| A proper contract is one in which both parties define their respective obligations to each other. This means that the contract should reflect a balance of obligations and ‘power’ between the parties. It’s only when such a balance is achieved that the contract becomes a truly workable instrument that enables both parties to work and make income together. |
| Clause Type | Comment | Clause example (These are clauses taken from actual contracts) |
| Termination | ||
| Termination Mediation | This is precisely the type of clause that should cover termination for failure under the contract. | If either party cites a material breach of this agreement being grounds for termination, then the party alleging the breach must provide to the other party immediately the grounds for the material breach in writing. Should the other party dispute the nature of the breach or the actions to resolve the breach, then the matter should be resolved by an agreed independent third party through an acceptable and qualified form of mediation. The contract will remain in force until the dispute has been resolved. |
| Termination Payout | Again a good clause. If there is a lesser amount to be paid on termination, this should be agreed and stipulated in the contract. | Should the Client wish to give notice of early termination, then the Client agrees to the payment of the difference between the standard (base) rate and the discounted rate (if any) for the period served and payment of the standard rate for the balance of the term of the contract. |
| Contractor’s right to terminate | This is an important protection for you as the contractor, but is subject to mediation which is appropriate. | The Consultant may terminate this agreement if: (a) the continuing performance of the contract may cause the Consultant or Consultant’s reputation to be damaged, or it is believed that damage would be caused by the continuation of the contract; (b)’ the Client acts in a manner prejudicial to the Consultant’s interests or in a manner which could be prejudicial to the Consultant’s interests. Should the client or any third party disagree with the Consultant’s right to terminate under this clause, then the dispute will be mediated through an agreed form of independent arbitration. |
| Contractor’s right to terminate losses | This is an unusual clause to be included, but is one that protects you as the contractor. It should be balanced by the rights of the client in such circumstances. | If the continuing performance of the contract causes financial encumbrance upon the Consultant which has arisen during the contract and such encumbrance is either not the responsibility of the Client or will not be met by the Client then the Consultant has the right to terminate with one week’s notice. |
| The relationship | All good contracts have as their starting point the defining of the relationship between the parties. But this must accurately reflect the reality of the true behaviours of the parties. If the relationship defined in the contract does not equate with the reality of the relationship, the written contract risks being an untruth. | |
| Nature of contract | The clause makes it clear that the independent contractor is just that, independent. The clause requires compliance with professional work standards and this should be expected. But it does not extend to controlling the nature of work or the way work is done, simply the achieving of standards. | The Sub-Contractor is engaged as an independent contractor in performing the Services for the Client and it must perform the Services and all acts related thereto in accordance with the Client’s methods, security provisions and standards of professional conduct. It is expressly agreed that the Sub-Contractor is not an agent, partner nor an employee of the Client. |
| Relationship | This is a common clause. But be aware, having such a clause in a contract does not of itself create an independent contractor relationship. The rest of the contract and the behaviours of the parties must be consistent with an independent contractor relationship. Clauses such as this have been overridden many times when tested in the courts and where the facts of the relationship have been more of employer-employee. | Notwithstanding any other document or representation, the relationship between the Principal and the Contractor is that of principal and independent contractor respectively and nothing will or is intended to create the relationship between or render the Contractor a joint venture, employee, partner, agent or otherwise of [the Company]. |
| Relationship | Again these are all important elements of being an independent contractor. But they must be reflected in what actually happens in the way the work is done. | As an independent contractor the Contractor is paid to achieve a result and the Contractor will be responsible for the manner in which the Contractor performs the Services. The Contractor: may engage or employ others to carry out some or all of the Services. Use of other contractors or others does not relieve the Contractor from liability for the Services; has freedom in the way the Services are performed subject to the specific terms of the Agreement; bears the responsibility for any poor workmanship or injury sustained in the performance of work; is encouraged and free to provide services to the general public and other businesses as well as [the Company]; is free to accept or refuse work; is in a position to make a profit or loss depending on its performance; is required to hold an ABN. |
