independent-contractor-agreement

# Independent Contractor Agreement

Drafts a results-oriented ICA that survives IRS and state misclassification scrutiny while protecting both parties on IP, confidentiality, and liability.

## Prerequisites

Gather before drafting:

1. **Parties** — legal names, entity type/state of formation, addresses, authorized signatories
2. **Scope** — deliverables, milestones, acceptance criteria, start/end dates
3. **Compensation** — fixed fee, hourly, retainer, or milestone-based; reimbursable expenses
4. **Governing state** — determines applicable classification test (ABC vs. economic-realities)
5. **IP sensitivity** — pre-existing contractor IP vs. novel work product
6. **Insurance** — coverage types and minimums for the engagement

## Agreement Sections

### 1. Parties and Recitals

- Legal names, entity type, formation state, address
- Confirm signatory authority (board resolution / operating agreement if entity)
- One-sentence engagement purpose

### 2. Scope of Services

- Specific deliverables with measurable acceptance criteria
- Milestones and deadlines
- **State explicitly:** contractor controls manner, means, method, and schedule
- List exclusions to prevent scope creep

### 3. Compensation and Payment

| Element | Requirement |
|---|---|
| Rate/fee | Exact amount or formula |
| Invoicing | Contractor submits invoices; net 15/30 |
| Expenses | Itemized reimbursables; receipts required |
| Taxes | Contractor solely responsible (federal/state/local + self-employment) |
| No withholding | No income tax, FICA, FUTA, or state UI withheld |
| 1099-NEC | Hiring party issues 1099-NEC; no W-2 |
| Late payment | Interest rate or penalty if applicable |

### 4. Contractor Classification

Include affirmative statements that contractor:

- Retains full control over manner and means of performance
- Provides own tools, equipment, and workspace (note exceptions)
- May work for other clients concurrently
- Bears risk of profit or loss
- Receives no employee benefits (health, retirement, PTO, workers' comp)
- Is not supervised or subject to set hours

**Jurisdiction-specific tests:**

| Framework | Test |
|---|---|
| Federal/IRS | Common law control (behavioral, financial, relationship type) |
| FLSA | Economic realities |
| CA, NJ, MA + others | ABC test — Part B (outside usual course of business) is highest risk |

### 5. Term and Termination

| Trigger | Notice |
|---|---|
| Without cause | 15–30 days written |
| Material breach (uncured) | Written + 10-day cure; immediate if uncurable |
| Insolvency/bankruptcy | Immediate |

On termination: deliver work in progress, return property, submit final invoice. Hiring party pays for accepted work through termination date.

### 6. Confidentiality

- **Scope:** trade secrets, business strategies, customer lists, financial data, proprietary processes, anything marked or reasonably understood as confidential
- **Duration:** 2–5 years general; indefinite for trade secrets
- **Carve-outs:** publicly available, independently developed, received from third party, legally compelled (with prompt notice)
- **Return/destroy** all materials on termination

### 7. Intellectual Property

Use belt-and-suspenders approach:

1. All deliverables are works made for hire under 17 U.S.C. § 101 — verify eligible category
2. Fallback assignment of all right, title, and interest (worldwide, perpetual) for anything not qualifying as WMFH
3. Contractor executes additional documents to perfect ownership
4. Pre-existing contractor IP listed on Exhibit A; non-exclusive license granted for use as embedded in deliverables
5. Moral rights waiver for copyrightable creative works

### 8. Representations and Warranties

**Contractor:** authority to contract, no conflicting obligations, possesses required skills/licenses, work meets professional standards, deliverables non-infringing, compliance with applicable laws.

**Hiring party:** authority to contract, reasonable cooperation, timely information.

### 9. Indemnification and Liability

| Party | Indemnifies against |
|---|---|
| Contractor | Breach, negligence/willful misconduct, IP infringement, bodily injury/property damage |
| Hiring party | Breach, negligence/willful misconduct |

- Liability cap: total fees paid (carve-out for confidentiality/IP breaches)
- Exclude consequential, incidental, punitive damages (same carve-outs)

**Contractor insurance minimums:**

| Type | Minimum |
|---|---|
| Commercial general liability | $1M occurrence / $2M aggregate |
| Professional liability (E&O) | $1M per claim |
| Workers' comp (if contractor has employees) | Statutory |

Require certificates of insurance; hiring party named as additional insured on GL.

### 10. Dispute Resolution

- Escalation: good-faith negotiation → mediation (30 days) → binding arbitration (AAA Commercial Rules)
- Seat: governing state; fees split equally; each party bears own attorneys' fees
- Governing law and exclusive venue for non-arbitrable claims: governing state courts

### 11. General Provisions

- Entire agreement / merger clause
- Written amendments signed by both parties
- No contractor assignment without consent; hiring party may assign to successors/affiliates
- Severability; no waiver by failure to enforce
- Notices via email + overnight courier
- Force majeure (exclude payment obligations)
- Counterparts; e-signatures valid under ESIGN Act / UETA

### Signature Block

Both parties sign with name, title (if entity), and date.

## Pitfalls and Checks

- **Never use supervision language** — avoid "direct," "supervise," "report to," "schedule set by" — these flag misclassification
- **California ABC test:** Part B (core business work) is near-impossible to satisfy; recommend separate CA counsel review
- **Non-competes:** void/restricted in CA, MN, ND, OK; limited enforceability elsewhere — assess before including
- **Multi-state work:** identify all states where services are performed; each may apply its own classification test
- **Never guarantee IC status:** include disclaimer; recommend client consult tax counsel
- **Gig/platform engagements:** verify current NLRB independent contractor standard