contractor is, in fact, an independent contractor. You should also state that the contractor will not be eligible for any employment-style benefits, and that the contractor will be responsible for its own insurance obligations (which may include workers comp, general liability, professional liability, and more).
As with all contracts, there are many ways to obtain these agreements. You can draft them yourself, download a free template online, buy a template online, use an online contract platform, or hire an attorney.
Just keep in mind–you get what you pay for. Sometimes the simple free ones are fine. Other times they just create more problems. Purchased templates can be a great option for simple relationships, while you may want to hire an attorney for one-on-one advice when the relationship or terms are more complicated.
This article is general in nature and is not legal advice. You should speak to a licensed attorney about your unique circumstances before relying on this article.
Chris Brown represents startups, freelancers, and small businesses through his law firm, Pixel Law. He also co-founded Contract Canvas, a digital contract platform for creative professionals. You can find him on Twitter @thepixellawyer.
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