In contrast to traditional employees, freelancers lack predefined rights and responsibilities automatically defined upon entering an agreement with a client. These essential details are instead clarified through contractual agreements, whether initiated by the freelancer or the hiring company. Such agreements delineate key aspects, including the project scope, payment structure, deadlines, and ownership rights. Although it may seem like mere extra paperwork at first, a solid contract sets the groundwork for a productive working relationship. Crafting a comprehensive contract that sets clear expectations for both ends can ultimately save both time and resources.
If you find yourself creating the contract as a freelancer, you have the ability to negotiate favorable conditions. However, if you’re accepting a freelance contract from a client, employment attorney Jamie Wright from Wright Law Firm in California encourages you to advocate for your interests. “You hold a considerable amount of rights, particularly if they are interested in your skill set… you’re the one bringing the talent… there’s no contract that is set in stone. If you receive a standard agreement, you can negotiate terms. If the contract is non-negotiable, you’ll need to decide whether to accept it or pursue other opportunities,” she states.
Five Steps to Craft a Freelance Contract
1. Ensure Everything Is Documented
“While this may appear obvious, not all freelancers function with a signed contract. Avoid that scenario,” cautions Damien H. Weinstein, a partner at Weinstein + Klein in New Jersey, who specializes in employment law. “A properly crafted agreement will encompass all critical terms, safeguard your work, reduce misunderstandings and disputes, and facilitate collaboration. In fact, certain states mandate that freelancers work under a formal agreement.”
If a formal contract isn’t feasible, Weinstein suggests creating a terms sheet instead. He warns against treating email correspondence as contracts since they are not legally binding. “[There is a risk of losing clarity in email communication]. It can be ambiguous, unless the email explicitly states, ‘here are the terms’ and the other party confirms, ‘yes, I accept.’ Email interactions serve more like a virtual handshake, making them harder to substantiate. A contract remains the best evidence of your agreement.”
2. Utilize Your Business Entity rather Than Personal Identity
“Conducting business through a legal entity—like an LLC—offers crucial liability and asset protection while also yielding tax advantages,” explains Weinstein. The individual who signs a contract becomes legally accountable for its terms. Should there be a breach leading to a financial judgment, the courts can pursue the assets of the liable individual. If that individual is a freelancer, personal belongings, including bank accounts, vehicles, residences, and even a child’s education savings plan, can be at risk. In contrast, if a legal business entity is party to a contract, only its assets could be subject to liability.
“Right from the beginning, you’re establishing a safeguard around your business that restricts creditors from seizing your personal assets. More often than not, this also grants you personal liability protection,” he articulates.
3. Define the Scope of the Agreement Clearly
It’s crucial to specify what work is required and how remuneration will be handled. Weinstein suggests considering the following inquiries:
For Scope of Services, Ponder:
What are you tasked with creating or producing? What is encompassed in the agreement and what remains excluded? Are subcontractors permissible, and under what conditions?
For Compensation, Reflect on:
When and how will you receive payment? Is it upon completion, at certain milestones, or upon delivery? If the company compensates post-acceptance of work, what constitutes successful completion?
Be cautious of clauses that specify acceptance of work at the “sole discretion” of the company, as such language can be overly vague. “It is wise to clearly define what this includes and to advocate for specific terms,” he advises. Additionally, the contract should disclose how often the company can request revisions.
Further payment considerations include: Under what circumstances can payment be delayed? How will disputes regarding an invoice be handled? Are there penalties or late fees if payments are not made in accordance with the contract?
For the Duration of the Contract, Consider:
Is the contract bound by a specific timeframe or contingent upon project completion? What are the procedures for terminating the contract and what notice period is required from both parties? If either party chooses to terminate early, how will due payments be determined, and who retains ownership of work produced up until that point?
Weinstein notes that many disputes arise over payment clauses. Particularly from a freelancer’s perspective, “You can never be too diligent when detailing payment terms,” he asserts. “Ultimately, that is what it comes down to.”
If you’re composing the contract, you can project favorable terms for yourself. Conversely, if you’re signing a contract provided by a client, don’t hesitate to negotiate it to ensure it benefits you.
4. Clarify Ownership Rights
Ownership of intellectual property, or who controls the output, can be a complicated aspect of negotiation. In freelance agreements, it is generally assumed that the contracting company holds rights to the deliverables under a work-for-hire clause, such as for a branding logo. Nevertheless, it is critical to assess “how those deliverables may be utilized by both parties during and after the duration of the contract,” notes Weinstein.
Exemplary freelance contracts should specify ownership of both pre-existing materials and works in progress. For instance, if a writer is crafting an article for a yearly report, whom among them possesses the rights to interviews conducted beforehand? Who claims ownership over the article’s outline? Weinstein has observed that hiring organizations often impose stringent intellectual property clauses. He advises freelancers to strive to retain control over as much material as they can.
Should a company insist on ownership of auxiliary materials, Wright suggests they should provide corresponding remuneration.
Furthermore, it is crucial to delineate the intellectual property belonging to the contracting company. While performing tasks, a freelancer may access sensitive information, such as customer lists, pricing sheets, and operational methodologies. Wright emphasizes the importance for both parties in defining how the freelancer can access this intellectual property and how it may be utilized post-completion of the project.
5. Be Cautious of Warning Signs
Experts urge freelancers to pay attention to these problematic clauses in contracts:
Excessive Result Expectations
Weinstein suggests thoroughly examining what falls within the project’s scope and what does not. The contract should emphasize deliverables and stray from making overly ambitious promises. For example, a contract might reasonably require a freelancer to deliver a logo, but should avoid stipulating expectations of sales growth or other outcomes associated with the logo.
Indemnification Clauses
Wright cautions that indemnification provisions require careful scrutiny. Indemnity implies that one party (the indemnifying party) agrees to cover costs and expenses for the other party (the indemnified party), typically in relation to third-party claims. In plain terms, if someone initiates a lawsuit arising from the work completed, who bears the responsibility?
Exclusivity Agreements
Weinstein alerts freelancers to scrutinize clauses that might restrict their freedom to work for other clients, including competitors of the contracting firm. “Be cautious before agreeing to anything exclusive, as it can severely limit your ability to earn income, while also muddying the legal relationship between the parties,” he warns. “Such clauses run counter to the core essence of freelancing.” If you choose to enter into an exclusivity agreement with the contracting company, it should come with appropriate compensation and a clearly defined exclusivity duration.
Non-Disparagement Provisions
Wright also points out the significance of contracts that do not include a non-disparagement clause. Such clauses ensure mutual agreement to avoid defaming or making negative comments about each other after the working relationship ends. These provisions are crucial as they protect against any damaging statements that could hinder future business opportunities for a freelancer.
Weinstein concludes by stating that no contract can be utterly foolproof. “Many individuals ask for an impenetrable contract. However, it’s untenable to create a document that accounts for every conceivable scenario or mishap,” he remarks. Nevertheless, “having a fair, well-structured agreement greatly simplifies the negotiation and onboarding phase while reducing legal risks in the future.”
By applying these five principles, you will be well-equipped to establish a fruitful freelance agreement and collaboration with a contracting firm.
