How to Use This Book
This chapter explains how to use this book to put together agreements that will serve your business needs, legally and efficiently.
If you need some legal background on hiring independent contractors, refer to Chapter 2. If you’d like an introduction to the legalities of working as a consultant or IC, refer to Chapter 3.
RESOURCE
This book is intended to serve as a supplement. For detailed guidance on all the legal issues involved in working as an independent contractor, see Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Gig Workers of All Types by Stephen Fishman (Nolo).
Why Use Written Agreements
Using written independent contractor or consulting agreements benefits the independent contractors and consultants, as well as the clients who hire them. For the sake of simplicity, the terms “consultant,” “contractor,” and “IC” are often used interchangeably in this book. People who hire ICs are referred to as “clients” or “hiring firms.”
| Some Agreements Must Be in Writing |
|---|
Every state has a law, usually called the “statute of frauds,” that requires certain types of contracts to be in writing to be legally enforceable. A typical list includes: - any contract that cannot possibly be performed in one year
Example: Denise is hired to perform consulting services for the next two years for $2,000 per month. Because the agreement cannot be performed in less than one year, it must be in writing. - contracts for the sales of goods—that is, tangible personal property, such as a computer or car—worth $5,000 or more
- a promise to pay someone else’s debt
Example: John is hired to perform consulting services for Acme Corporation. John is worried he won’t be paid on time, so Sheila, Acme’s president, personally guaran- tees John’s payment by promising to pay John out of her own pocket if Acme Corporation doesn’t. The guarantee must be in writing to be legally enforceable. - contracts involving the sale of real estate
- real estate leases lasting longer than one year, and
- any transfer of copyright ownership. (Copyright issues are covered in Chapter 11.)
A few states, including California, require contracts between buyers or sellers and their real estate brokers or agents to be in writing, but most states don’t. |
RESOURCE
For detailed guidance on all aspects of contract law, refer to Contracts: The Essential Business Desk Reference, by Richard Stim (Nolo).
| Special Local Rules for Firms Hiring Independent Contractors |
|---|
Some large cities have enacted their own legal requirements for firms that hire ICs. New York City
New York City enacted the “Freelance Isn’t Free Act” in 2017. This law is intended to protect ICs from hiring firms that fail to pay them. The law applies to all individual ICs who work in New York City, except for sales representatives, lawyers, or licensed medical professionals. The Act doesn’t apply to multi-owner corporations, limited liability companies, or partnerships, or other entities with more than one owner. The Act includes several requirements, including putting certain agreements in writing, and lays out penalties for noncompliance. Written contracts. A written contract must be used whenever an IC is hired to perform work with a value of $800 or more, by itself or when combined with all contracts between the parties over the prior 120 days. The contract must include: - the parties’ names and mailing addresses
- an itemization of services to be provided
- the value of services to be provided
- the rate and method of compensation, and
- the date when the hiring party must pay the IC or the method by which the date of payment will be determined.
(The sample IC agreements in this book meet these requirements.) Obligation to pay IC. If the contract doesn’t specify when the contractor will be paid, payment must be received no later than 30 days after the work is completed. A hiring firm cannot require an IC to accept less than the amount called for in the contract in exchange for timely payment. Penalties for noncompliance. If a hiring firm fails to pay on time, the IC can file a lawsuit and obtain damages equal to twice the amount owed plus attorneys’ fees. And, failure to provide a written contract can result in statutory damages of $250. If both of these provisions are violated, the IC can obtain a total sum equal to the three times the value of the contract. Hiring firms that repeatedly violate the Act can also be fined up to $25,000 by the New York Office of Labor Standards. To enforce these rules, ICs can file a complaint with the New York Office of Labor Standards. ICs can also recover damages from hiring firms that retaliate against workers who exercise their rights under the law. To read more about the law and to download a model contract, visit www.nyc.gov/site/dca/workers/ workersrights/freelancer-workers.page. Seattle
Seattle, Washington, enacted an Independent Contractor Protections Ordinance that went into effect on September 1, 2022. It requires commercial entities that hire ICs in Seattle to provide each IC with: - a notice of rights under the ordinance before the IC begins work
- a pre-work written notice identifying the proposed terms and conditions of work and the terms and conditions of payment
- timely payment in accordance with the pre- work written notice or contract, and
- written notice providing itemized payment information each time payment is made.
