Five Important Clauses in Every Effective Consulting Agreement

As the gig economy continues to rise, replacing the traditional company structure of having full-time employees focused on career development, with independent contractors or freelancers, the ways in which companies seek and hire talent has changed significantly. While the pros and cons of this type of economy are constantly up for debate, one thing remains true, freelancers that possess unique skills and considerable talent can really cash in on their expertise and the value they can bring to companies, big and small. Companies continue to lean on freelancers for writing engaging articles, crafting unique menus for restaurants and even drafting legal documents for litigation or transactional matters.

Depending on the nature of the work involved, a consulting agreement may be an option for building a short-term or long-term relationship between a company and freelancer. So whether you're looking into hiring a freelancer, or you've just received an offer to provide services to a company, here are five important clauses for ensuring an effective consulting agreement:

SERVICES CLAUSE OR EXHIBIT

Whether this section is integrated as a clause in the agreement or attached as a separate exhibit, the services portion of a consulting agreement is crucial in laying out exactly what services will be provided by the consultant/freelancer. This is the opportunity to spell out everything in detail. What are the expectations between the parties as to what services the freelancer will provide? This section can be tailored to be as general or specific as the parties wish, but should be very clear on what the freelancer will and will not do.

COMPENSATION CLAUSE

What is the freelancer's rate of pay and when will they be paid for their work. The compensation clause lays out the financial details of the transaction. The freelancer will perform services for the company and the company will compensate the freelancer for their work. The nature of the fee can be characterized in several different ways, for example, a flat fee paid upon completion of a project, a flat fee paid in installments, or a regular billing arrangement.

CONFIDENTIALITY CLAUSE

As part of the arrangement between the company and freelancer, it is quite possible that the freelancer will have access to proprietary company information, systems, data, etc. The confidentiality clause, if drafted correctly, will protect the company against unauthorized disclosure of confidential information. As a freelancer, it is important to take note of the seriousness of violating a clause such as this and keeping company records, information and data protected should be paramount in the relationship.

INDEPENDENT CONTRACTOR CLAUSE

The independent contractor clause is a protective measure for companies and establishes the true nature of the relationship between the parties. Accordingly, this clause will typically state that the freelancer is an independent contractor and not an employee of the company. Furthermore, it may state that the consulting agreement between the parties does not create a joint venture, partnership or other professional business relationship. Finally, this clause will often provide an acknowledgment that the freelancer accepts that they are responsible for tax withholdings, insurance, etc. and that they are ineligible for employee benefits such as health insurance, paid time off, paid vacations, etc.

INDEMNIFICATION CLAUSE

Typically written as a mutual indemnity, the indemnification clause provides protections for both the company and the freelancers should either party be responsible for causing personal injury to third parties, property damage and the like resulting from negligence or willful misconduct. Accordingly, the responsible party agrees to indemnify, protect and hold harmless the other party from any claims related to their negligent actions or willful misconduct.

If you are looking to hire a consultant or were recently handed a draft consulting agreement, we are available to guide you through that process. If you have any other questions or you are interested in seeking a consultation to learn more, please do not hesitate to give us a call or schedule a consultation using the button at the top of our website.

Disclaimer: This blog post and similar posts are not to be considered as providing legal advice. The discussion here is meant for educational and informational purposes only and shall not create an attorney-client relationship with the readers of this content.