| Relationship | This is a standard clause that you would expect in an agreement where you are truly an independent contractor. However, some laws may still require the client to pay items on your behalf (eg, tax) but this will depend on laws in each jurisdiction. | This Agreement shall not render the Contractor an employee, partner, agent of, or joint venturer with the Company for any purpose. The Contractor is and will remain an independent contractor in [his or her] relationship to the Company. The Company shall not be responsible for withholding taxes with respect to the Contractor’s compensation hereunder. The Contractor shall have no claim against the Company hereunder or otherwise for vacation pay, sick leave, retirement benefits, social security, worker’s compensation, health or disability benefits, unemployment insurance benefits, or employee benefits of any kind. |
| Intellectual Property | Particularly if the work you do mostly involves the application of your intellectual ingenuity (eg; computer programming) your intellectual property is central to your value in the market. You should not give this away, and no contract you sign should take this away from you unless you are well paid for it. But if you are being paid to develop someone else’s intellectual property (eg: develop their specialised computer software) you’d expect that they would want and need ownership of the IP you have developed for them. It’s all a matter of balance to achieve the practical outcome required. | |
| IP Ownership | This means that any IP you create which relates to the work you are being paid to do under the contract becomes the property of your client. | The parties acknowledge that any and all programs, systems, procedures, processes, formulae, copyright works, designs, patents, methods of production, inventions, innovations and other discoveries and developments which the Sub-Contractors create, author, produce, evolve, discover, develop or invent during the course of providing the Services or arising from the Services (the “Works”) will vest in and immediately become the absolute and exclusive property of the Principal. |
| IP they own | This requires that any intellectual property you create related to this contract work is the property of the client. | The Independent Contractor and Nominated Person irrevocably assign to the Principal their entire right, title and interest in and to any intellectual property rights which the Independent Contractor and Nominated Person bring into being, develop or improve during the course of this Agreement. |
| IP you own | This clarifies that any intellectual property you create external to the work on this contract is your property. We do not often see this clause in contracts, but it’s a good one that gives a contract balance. | The Client shall only be entitled to the intellectual property developed for and on behalf of the Client during the contract term for work directly undertaken by the Consultant. |
| IP breaches | This limits claims for IP breaches to payments made under the contract. In other words it limits the capacity of one party to intimidate the other. | Litigation for breach of confidentiality obligations or breach of a third party’s intellectual property rights in respect of the Works or equipment supplied under this agreement will not exceed the sum of all monies paid under this agreement. |
| Infringing IP | This means that in doing your work you will not breach the intellectual property of others | The Sub-Contractor covenants that it will not infringe the intellectual property rights of any third party in the performance of the Services. |
| Confidentiality | Maintaining confidentiality is an expected part of commercial dealings and this can be reflected in the contract. But it also needs to work and apply for all parties to the contract. | |
| Confidential Information | These clauses are a very good balance of what a confidential/intellectual property protection clause should look like. It requires the independent contractor to keep things confidential that may have been acquired while doing the work. But it does not extend obligations to information the independent contractor may have already had or independently discover. | Any confidential information acquired by the Sub-Contractor in connection with the provision of the Services must be held in the strictest confidence both during and after the Contract Period. Release, copying, removal from the Principals premises or any use of any of that information other than for the performance of the Services requires the prior written approval of the Principal. |
| IP confidential info | This is also a clause with good balance. | For the purposes of this clause “confidential information” includes all information given or disclosed to the Sub-Contractor or created during the performance of the Services, if: (i) that information is identified as confidential or proprietary to the Principal and/or a third party; or (ii) the Sub-Contractor ought reasonably to have known that the information was proprietary or confidential to the Principal and/or a third party; (c) For the purpose of this clause “confidential information” does not include information which: (i) is, or becomes public knowledge without the fault of the Sub-Contractor …; (ii) is, or becomes available to the Sub-Contractor from a source other than a party associated with the performance of this Agreement; (iii) is independently developed by the Sub-Contractor outside the scope of this Agreement; or (iv) is required to be disclosed by law. |
| Mutual Obligations | ||