The ordinance applies to all individual ICs who perform any part of their services in Seattle, have no employees, and are paid at least $600. For more details, visit www.seattle.gov/laborstandards/ordinances. |
Oral Agreements Are Legal but Dangerous
Most contracts don’t need to be written to be legally valid. (For exceptions to this general rule, see “Some Agreements Must Be in Writing,” above.) For example, a client and an IC can enter into a contract over the phone or during a lunch meeting at a restaurant. No magic words need be spoken, and nothing has to be written on a piece of paper. They just have to agree that the IC will perform services for the client in exchange for something of value—usually money. Theoretically, most oral agreements are as valid as a 50-page contract drafted by a high-powered law firm.
Example: Gary, a freelance translator, receives a phone call from a vice president of Acme Oil Co. She asks Gary to translate some Russian oil industry documents for $2,000. Gary says he’ll do the work for the price. Gary and Acme have a valid oral contract.
In the real world, however, using oral agreements is like driving without a seatbelt—there’s no problem as long as you don’t have an accident, but if you do have an accident, you’ll wish you had buckled up. An oral IC agreement can work just fine provided that you and the other party remember the contract’s terms in the same way and fulfill them as expected by the other party.
Unfortunately, things don’t always work out. Courts are crowded with lawsuits filed by people who entered into oral agreements with each other. Costly misunderstandings can develop when an IC performs services without a clear written description. Such misunderstandings are often innocent— you and the other party might have misinterpreted each other or failed to listen carefully. But sometimes they can be purposeful—and without a written document to prove otherwise, the other side can claim that you orally agreed to anything.
A properly drafted IC agreement is your legal lifeline. It will help prevent disputes by making clear exactly what’s been agreed to. It will provide ways to solve any problems that develop. And, if you and the other party end up in court, it will establish your legal duties to each other.
Advantages of Written Agreements
Written agreements do more for you than help to avoid misunderstandings or dishonest dealings. Practically speaking, a written IC agreement signed before work begins also:
- Defines the project. The process of deciding what to include in an agreement forces both the IC and the client to think carefully about exactly what the IC is supposed to do. Previously hazy or ill-defined expectations are clarified when they’re negotiated and put in a writing that specifically describes the work that the IC will perform. The agreement gives both sides a yard- stick by which to measure the IC’s performance, and is the best way to avoid later disputes.
- Establishes IC status. A well-drafted IC agreement helps establish that a worker is an IC, not the client’s employee. This is vital both for the client and the However, a written IC agreement is not a magic legal bullet. It will never by itself turn an employee into an IC. What really counts is how the worker is actually treated. (See Chapter 2 for a detailed discussion of the importance of distinguishing employees from ICs, along with information on how to treat a worker like an IC.)
- Clarifies payment terms. If you’re an IC, a written agreement clearly setting out your fees helps prevent disputes about how much the client agreed to pay If a client fails to pay and you have to sue for your fee, the written agreement will be proof of how much you’re owed. Relying on an oral agreement with a client can make it very difficult for you to get paid in full—or at all. Conversely, clients will want a clear fee understanding to avoid claims of underpayment.
Agreements Contained in This Book
This book contains a number of consultant and independent contractor agreements you can adapt to fit your needs. It includes:
- two general-purpose IC agreements that can be used by almost anyone who hires an IC or works as one (see Chapter 5), and
- several different agreements tailored to specific kinds of work ICs commonly perform, including:
- independent consulting (see Chapter 6)
- household work (see Chapter 7)
- sales (see Chapter 8)
- accounting and bookkeeping (see Chapter 9)
- computer software consulting (see Chapter 10)
- creative work, such as writing, illustration, graphic design, and music composition (see Chapter 11)
- construction (see Chapter 12)
- messenger, courier, and delivery services (see Chapter 13)
- social media consulting (see Chapter 14), and
- gig workers (see Chapter 15).
You’ll find two different agreements for most of the above categories—one for use by the hiring firm and another for use by the IC. Although neither form is unduly one-sided, you’ll want to use the form that best protects your interests.
