Chapter 2: Contracts that Define Employment Relationships
Part 1: Examples of Employment Contracts
B: Subcontractor Agreement
Let's say you're a website developer, and you've been hired to create a brand-new, optimized website for a client. You decide to hire a SEO professional to work for you as a subcontractor, which your client contract allows. However, you need a subcontractor agreement to protect you.
That's because the subcontractor has access to sensitive client information — and you could be held responsible if that information finds its way into the public sphere thanks to your subcontractor's loose lips. For example, while writing about the project on their blog, the SEO professional could accidentally unveil new products and marketing initiatives that aren't public knowledge yet.
Let's look at how a subcontractor agreement can help you avoid being held responsible for mistakes you didn't make. This agreement includes:
- Scope of Work. Expectations for the subcontractor's work. Be sure to describe the project and their duties in detail. If the subcontractor can hire their own help, state that they are not your employees or subcontractors to avoid being held accountable for their employment-related issues.
- Duration of Work. Whether the project is on a fixed timetable or on an "as needed" basis.
- Billing and Payment. Typically, it's a good idea to pay subcontractors for certain milestones of the project. This lets you review their work as they go. However, you'll need to decide whether the subcontractor will be paid at a fixed or hourly rate. Clearly define all terms of payment (e.g., the rate, frequency, invoicing procedure, etc.).
- Employment Relationship. State that the subcontractor is an independent contractor and that you are not responsible for withholding taxes or offering benefits and Workers' Comp coverage.
- Non-Disclosure. As we mentioned before, your subcontractor likely has access to your client's sensitive information. They may even pick up a few of your trade secrets along the way. This is the place where you define what information can and can't be shared. You may also need to outline consequences for violating the clause. (See page 19 for details.)
- Non-Compete. Statement that your subcontractor can't steal work from you. However, non-compete clauses can be tricky, as local laws may limit their validity. You'll need a lawyer's touch on this one. (Jump to page 20 for more.)
- Work for Hire. Statement that the subcontractor has no ownership rights to the project. You own the work your subcontractor produces once it's submitted to the client. (Details on page 21.)
- Insurance. For IT work, it's important that your subcontractors carry their own General Liability Insurance and Errors and Omissions Insurance. In fact, your main contract with your client may require you to only hire subcontractors who are adequately insured. Additionally, you should require that your subcontractor has Workers' Compensation Insurance. Otherwise, you could be held responsible for their occupational injuries.
- Assignment. Statement that only the subcontractor can fulfill the terms of this assignment so they don't subcontract out part of their work.
- Indemnity. Again, you'll want a lawyer to write this to make sure it can hold up in court. This protects you when the client tries to sue you over work your subcontractor produced. Some states do not permit indemnity claims arising from your own negligence. As a failsafe, make sure you carry adequate E&O Insurance to address your potential liabilities.
- Warranties. Any promises the subcontractor makes about their work.
Check out FireEye's sample subcontractor agreement for a good example of what these documents look like in print.
Next: Part 1C: Examples of Employment Contracts: Employee Contracts / Employment Agreements