| Client’s obligations to you | Its not often that contracts clearly state the client’s obligations, but they should. This is a good clause which should be tailored to the specific circumstances of the work in which you are involved. | 1. The Client warrants that: (i) the Client will provide a safe working environment that complies with the requirements of Occupational Health and Safety; (ii) the Client will provide facilities that enable the Consultant to perform the services; (iii) The Client will not place the Consultant in a position that will expose the Consultant to litigation as a result of the Client’s actions; (iv) The Client will provide the proper facilities for workers in an office environment and will allow the Consultant’s staff access to all such facilities or the opportunity to attend such facilities elsewhere; (v) The facilities and office environment will be at a suitable professional standard for the Consultant’s staff; (vi) The Client is in a financial position to meet the Consultant’s claims under the contract and shall remain in a position to do so for the term of the contract and should it fail to do so the Directors and/or principals will be jointly and severally liable for any fees. |
| Contractor obligations | These are sensible protections for the client. | The Contractor undertakes to: (b) not at any time use the name or logo of the engaging Party (or any abbreviation thereof) in any advertisement, promotional or other material, communication otherwise than in accordance with this Agreement or otherwise without the prior consent of the engaging Party; (c) comply with all laws, regulations, rules, codes and the like that may apply to it generally and whether personally or in relation to or arising out of the provision of the Services; and (d) not amend, alter or modify any forms or other documents produced by the engaging Party without the written permission to do so. (iii) all directives, rules, handbooks, policies and procedures adopted by each of them to deal with such matters. |
| No new obligations | This is a necessary protection for both parties. | Neither Party has any authority to incur, and will not incur, any obligation on behalf of the other Party except with the prior written approval of the other Party. |
| Obligation clarification | This clarifies that any obligations at law the independent contractor may have for payments etc are entirely the responsibility of the independent contractor. | Subject to the legal duties referred to in clause x, the Sub-Contractor expressly agree that the principal does not have any responsibility whatsoever to the Sub-Contractor or its support staff, in respect of wages and salaries, paid public holidays and vacation leave, sick leave, parental or adoption leave, superannuation, PAYE, payroll or other taxes, workers’ compensation and other insurances and all other similar obligations arising out of or in connection with the activities of the Sub-Contractor. |
| Legal obligations | This simply reinforces that the independent contractor will be responsible for certain obligations according to the law | The Sub-Contractor must comply with all applicable laws and regulations of any jurisdiction in which the Sub-Contractor performs the Services. |
| Damages | Claims against each party for damages usually becomes highly messy and legalistic. We recommend that a good dispute-resolution clause is in the contract that ultimately refers the matter to an independent arbitrator. This will speed up a resolution process and contain legal costs. | |
| No damages claims | This limits BOTH parties to making damages claims against each other. It indicates a balanced relationship which requires both parties to work together. | Neither party will be entitled to claim against the other for any loss of profit, loss of opportunity or any other loss or damage whatsoever suffered by either party. |
| Limitation of liability | This ensures that you are not liable for things done by the client and is a very sensible clause. | To the extent permitted by law, the Consultant shall not be liable to the Client or to any third party for any loss or damage arising directly or indirectly in connection with the provision of services. The Client will indemnify and holds harmless the Consultant from and against any claims, costs, expenses, actions or suits suffered, sustained or incurred by the Client or any third party. |
| Your liability for damages | This clause reinforces that as a contractor you are responsible for your actions. | …the client…have entered into this Agreement on the basis that they rely on the expertise of the contractor and …the client … will not in any way be liable for any costs, damages, loss or liability of any kind suffered by the Contractor occurring whether directly or indirectly as a result of the performance of the Services by the Contractor. The Contractor indemnifies …the client.. against loss of or damage to …the client.. or a Client’s property; and claims in respect of personal injury or death or loss of, or damage to, any other property, arising out of or as a consequence of the carrying out of the Services. |
| Damages | This clause ensures that both parties have responsibilities to each other. It’s best that if there is a dispute over damages that a mediator is used where the parties cannot agree. | Each party will be liable and agrees to indemnify the other party for all loss, cost, expense, claim or consequence incurred by the the damaged Party arising in the course of or as a direct or indirect result of performing the Services where either Party has committed a malicious, dishonest or fraudulent act or omission or a wilful violation of law. |
| Taxes | How taxes apply to under contracts with self-employed people can be highly confusing due to badly designed tax laws. The essential issue is to have clarity over who is responsible for paying the tax. Clauses in contracts can partly clarify this, but legislation will always override the contract. Each of the clauses below tries to fix this lack of clarity. | |
| GST | A standard clause regarding the Goods and Services Tax. | Unless otherwise expressly stated, all amounts stated under this Agreement are expressed to be exclusive of GST. If GST is payable on a Taxable Supply the price payable for that Taxable Supply will be the amount expressed in this Agreement plus an amount equal to the amount of GST payable on the relevant Taxable Supply (the GST Amount). |