Each chapter contains a detailed description of all the provisions in the agreement it covers. Be sure to read the instructions carefully as you complete your agreement: Many of the provisions contain alternatives you can choose from, such as whether the IC will be paid by the hour or with a fixed fee, or they might require you to provide additional information, such as names, dates, and addresses.
FORM
Finding and using the forms. All of the forms and agreements in this book are available in electronic format so you can customize them for your needs—see Appendix A for instructions on how to download them. You can also find full copies of the forms in Appendices B and C: Appendix B contains copies of all the forms that a hiring firm (client) would use, and Appendix C contains copies of all the forms that an independent contractor would use.
Putting Your Agreement Together
If your agreement isn’t signed and compiled properly, it might not be legally valid. This section provides all the instructions you need to get it right.
Signatures
Although not always legally required, it’s best for both parties to sign the agreement. The two of you need not be together when you sign, and it isn’t necessary to sign at the same time. Customarily, signatures are placed at the end of the agreement to signify that both parties have read and agreed to the entire document.
Incorrect signatures can have drastic consequences. How to sign depends on the legal form of the businesses entering into the agreement.
| No Initials Needed |
|---|
| Parties sometimes initial every page of an agreement. Although this practice isn’t required, it’s sometimes done to make it more difficult for one party to switch out a page without the other side knowing about it. If you’re afraid the other side might do something like this, you can insist on initialing the pages. Otherwise, just sign on the signature page. |
Sole proprietorships
A sole proprietor is someone who runs a one-person business and hasn’t incorporated or formed a limited liability company. A sole proprietorship, unlike a corporation or partnership, isn’t a separate legal entity from the person who owns it. The vast majority of ICs and consultants are sole proprietors, as are many clients.
If you or the other party is a sole proprietor, you can each simply sign your own name and nothing more. For example, if Susie Davis is a sole proprietor who runs custom shopping tours for wealthy tourists, she would simply write “Susie Davis” on the signature line of her agreements.
On the other hand, if you’re a sole proprietor who uses a fictitious business name, it’s best for you to sign on behalf of your business.
EXAMPLE: Chris Kraft is an IC sole proprietor who runs a marketing research business. Instead of using her own name for the business, she calls it AAA Marketing Research. She should sign her contracts like this:
AAA Marketing Research By: Chris Kraft |
Partnerships
If either individual signing the agreement represents a partnership, they must sign the agreement on behalf of the partnership. The partnership must be identified in the signature block.
Identifying the partnership is very important: If a partner signs individually without mentioning the partnership, the partnership won’t be bound by the agreement—only the single partner will be bound. This means that you couldn’t go after the partnership’s money or assets if the signing partner breaches the agreement. Instead, you could obtain only the signing partner’s assets, which will likely be less than the partnership’s.
Conversely, if you’re a partner in a partnership and mistakenly sign an agreement as an individual, you’re setting yourself up as the target if something goes wrong. Because the other side won’t be able to sue the partnership, it will look solely to you for legal recourse.
Which partner should sign? If the partnership is a general partnership (every partner invests and participates in managing the business), any partner can sign. But some partnerships are limited partnerships, which means that not all partners can act on behalf of the partnership: “limited” partners invest in but don’t participate in the business. Limited partners should never sign agreements—by law, they have no authority to bind the partnership. The agreement should always be signed by a general partner.
Only one partner needs to sign. The signature block for the partnership should state the partner- ship’s name and the name and title of the person signing on the partnership’s behalf.
EXAMPLE: The Argus Partnership contracts with Sam for marketing research. Randy Argus is one of the general partners. He signs the contract on the partnership’s behalf like this:
The Argus Partnership
A Michigan Partnership By: Randy Argus, a General Partner |
Sometimes, a person who isn’t a partner legally can sign on behalf of a partnership. In this circumstance, the signature should be accompanied by a partnership resolution—a document signed by one or more of the general partners stating that the person named has the authority to sign contracts on the partnership’s behalf. Attach the resolution to the end of the agreement.
Corporations
If either party is a corporation, the agreement must be signed by someone who has authority to sign contracts on the corporation’s behalf. The corporation’s president or chief executive officer (CEO) is presumed to have this authority.
If someone other than the president or CEO signs—for example, a vice president, the treasurer, or another corporate officer—ask to see a board of directors’ resolution or corporate bylaws authorizing that individual to sign. If the person signing doesn’t have authority, the corporation won’t be legally bound by the contract.
