Independent contractor agreement
How to review an independent contractor agreement
In a contractor agreement, check the classification risk (does it look like employment), who owns the work product, payment and expenses, and non-compete and termination terms. Control over hours and methods, exclusivity and long open-ended terms are signals that regulators may treat the relationship as employment.
Legal background
- Worker-classification tests of the relevant jurisdiction (for example ABC test, IR35, EU rules)
- IP assignment and moral-rights rules
- Local limits on non-compete clauses
Main risks
01Misclassification risk
The contractor works fixed hours, under direction, with company tools and exclusivity: features associated with employment.
02Unclear IP ownership
No assignment of work product or only a licence, or conversely, assignment of everything created during the term including unrelated work.
03Payment and expenses
Payment only after client approval with no deadline, unclear expense reimbursement, or the right to withhold fees for any reason.
04Broad non-compete and non-solicit
Wide restrictions on working with other clients or in the industry, often unenforceable but still harmful in practice.
05Termination without notice
The client can end the agreement immediately for convenience without paying for work done.
06Indemnity and insurance
The contractor indemnifies for all claims with no cap and must carry insurance that is disproportionate to the fees.
Example finding and redline
Clause in the contract
“Contractor shall work exclusively for Company and be available during Company’s business hours.”
Why it is risky
Exclusivity and set hours resemble employment and increase misclassification risk.
Suggested fix
“Contractor may provide services to other clients and determines the time and place of work, subject to agreed deadlines.”
Pre-signing checklist
- Scope and deliverables defined, not hours and supervision
- Contractor controls how and when the work is done
- IP assignment limited to work product created for the client
- Payment schedule, late-payment terms and expenses
- Confidentiality with sensible exclusions
- Non-compete and non-solicit are narrow and local-law compliant
- Termination notice and payment for work done
- Liability cap and insurance requirements are proportionate
FAQ
- What makes a contractor look like an employee?
- Typical factors are control over how and when work is done, fixed hours, integration into the business, using company equipment, exclusivity, and a long indefinite relationship. Tests differ by country, so check local rules.
- Who owns the work a freelancer creates?
- By default, often the freelancer. Unless the agreement assigns rights to the client in writing, the client may only have a limited licence. Include a clear assignment with a licence for background materials.
This material is for general information and is not legal advice. Rules differ by jurisdiction; have a lawyer review any significant contract before you sign.