| Taxes | This clarifies that as an independent contractor you must pay your own taxes | Unless otherwise specified in this Agreement, the Independent Contractor will pay or cause to be paid when due and payable all of the Taxes. |
| Taxes | If authorities require your client to pay your taxes they will deduct such payments from what they pay you. | If the Principal obtains advice to the effect that it may or has become liable for payment of any of the Taxes, including PAYG, or is otherwise required to deduct the taxes from amounts owing to the Independent Contractor, the Principal may deduct the amount of its liability or prospective liability for the Taxes from any amount due by the Principal to the Independent Contractor. |
| Deduction of taxes | This clause is a simple statement of fact. That is that laws (tax etc) may require the client to deduct and make payments to a government authority. The clause simply ensures that the client can comply with laws imposed upon it. Further, that if the client does make deductions from payments to the contractor it’s only happening because of the clients need to comply with the law. | The Sub-Contractor acknowledges that some Federal or State statutes may require the Principal to make payments on behalf of the Sub-Contractor or to make deductions from moneys due to the Sub-Contractor. The Sub-Contractor further acknowledges that the Rates specified are inclusive of those payments and that deductions will be deducted from the Rates. |
| Tax obligations | This makes it clear that the client will be liable for certain tax obligations if required by law. | Where required by law, the Principal shall be responsible for the payment of payroll tax incurred by the Sub-Contractor in respect of a Nominated Employee under this Agreement or otherwise in consequence of the performance of the Services by the Sub-Contractor. |
| Payment Terms | You should insist on a clause in your contract that stipulates when you will be paid. | |
| Payment terms | We highly recommend such a clause to ensure payments are required within an agreement time frame. | The Client agrees to pay all signed and valid invoices submitted by the Consultant within 14 days of receipt. |
| Payments terms | We highly recommend such a clause. If you do have such a clause we recommend you do charge interest when a payment is late. | Any invoices not paid within 14 days of receipt shall attract interest at the prevailing market interest rate for personal loans. |
| Insurance | As a self-employed person you need to make sure you have adequate insurance cover. However, sometimes even if you have cover, local laws may require your client to also cover you under workers’ compensation insurance, for example. Precisely when this applies can often be confusing due to badly written laws. Whatever happens, check that you have cover. | |
| Accident/Illness insurance | This is a clause we’d expected to see in any sensible agreement assuming you, the contractor, are liable for insurance. | The Contractor agrees that it will take out and maintain during the term of this Agreement and when required by the client to, produce evidence of the same either: appropriate insurance under applicable State Government Workers Compensation Legislation; or private personal accident and sickness insurance policies; for the Contractor, its directors, employees, servants and agents. |
| Insurance | This is a different clause from insurance clauses we have flagged elsewhere as ‘red’. This clause merely requires evidence that the independent contractor has appropriate insurance in conformity with the law. It ensure that the client knows that certain insurances have been paid and that the client could/should not be held liable over an insurance-related claim. | The Sub-Contractor must produce to the Principal, upon demand, evidence of insurance held by the Sub-Contractor including that for workers’ compensation in respect of the Nominated Employee. |
| Public Liability Insurance | This is a standard requirement in contractor agreements, but you need to be sure that an obligation to have PL insurance fits the sensible realities of the work that you do. If you are a work-from-home bookkeeper for example, is it really necessary to have PL insurance? This is an assessment you need to make. If you do not have PL insurance and one client requires you to have it, be aware you’ll need to increase your fees to the client to cover such costs. PL insurance is expensive. | The Contractor must take out and maintain during the term of this Agreement a Public Liability Insurance policy in the amount of not less than $10 million with a reputable insurer approved by …….. (which approval will not be unreasonably withheld) to appropriately cover the Contractor and its directors, employees, servants and agents. |
| Client’s Policies | ||
| Work safety etc policies | As a contractor you have to comply with equal opportunity and work safety laws. This clause ensures you are aware of the client’s policies on these issues. Make sure you have received and do read and understand the client’s policies. It’s probably best to have the client’s policies on this attached to the contract. | The Independent Contractor acknowledges that it has been provided with a copy of the Principal’s workplace policies and procedures, including its Equal Opportunity and Occupational Health and Safety Policies. The Independent Contractor acknowledges that it will carefully review and adhere to any policies and procedures provided by both the Principal and the Client at all times for the duration of this Agreement. |
