An Independent Contractor Agreement is used to structure business arrangements with providers that will not be considered employees of your business. It governs the most impactful components of the relationship between your business and the contractors you hire to help it grow. This agreement secures your business’s rights to the products or other work contractors are compensated to produce.
Without a solid independent contractor agreement in place, your contractors may be legally entitled to what should be business assets. They may be (and are actually likely to be) the legal owners of whatever it is your business paid them to produce. This can be problematic for a host of obvious reasons – the main one being: what exactly did you pay for if not to own what you paid for?!?
Your Independent Contractor Agreements also protect business assets like your client list, marketing and business plans, recipes, formulas, processes, and other intangibles like brand reputation and customer goodwill. If you wouldn’t want someone outside your business to end up with access, or even ownership of your business’s assets (whatever those are), you’ll need to secure your business’s ownership rights using this agreement.
One of the biggest and most overlooked risks of working with independent contractors is the possibility that they will be deemed to be employees under the law. This can trigger expensive litigation and aggressive fines by local, state, and federal government authorities. Wage and hour violations would most likely be triggered, along with back pay, interest and penalties.
It doesn’t take a genius to know that when you add all of this up, the possibility of an independent contractor being legally determined to be an employee can be fatal for small businesses who can’t afford to pay the $300/hour average minimum hourly rate for employment litigation. Additionally, there’s a greater likelihood of your business being held liable for the errors and omissions of employees than independent contractors. Independent contractors are generally treated like employees of themselves for purposes of imputing liability (placing financial blame and responsibility).
The Independent Contractor Agreement helps to minimize the liability exposure inherently associated with contractor relationships and helps distinguish your independent contractor from an employee of your business. The fact that one wage and hour violation alone could and would crush most small businesses beyond recovery is enough to conclude that your business can’t afford to operate without one.
Need an independent contractor agreement to protect your business and assets? Head inside the Vault to lock down yours now.
