Unlike employees, freelancers don’t have their rights and work responsibilities automatically outlined when they agree to work for a company. Whether initiated by the contracting company or the freelancer, contractual work agreements define important items, such as the project’s scope, payment, deadlines and ownership. Although contracts may initially seem like extra paperwork, these agreements create the foundation of a healthy working relationship. A detailed contract that clearly outlines expectations for both parties from the start can save money and time in the long run.
As a freelancer, if you’re drafting the contract, you can create desirable terms for yourself. If you’re signing a freelance contract originating with a client, don’t be afraid to make it work for you, says employment lawyer Jamie Wright of California-based Wright Law Firm. “You have a lot of rights—particularly if they want to work with you… you’re the talent… no contract is automatically set in terms. If you’re getting a standard contract, you can strike out some of those terms. If [the contract is] nonnegotiable, you can take it or leave it—work for them or move on and look for further work,” she says.
Here are five steps to crafting a freelance contract
1. Get everything in writing
“This may seem obvious, but not all freelancers operate under a written agreement. Don’t do that,” says Damien H. Weinstein, a partner in New Jersey’s Weinstein + Klein, who specializes in employment litigation. “A well-drafted agreement will contain all the essential terms, protect you and your work product, lessen the chance of misunderstandings and disputes and pave a good path for the parties to work together. In fact, some states even have laws that require a freelancer [to] work under a written agreement.”
If a formal contract isn’t possible, Weinstein still recommends creating a terms sheet. He advises against considering email exchanges contracts, as they aren’t legally binding. “[There are] things that can be lost in communication [via email]. It’s never very clear, unless the email definitively says, ‘here are the terms,’ and the other party says, ‘yes, I agree and accept.’ Email is almost like a virtual handshake. It’s kind of hard to prove. A contract is your best option.”
2. Use your business’ legal entity, not yourself, to make the contract
“Operating through a legal entity—such as an LLC—is a good idea to provide liability and asset protection and for tax benefits,” Weinstein says. Whoever signs a contract is legally liable for the terms of that agreement. If there’s a breach of contract and a financial judgment, the court can go after the liable party’s finances. If that liable party is an individual, personal assets, such as savings accounts, cars, homes and even a child’s 529 college savings plan, may be fair game to enforce a judgment. However, if a legal business entity enters into a contract, only that business’ assets are vulnerable to liability.
“Right off the bat, you’re creating a fence around your business operation that protects plaintiffs and creditors from touching your personal assets. And more than nine times out of 10, you get not just personal asset protection, but also individual liability protection,” he says.
3. Clearly outline the scope of the agreement
It’s important to define the type of work being done and how to get paid. Weinstein outlines the following questions:
For scope of services, ask yourself:
What are you creating/producing? What’s included and what isn’t? Are you allowed to hire subcontractors? And, if so, under what circumstances?
For payment, consider these things:
How are you paid and when? (At the end? At certain benchmarks? Upon delivery or acceptance of the work?) If the company will pay after acceptance of the work, what does successful completion look like?
Weinstein says to watch out for clauses stating work will be approved at the “sole and absolute discretion” of the company because that language is far too vague. “It is a very good idea to discuss what that looks like and to negotiate that and push back,” he says. The contract should also outline how many times the company can ask for revisions or modifications.
Additional payment details to consider: Under what circumstances can payment be withheld? What happens if an invoice is partially disputed? Are there late fees or penalties (a flat fee or percentage) if payment isn’t issued per contract terms?
For the term of the contract, think about:
Is the contract for a certain length of time or based on completion of a project? How can the parties terminate the contract and what length of notice is required for each side? If either party terminates the contract prematurely, how is remaining payment due determined, and who owns what has been created at the point of termination?
Weinstein says he sees the most disputes around payment. Especially from the freelancer’s perspective, “You can never be too detailed when it comes to payment terms,” he says. “At the end of the day. This is what it’s about.”
If you’re drafting the contract, you can create desirable terms for yourself. If you’re signing a freelance contract originating with a client, don’t be afraid to make the contract work for you.”
4. Establish ownership
Intellectual property—or in other words, who owns what’s produced—can be a tricky negotiating point. In freelance contracts, it’s assumed the contracting company will own the deliverables in a work-for-hire contract—for example, a branding logo. However, it’s also important to consider “how those deliverables can be used by the parties during and after the term of the agreement,” Weinstein says.
Quality freelance agreements should also define who owns preexisting and underlying materials and works in progress. For example, if a writer is composing an article for an annual report, who owns the interviews the writer must complete prior to penning the final article? Who owns the outline to the article? Weinstein has observed hiring organizations being heavy-handed with intellectual property provisions. He advises freelancers to advocate for retaining as much material as possible.
If a company does require ownership of supporting materials, it should compensate accordingly, Wright says.
It’s also valuable to outline the contracting company’s intellectual property. While completing work, a freelancer may have access to a company’s trade secrets, such as customer lists, pricing lists and other means of doing business. Wright says it’s important for both parties’ future liability to define if/how the freelancer can access that intellectual property and if/how the freelancer can utilize that intellectual property after work is complete.
5. Watch for red flags
Experts caution to watch for these provisions in freelance contracts:
Overreaching results
Weinstein says to carefully determine what is within the scope of work and what’s outside it. Make sure the contract focuses on the deliverable and be wary of contracts that overpromise results. For example, a contract can reasonably require a freelancer to deliver a brand logo, but it should not require results such as growth of sales, business identification or other impacts from creating a brand logo.
Indemnification
Wright advises to look carefully at indemnification clauses. Indemnity is “an undertaking by one party (the indemnifying party) to compensate the other party (the indemnified party) for certain costs and expenses, typically stemming from third-party claims.” In other words, if someone sues because of the work created, who is liable for this suit?
Exclusivity
Weinstein recommends looking out for legalese that can limit a freelancer’s ability to work for other companies, including competitors of the contracting company. “Be careful about agreeing to anything exclusive, as that not only hampers your ability to earn a living, but it also muddies the legal relationship between the parties,” he says. “That’s very antithetical to the whole freelancer concept.” If you decide to work exclusively for the contracting company, it should compensate you for that ability and the period of exclusivity should be clearly outlined.
Non-disparagement
Wright also advises watching out for contracts that don’t include a non-disparagement clause. These provisions say, “You’re not going to defame me or say negative things about me when I stop working for you, and vice versa,” she says. These clauses are valuable because if a company speaks poorly about a freelancer’s work, it might limit their ability to find and do business in the future.
Overall, Weinstein observes that no contract can be impenetrable. “Everyone says, ‘I want the bulletproof contract.’ And it’s impossible because you can’t write a contract that envisions every possible way something could go wrong or not wrong,” he says. However, “having a well-drafted but fair agreement of your own can help significantly streamline the negotiation/onboarding process and minimize legal risk down the road.”
With these five guidelines in mind, you’re on your way to a successful freelance agreement and working relationship with a contracting organization.
Find freelance contract templates online
Need a starting point for negotiation? Freelance contract templates are available at Jotform, Legal Templates and LegalZoom.
This article originally appeared in the September issue of SUCCESS+ digital magazine.
Photo by Rido/Courtesy of Shutterstock