| Compliance with law | This reinforces that, as a contractor, you have clear responsibility to comply with legislation covering your work. It does not imply or mean that the client does not have a similar responsibility—which they do. | The client engages the Contractor to perform the Services subject to compliance with Environmental Law and Occupational Health and Safety rules or regulations (including amendments) and any other statutory regulations and requirements relevant to the Services. |
| Contract assignment | You have to be careful about when ‘rights under the contract can be assigned’. Effectively this means that you or the client can on-sell or transfer the business to someone else. You need to be careful and have this spelt out clearly in the contract, particularly if the contract covers ongoing work. | |
| Assignment | Neither party can transfer the agreement to another party without the agreement of the parties currently under the contract. We recommend clauses of this type where needed. | The rights and obligations of the each Party under this Agreement cannot be assigned, changed or otherwise dealt with other than in accordance with this Agreement, without the prior written consent of the other Party. |
| Review Contract prices | ||
| Rate Increase | If you have a standard contract that needs rates reviews, a clause such as this should be included. You may want to ensure that a third party can assist but ultimately what is paid under the contract will and must always by a decision you make with the client. This is not like employment where tribunals set the contract price. Price is your responsibility. | Any rate increases will be negotiated in good faith in consideration of the prevailing circumstances and financial conditions at the time. Any third party acting on behalf of the Consultant will use its best efforts to renegotiate a rate in the interests of the Consultant and shall not do anything to prejudice the ongoing relationship of the Consultant or its consultants with its Client. |
| Free to work | A most important aspect of being a contractor is that you are genuinely free to work where and when you want and how you want. | |
| No exclusivity | Being free to work for other parties is a key aspect of being an independent contractor. | The provision of the Services by the Contractor is not exclusive to the engaging Party. |
| Employing others | This is a standard clause we would expect to see. | a) The Contractor may appoint employees and representatives for the purposes of assisting with the Services. b) The Contractor shall ensure that its employees and representatives act in such a manner as to not render the Contractor in breach of any provision of this Agreement. c) The Contractor will ensure that all persons performing the Services for the Contractor are paid at rates which are not less than those fixed by any relevant quotation, award, determination, judgment or order of any competent court, board, commission or other industrial tribunal and are employed under conditions prescribed by any such award, determination, judgment or order. |
| Equipment | Mostly, as a contractor, you need to provide your own equipment. But this will vary from the particular needs of each job. You should be expected to be responsible for the equipment you provide. | |
| Equipment | It should ordinarily be expected that an independent contractor will supply equipment necessary and appropriate to the work to be done. | The Sub-Contractor must supply any equipment reasonably required to ensure the effective and timely delivery of the services specified. |
| Your plant and equipment | Where you supply plant and equipment, this clause ensures that you are solely responsible for it. | All plant, equipment and other items provided by the Contractor or on behalf of the Contractor will be under the Contractor’s control and its sole responsibility at all times. The client acknowledges that the Contractor accepts all risks associated with the provision and use of the equipment whilst on Clients’ premises. The Contractor agrees that all equipment will be stored away both after and when not in use so that it is not unsightly or likely to cause an obstruction to the public. The client reserves the right to remove such items from Clients’ premises without prior consultation with the Contractor or without recourse to the Contractor if in its absolute discretion it determines that such items should be so removed. |
| General work arrangements | ||
| Work standard rectification | This is a highly reasonable and expected clause. It simply requires compliance to work standards. | The Sub-Contractor must ensure that the Services are performed and completed in a timely and cost effective manner and that any deficiencies in Services are rectified by the Sub-Contractor at the Sub-Contractor’s cost. |
| Changing work | Note that changes to work are by mutual agreement. | Subject to a written agreement between the parties, the Services may be changed or extended. |
| Work review | This is a sensible clause to ensure that work standards are monitored during the contract. | The Principal will periodically review the performance of the Services provided by the Sub-Contractor so that the Sub-Contractor is fully aware of the standards of performance required by the Principal . |
| Work restrictions | ||
| Limitation on your trade | This probably applies to a labour hire-type arrangement. It only stops you from performing work for an existing and specific user of your services and does not extend beyond that. | The Sub-Contractor must not, for a period of six (6) months from the expiry of the Contract Period or the termination of this Agreement, whichever is later, provide Services directly or indirectly to the Client or in connection with the Project without the prior written approval of the Principal. |