Attach the resolution to the end of the agreement. Keep in mind that if you own a corporation and you sign personally instead of on your corporation’s behalf, you’ll be personally liable for the contract. You probably formed a corporation to avoid such liability, so signing improperly is self-defeating.
The signature block for a corporation should state the name of the corporation and the name and title of the person signing on the corporation’s behalf.
Example: Emma Steinberg is the president of Kiddie Krafts, Inc. Because she’s the president, any contracts signed by her need not be accompanied by a corporate resolution showing she has authority to bind the corpo- ration. The signature block for contracts she signs should look like this:
Kiddie Krafts, Inc.
A California Corporation By: Emma Steinberg, President |
Limited liability companies
The owners of limited liability companies are called members. Members may hire others, called managers, to run their company for them. An agreement with a limited liability company should be signed by a member or manager.
Example: AcmeSoft LLC, a limited liability company, hires Sally to perform freelance programming services. The contract is signed on AcmeSoft’s behalf by Edward Lee, the company’s manager. The signature block should appear in the contract like this:
AcmeSoft LLC.
A California Limited Liability Company By: Edward Lee, Manager |
Dates
When you sign an agreement, include the date and make sure the other party does, too. You can simply put a dateline next to the place where each person signs. For example:
Both parties don’t have to sign on the same day. However, unless the agreement provides a delayed starting date, it goes into effect on the date it’s signed.
Neither party is bound by the agreement until it’s signed by both parties, so when the parties sign on different dates, the agreement begins on the date the last person signed.
Attachments or Exhibits
To keep your IC agreement focused on just the essential aspects of your arrangement, use attachments (also called exhibits) to list lengthy details, such as performance specifications. You can also use attachments (such as the partnership resolution discussed above) to reference supplemental information. Putting practical details in a separate but attached document makes the main body of the contract shorter and easier to follow.
If you have more than one attachment or exhibit, they should be numbered or lettered— for example, Attachment 1 or Exhibit A. The attachments don’t have to be dated or signed, but be sure that the main body of the agreement mentions that the attachments or exhibits are included as part of the contract.
Altering the Agreement
Sometimes it’s necessary to make last-minute changes to a contract just before it’s signed. If you use a computer to prepare the agreement, it’s best to make the changes on the computer and print out a new agreement.
However, it’s not legally necessary to prepare a new contract. Instead, you can handwrite or type the changes onto all existing copies of the agreement. If you use this approach, be sure that both parties signing the agreement also sign their initials as close as possible to the place where each change is made. If everyone who signs the entire document doesn’t also initial each change, questions might arise as to whether both parties really agreed to the change.
Copies of the Agreement
Prepare at least two copies of the agreement that include all the needed exhibits and attachments. Each party should sign both copies—and each should keep one signed original. Each copy constitutes an original contract.
Be sure to keep your copy of the agreement in a safe place. If you’re hiring an IC, set up a separate vendor file for the IC. In this file, keep the IC agreement, the IC’s invoices, copies of IRS Form 1099, and any other information that shows the worker is operating an independent business. Don’t keep independent contractor records with your employee personnel records. (See Chapter 2 for more information.)
Using Electronic IC Agreements
A written IC agreement doesn’t have to be on paper to be valid. Many hiring firms and contractors use electronic IC agreements—contracts created and “signed” in electronic form. For example, you draft an IC agreement on your computer and email it to the other party, who then emails it back with an electronic signature indicating acceptance.
Electronic contracts and electronic signatures are just as legal and enforceable as paper contracts signed in ink—their validity is guaranteed by a federal law known as the E-SIGN Act. In addition, all states have adopted the Uniform Electronic Transactions Act (UETA). The UETA establishes the legal validity of electronic signatures and contracts in a way similar to the E-SIGN Act and ensures that electronic contracts and signatures will be valid in all states, regardless of where the parties live or where they execute the contract.
Depending on the format of the electronic agreement, you might be able to sign it by:
- typing your name on the signature line
- uploading and inserting a scanned version of your signature, or
- clicking an “I Accept”
Many electronic signature programs use cryptographic “scrambling” technology to ensure that the electronic signature really belongs to you.
