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What is a Contractors agreement?

A contractors agreement (or contractor contract) is an agreement between a business (the principal) and a service entity (the contractor) where the contractor agrees to provide a service to the business in return for a fee. The contractor agreement can be for a one-time service, or an ongoing service for a specified period of time.

We recommend obtaining legal advice before entering into a contractors agreement.

What Should be Included in an Independent Contractor Agreement?

6 fundamental things to include in a contractors agreement

1) Independent contractor vs employee

It’s important to differentiate independent contractor from employee, and to make this clear in your agreement.

2) Verbal agreements

Verbal agreements may be legally binding and may potentially be supported by documents such as emails, quotes or notes about discussions. However, there are risks associated with verbal agreements, therefore we recommend always putting your agreements in writing.

3) Fundamental information: who are the parties?

Your agreement should identify each of the parties, include both businesses’ ABN numbers (or ACN), specify that the contractor is not an employee, and be signed and dated by each of the parties.

4) Description of services

Your agreement must specify what, when and where work will be done. It’s important to be very clear and give plenty of detail.

5) Payment

Your agreement must contain how the contractor is to be paid. i.e. fixed fee, per hour, per month, or on completion of the job.

6) Settling disputes

It is important to outline how issues will be handled in case of a dispute. Your agreement should specify your dispute resolution process for solving disputes without needing to go to court. For example, this may include: an informal discussion, followed by formal negotiation, followed by alternative dispute resolution.

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What Else Should I Include in My Contractor’s Agreement?

Intellectual property

The contractor will own any intellectual property they produce, unless the business that engages them specifies ownership of intellectual property in the agreement.

Confidential information

Your agreement should contain a clause to protect important confidential information such as client lists, prices, profit margins, or trade secrets.

Indemnity

Indemnity clauses usually involving transferring risk from the hiring business to the contractor. Alternatively, it may state that the contractor is not liable for risks or losses that the hiring business has control over.

Insurance

It is important to specify whether the contractor is covered by the hiring business’ insurance or whether they must carry their own insurance, for issues such as public liability, property damage, personal injury, negligence, or professional indemnity.

Subcontracting

Your agreement should specify whether any or all of the work done by the contractor can be subcontracted, and any restrictions on what can be subcontracted. This may include a clauses stating that the subcontractor must be preapproved by the hiring business, or that the subcontractor is liable for any work done by the subcontractor.

Exclusivity

An exclusivity clause prevents either party from entering into a similar arrangement with other businesses or contractors.

Restraint of trade

A restraint of trade clause prevents the contractor from taking the hiring business’ clients or competing with the hiring business, during the time the contractor is working for the business and for a specified period after this time. Note, the clause may be reasonable to be legally enforceable.

Variations

In a contract that covers a long duration of time, either party may wish to make an alteration to the agreement. A variations clause usually sets out that for any change to the agreement needs to be agreed in writing and signed by both parties.

Ending the agreement early

Your agreement should specify when and how the agreement can end. This may include: on completion of the work, ending early because one party has breached the agreement, or ending early for other specified circumstances agreed by both parties.