This article has been written by Kshitij Srivastava, pursuing the Diploma Programme in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
There is always a need for any company or firm to hire persons in order to complete and share the burden of the work. The industrial jurisprudence recognises this in the form of master/servant and/or employer/employee relationship. This can also be done by the establishment of contractual norms and obligations upon each other through which the duties among parties can be carried out in an amicable manner. The nature of the agreement and the working capacity of the persons involved in any project may vary depending upon the nature of their relationship with the company.
The employer and/or the company has the option to assign the work to two kinds of persons; one is an employee and the other is an independent contractor. A person is required to come into an agreement (known as Independent Contractor Agreement and/or ICA) if he is appointed as an independent contractor with the company, being the other party. This ICA recognises the rights, duties, obligations, services of the contractor, etc. in order to have an easier way to determine the liabilities and responsibilities of both parties for the benefit of the consumer or client. This agreement is a well-drafted document so that when two or more experts are involved in the same project, they can work properly and with very few complications. A person has the option to work either in the capacity of an employee or an independent contractor and not both simultaneously. Just as the phrase suggests ‘buyer beware’, similarly, one must know about the freedoms and limitations of both before opting to be hired as either one.
It is apparent as per the law that if a person is hired as an employee of a company or firm, he is bound by its rules and regulations. There are certain criteria that a person needs to fulfil throughout the period of his employment. The nature of his employment agreement will be based upon the criteria set out by the company only. There is very limited scope for the employee to negotiate on all terms. The rights and liabilities will be in a general manner and similar as compared to its other employees. For example, the employee:
- works exclusively for the company and is not allowed to take independent clients and cannot work outside the course of his employment;
- avails the works allotted only by the company or is to be assigned under the direction of the company;
- will, generally, be governed by the provisions of labour law, such as working hours, minimum wage, medical insurance, holidays, health, safety and etc.;
- generally, does not have a fixed term of employment.
It must be noted that a contractor works in an independent capacity on the projects provided by the company. Generally, a contractor is appointed by the company for a very specific task on which the contractor has the expertise. These contractors can be of any field and background, such as architectures appointed by an engineering consultancy to design the buildings, can also be called independent contractors, and etc. Hence, an independent contractor:
- provides his expertise on the task for which his assistance is required;
- is outside the scope of the company’s rules and regulations;
- can negotiate on his own terms regarding his fees and other payments, work duration and timings, etc.;
- is not obligated to the company other than his specific task, which can be of any field;
- is hired for a limited and fixed term.
That is why, whenever, a person works in the capacity of an independent contractor, the company enters into an ICA with him, setting out rules and regulations describing their rights and liabilities so that a check and balance is maintained and vagueness is reduced to the maximum.
It is pertinent here to provide that in any agreement or contract all provisions play a very important role. Whether it is a provision of operating clauses or boilerplate clauses, each provides vital support to the overall structure of the agreement. So, it is highly difficult, especially in practicality, to broadly classify the provisions as important or less significant. However, there are certain clauses on which negotiations occur more than usual. They are:
- SERVICE/TYPE OF WORK;
- TERM OF THE SERVICE;
- REPRESENTATIONS AND WARRANTIES;
- LIABILITY, including provisions for REMEDIES and INDEMNIFICATION.
Intellectual property rights
This clause, also known as CONSIDERATION clause, focusses on the IP rights of the contracting party who has introduced an idea upon which their sole claim lies. This clause allows every contracting party to utilize the IPR works without posing a threat of infringement to the original creator. It is negotiated amongst the parties to see with whom these rights are vested. So that, after the completion of the term of the contract the rights are returned and protected to its rightful owner. Some of the common examples where this clause comes into play relate to software development and maintenance agreements, and etc.
It is very important to understand and mention specifically in the agreement about the kind of work for which the contractor is hired. Unless and until this clause is clear, the representations and warranties clause cannot be properly drafted. This clause lays the foundation of the rights, duties and obligations on part of the contractor and the company to the extent to which it affects the consumers. Hence, it needs due diligence, reviews and checks on a regular interval by the company.
Term of the service
The independent contractor is required to mention the overall duration of the work in which he may be able to complete the task assigned to him. He is also required to specify the working hours he will put if he is to work on a regular basis.
The payment clause
The contractor is required to provide the company with the expenditures upon his services. The method of payment is vital and must be expressly drafted highlighting the invoice, mode, method, date of payments, etc.
Representations and warranties
This clause specifies the facts that each party present to complete their contractual obligations. If we take the example of this ICA, it is pertinent for every party to specify what service, expertise, resources etc., they could bring as a part of their duties and obligations. Whether the independent contractor will require certain tools with the help of the company or that he will be using his own. Such facts are representations by the contractor and the warranties of those will lie with him only.
There are certain cases where a party requires the other party to not disclose any sensitive information then this clause is initiated which binds the parties to the contract to keep the sensitive information confidential and not to be shared with anyone else. There are some exceptions to this. In that case, the parties are required to specifically mention what part of the contract the parties are required to disclose the information.
Liabilities, including remedies and indemnification
It is probably the most important clause as it assists in deciding whose liability it is in case anything is wronged. In that case, it helps the responsible party to provide remedies for correcting the mistakes in the form of damages to the consumer or indemnification to the contracting party. The manner to execute these points is to be expressly mentioned in the agreement and are required to be decided mutually by the parties.
While drafting an ICA, one needs to take care of the fact that this agreement is different in different States. The above-stated provisions are provided considering the requirements of our Indian State. The difference is very minor depending upon the variation in the laws of the States. For example, the provisions regarding remedy by paying damages may differ and is generally country-specific. That is why the governing law clause in any agreement plays a very crucial role. Hence, there should not be any vagueness in any of the clauses.
This article focuses on the vital points that are needed to be thorough while drafting an independent contractor agreement. Out of all definite clauses, the clauses relating to services, terms, representations and warranties, payment and etc. are major.
The author believes that the company should hire independent consultants in the form of outside help but should not solely rely on them. Employees are extremely important for running the company smoothly. On the other hand, the persons who are deciding about whether to be hired as the consultant or an employee of the company, it is apparent till now that on an average there are great benefits to be a part of a company, however, if the person has qualitative expertise then he should opt for working as independent contractors after minding the risks that are involved.
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