Any of these methods is perfectly legal so long as the party electronically signing the agreement did so to indicate acceptance of the agreement.
Cover Letter
As a client, it can be helpful (though not required) to include a cover letter when you send the agreement to the independent contractor to sign. You can see a sample of such a letter below. It reminds the IC that they are not entitled to unemployment or other employee benefits and should never refer to themselves as your employee. Ask the IC to sign the letter along with the independent contractor agreement and return both to you.
Sample Cover Letter to Independent Contractor
August 1, 20xx Joe Contractor 123 Main St.
Anytown, TX 12345 Dear Mr. Contractor: Enclosed please find the independent contractor agreement for your services. The agreement makes clear that you are an independent contractor (self-employed) and not an employee of Widget Company. Please read it carefully. If you have any questions about your work status please do not hesitate to contact me. Because you are an independent contractor, Widget Company will not withhold any taxes from your pay. You must pay all your state and federal taxes yourself. You’ll likely have to pay estimated taxes four times a year. In addition, Widget Company will not provide you with unemployment insurance coverage. When your services end, you will not be legally entitled to unemployment benefits based on your term of service with Widget Company. Failure to preserve your independent contractor status could prove costly not only to Widget Company but to you personally because it could result in your loss of valuable tax deductions. To help preserve your status, please do not identify yourself as a Widget Company employee, either orally or in writing on tax or other government forms, your business cards, letterhead, resume, marketing literature, or any other document. If you are asked what your status was while working with Widget Company, please state that you were a self-employed independent contractor. Please inform Widget Company immediately if the IRS or another government agency contacts you regarding your work status while performing services for us. Please sign the acknowledgment of this letter, below, and return it with a copy of the signed independent contractor agreement. Very truly yours,
Widget Company By: Jennifer Q. Widget I have read and agree to be bound by the terms of this letter and the independent contractor agreement. Name of Contractor Date: |
FORM
Finding and using the cover letter form. You can download a customizable cover letter (Cover_ Letter.rtf) from Nolo.com. For download instructions, see Appendix A. You can also find a copy in Appendix B.
| Be Careful of Inadvertently Creating a Contract by Email |
|---|
You can inadvertently create a legally binding contract through a simple email exchange, even if the parties never print or physically sign anything. Parties can form a binding contract whenever one promises to provide goods or services and the other promises to pay for them. For example, if you email an IC asking them to perform X services for Y money, and the IC emails back, “OK,” you might have created a legally binding contract. If you later decide that Y money is too much, you could be out of luck. To avoid this trap, in your first email say something like, “If this sounds good, let’s draft an agreement to hammer out the details.” |
Changing the Agreement After It’s Signed
No contract is engraved in stone. You and the other party can always modify or amend your contract if you both agree to the changes. You can even agree to call the whole thing off and cancel your contract.
The key to changing a contract is cooperation. Neither party is ever obligated to accept a pro- posed modification to a contract. Either of you can say no to the proposed change and accept the consequences—for example, the other side might go ahead with a unilateral change or stop performing altogether. Either way, you might end up with a court battle over breaking the original contract. You’re usually better off reaching some sort of accommodation with the other side, unless the person is totally unreasonable.
An amendment doesn’t replace the whole original contract, just the part that’s specifically changed (for example, the delivery date or payment terms).
If your agreement requires extensive changes, it’s best to avoid confusion by creating an entirely new agreement. The new agreement should include language indicating that it replaces the old agreement in its entirety.
Oral Amendments
Unless your contract is one that must be in writing to be legally valid—for example, an agreement that can’t be performed in less than one year—it usually can be modified by an oral agreement. In other words, you need not write down the changes.
Example: Art signs a contract with Zeno, who will build an addition to his house. Halfway through the project, Art decides that he wants Zeno to do some extra work not covered by their original agreement. Art and Zeno have a telephone conversation in which Zeno agrees to do the extra work for extra money. Although nothing is put in writing, their change to their original agreement is legally enforceable.
Written Amendments
ICs and their clients change their contracts all the time and never write down the changes. The flexibility afforded by such an informal approach to contract amendments might be just what you want.
