Contract Conundrum: Deciphering Contractor Agreementsby Brett W.F. Randolph |
Contract employees and independent contractors may be asked by agencies and clients to sign agreements in connection with temporary assignments or deliverable projects. Here are summaries of some issues you might encounter in these agreements, along with some things to look out for before you sign them.
As a contractor, you may learn of confidential information or trade secrets belonging to the client company. This agreement stipulates that you will not disclose to anyone information that is the exclusive property of the client Confidential information can include financial details (such as sales figures, profit margins or pricing strategies), customer lists, research and development plans, product designs, manufacturing procedures, marketing strategies and even organizational structure. It is generally accepted as proper to request you to assent to an agreement not to reveal proprietary information that is generally unknown outside of the company.
These agreements restrict you from working for or soliciting business from a contract agency's client or a client's competitor, usually for a specific period of time. Courts consistently rule that overly restrictive non-compete agreements violate state right-to-work laws, but it is expensive to fight a lawsuit. A six-month restriction upon competition that is specific to the client, location, site, department, manager and project might be enforceable. A one-year restriction that is only company specific would be almost impossible to enforce, except in the case of key executives.
Non-compete agreements are usually intended to prevent you from entering into a direct relationship with a company to which a client or contract agency has introduced you. It is generally accepted that an equitable contract agency non-compete agreement should not prevent you from working through another contract agency for a different manager at the same client, or from working for the same client company manager within a reasonably short time after your prior assignment is completed.
Some contract agency clients, notably large companies and those with preferred vendor agreements, do not approve of non-compete agreements that limit your ability to work for them on a subsequent assignment through another contract agency, particularly if the contract has restrictions that are company-wide.
If you are paid as a independent consultant -- that is, with no taxes withheld -- be very cautious concerning non-competition agreements. Restrictions upon offering your services as an independent business mean that you and the company that is paying you might run afoul of the IRS requirements for independent contractor status.
You may be asked to sign an agreement that holds a client harmless in the event that you are injured on the job. If you are paid as a W-2 employee of either the contract agency or the client you should have nothing to worry about since you would be covered by the client's or agency's workers' compensation and liability insurance.
If you are an independent contractor, knowledgeable clients will require you, or the agency you work through, to produce a Certificate of Insurance that stipulates that workers' compensation and liability coverages are maintained. If you do not provide a Certificate, the client or agency would be required to pay workers' compensation premiums based upon the total payments to you as an independent contractor. If neither the agency nor client maintains coverage for uninsured subcontractors, they may be held responsible for the entire cost of compensation benefit claims.
Clients naturally insist that they own the work product that you were paid to produce for them. But be careful of agreements that are worded too generally, especially those that cover a specific time period rather than relate to work performed for the client. Your great American novel or invention or discovery could conceivably become the property of your current client, even if the work was conceived and developed on your own, after normal working hours. Watch out for agreements that extend beyond the time you will work for a client. Be sure to insert a specific exception into the agreement if you are currently working on a product or book or invention, for example.
All of these agreements are meant to protect the legitimate interests of the businesses that hire contractors and consultants. However, it is important that you read the agreements carefully, understand the terms, and modify your contract as necessary. You should not hesitate to bring conflicting or inappropriate stipulations to the attention of the client or agency. The contracts may not have been reviewed recently, and may include terms that the client or agency should change. Your reasonable request to change the terms of the agreement might be the motivation to take a fresh look at the agreement, and your request will often be honored.
Brett Randolph, who has been marketing contract technical communications services since 1973, is a partner in Randolph Associates, Inc. in Boston, Mass.