However, written amendments—like written agreements in general—have many advantages over oral amendments. First of all, you’ll have to write out an amendment if your original written agreement includes a clause requiring all amendments to be in writing. (This is an optional clause contained in the agreements in this book.) Such clauses aren’t always enforced by courts, but if your contract has one, a party seeking to enforce an oral amendment will face an uphill battle in court. Secondly, writing down your changes helps avoid misunderstandings as to what was agreed to.
The written amendment can be informal. For example, following a telephone call or email exchange with the other party, you can simply send a confirmation letter or email summarizing the agreed-upon changes. If the other side doesn’t correct your written confirmation with a letter or email of its own, the existence of your written confirmation creates a legal presumption that your version of the contract change is correct. This will be very helpful if the other side later claims they never agreed to the change or that the change is set forth incorrectly in your letter or email. Be sure to keep a copy of your letter or email confirming the amendment.
Example: Janet, a much sought-after editor, agrees to perform editing services for Steve. Her written agreement with Steve provides that her work will be completed by April 1. However, Janet finds the project more time- consuming than she anticipated. She emails Steve and asks him for an extension. Steve agrees to give Janet until May 1 to complete the work. But in return, Janet agrees to a 5% reduction in her fee for the work. Janet sends Steve the following confirming email setting forth this contract change.
March 15, 20xx
From: Janet Swift (jswift@gmail.com)
To: Steve Blair (sblair@me.com)
Re: Changes to agreement Dear Steve: This email serves to confirm our phone conversation of March 14, 20xx. You agree to extend the deadline for completion of my editing work on your book, The History of Sparta, until May 1, 20xx. In return, I shall reduce my fee for the work by 5%. Instead of charging you $1,000, I will charge $950. Thank you for your cooperation in this matter. Like the Spartans, I remain with it or on it.
Janet Swift |
Drafting Written Amendments
If the change involves a very important contract provision, it’s wise to insist on a written amendment signed by both parties. The amendment should set forth all the changes and state that the amendment takes precedence over the original contract provision. For example, an amendment specifying that payment will be by the piece instead of by the hour should state that the new arrangement replaces the original understanding.
TIP
Finding and using the Contract Amendment Form. You can download a customizable Contract Amendment Form (Contract_Amendment.rtf) from Nolo.com. For download instructions, see Appendix A. You can also find copies in Appendixes B and C.
There are three different ways you can draft your amendment using the contract amendment form.
Method #1: Redlines and strikethroughs. With this method, additions and deletions to the contract are shown visually, with additions underlined and deleted text crossed out. (Most word processing programs allow you to either track changes or choose a “strikethrough” font.) A statement describing the process used to draft the amendment commonly precedes the amendment itself.
Example 1:
The parties agree to amend the Agreement by the following additions (indicated by underlining) and deletions (indicated by strikethroughs): Section 7 is amended to read as follows: 7. Term. The Term of this Agreement shall be from July 31, 2024 to July 31, 20252026. The Agreement may be renewed on an annual basisfor additional two-year terms following the initial term, upon written agreement of the parties. The parties must mutually inform each other of their intention to renew the Agreement no later than January 31June 1 of each year in which the Agreement is set to terminate. |
Method #2: Clause is replaced in its entirety. With this method, simply state that a whole clause has been replaced, and provide the new clause. Here’s how it looks.
Example 2:
Section 7 is replaced in its entirety by the following: 7. Term. The Term of this Agreement shall be from July 31, 2024 to July 31, 2026. The Agreement may be renewed for additional two-year terms following the initial term, upon written agreement of the parties. The parties must mutually inform each other of their intention to renew the Agreement no later than June 1 of each year in which the Agreement is set to terminate. |
Method #3: Description of the amendment. Writing out a description of the change is often shorter, but requires the parties to check against the existing text of the contract.
Example 3:
The first sentence of Section 7 is amended by replacing “2025” with “2026.” The second sentence is amended by striking “on an annual basis” and replacing it with “for additional two-year terms.” The date in the last sentence is modified from “January 31” to “June 1.” |
You can choose whichever method suits you or combine them if you wish. The important thing, as with all contract drafting, is that your intentions are clear to all parties as well as to third parties reading the amendment. In addition, be sure to change any cross-references, if necessary.
We hope you enjoyed this sample chapter. The complete book is available for sale here at Nolo.com.
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