Who can use this agreement
This agreement can be used by all employers.Commentary
The Independent Contractor Agreement ('the agreement') includes coverage of the following matters: company and contractor details; general details; equipment details; description of service; provision of services; operative provisions; commencement, duration and option to renew; obligations of the contractor; contract fees and expenses; taxation; other contract work; termination; confidentiality; agreement obligation; insurances; indemnity; and dispute resolution.
The independent contractor agreement does include a confidential information clause as noted above, but does not include a specific intellectual property/moral rights clause. If you wish to include such a provision in the agreement or gain a greater understanding of the impact of not including such a provision, it is important to obtain specific legal advice.
The following is a brief commentary on some of the aspects of this agreement. However, to ensure that you achieve an agreement that meets all of your particular needs, you should obtain specific legal advice.
The agreement can be used when your business wishes to engage the services of a corporate contractor who will engage an individual person to perform the contracted services. The benefit of using an agreement in the form provided is that it reduces the legal risks if a dispute arises.
If you wish to engage a contractor who is not a corporate entity (for example, a sole trader, partnership etc), or the corporate contractor will be engaging another corporation (rather than an individual person) to perform the contract services, the agreement will need to be amended. There are greater legal risks in contracting with non-corporate entities. As such, you should obtain specific legal advice in relation to your specific requirements.
Distinguishing between an employee and an independent contractor
An independent contractor is a person engaged to work under a contract for service. An independent contractor does not have the legal status of an employee and is engaged by a principal — as opposed to being employed by an employer. Independent contractors are responsible for their own taxation, superannuation and insurance. Independent contractors retain substantial control and direction over the work. In comparison, an employee is engaged under a contract of service to carry out work at the direction of the employer. The employer is responsible for remitting taxation and meeting superannuation and insurance obligations with respect to the employee.
If a contractor is engaged as a natural person rather than through a company, there is a greater risk that the person will be deemed at law to be an employee rather than an independent contractor. There are a number of legal consequences of the relationship being characterised as an employer-employee relationship, including under taxation law, superannuation law, workers' compensation laws and industrial relations law.
Where the party contracted to perform the work is a company (which is a legal entity) which provides a natural person ('the representative') to perform the services, this will strengthen the position that the nature of the relationship is one between principal and independent contractor rather than between employer and employee.
Accordingly, the agreement available on HR Advance is drafted on the basis that the individual's company will provide the services to the principal. However, to provide your business with a greater level of protection, the agreement also names the individual worker (ie the representative), as a party to the agreement to bind them to certain undertakings such as in relation to confidential information and post-agreement conduct.
Employers need to be careful that when hiring contractors to perform work they do not misrepresent an employment arrangement as an independent contractor arrangement. This is known as ‘sham contracting’ and is a breach of the Fair Work Act 2009 (Cth). Sham contracting arrangements designed to disguise the true nature of an employment relationship to usually to avoid paying legal minimum rates of pay, tax, and entitlements, such as annual leave and sick leave. A contravention of the sham arrangements provisions can result in the imposition of penalties by the courts – up to $51,000 per contravention for a body corporate or $10,200 for an individual. Further, employers can be made to make payments to workers for any unpaid entitlements, such as annual leave. If you have any doubt over whether an independent contractor arrangement or employment relationship exists in any particular instance, you should seek legal advice on the issue.
After you have generated the agreement, you will need to complete the schedule and review the agreement to confirm that the terms of the agreement properly reflect the aims and arrangements sought by you with respect to engaging the contractor. You will also need to attach Attachment A to the agreement. An explanation in relation to the attachments is provided below.
The agreement has been drafted to reduce the legal risks associated with engaging an independent contractor. However, the agreement may need to be amended to suit the specific requirements of your business. As such, if you wish to amend the terms of the agreement, you should seek legal advice to minimise the risks associated with this process.
Specific commentary about the agreement
Set out below are some specific comments in relation to the provisions of the agreement:
The parties to the agreement are your organisation, the contractor and the representative. The representative is the person who will perform the services on behalf of the contractor.
You should review the definitions carefully to ensure they reflect your understanding of your agreement with the contractor.
For example, you will need to check the definition of 'Confidential Information' to check that it includes all forms of information that your business wants to protect.
To reduce the risk of disputes in relation to the services to be provided under this agreement, it is important that you carefully specify the services the contractor is to provide in Schedule F to the agreement.
Commencement, duration and option to renew
The agreement commences on the commencement date specified in Schedule D and will continue until the termination date.
We have included a term that provides you with the option to renew the agreement for an additional period beyond the expiry date specified in Schedule M. You must exercise your option to renew in writing, prior to the expiry date and specify the new expiry date for the agreement.
Payment of fees to the contractor, namely the contract fee, should be inserted into Schedule E to the agreement. The contract fee is exclusive of GST. You should ensure that it accurately reflects the payment terms agreed upon.
Schedule H sets out those declarations that must be included in any statement attached to any of the contractor's invoices. In NSW, there is a prescribed declaration headed 'Subcontractor's Statement' which should be used when subcontracting services are performed in NSW. NSW entities will need to attach this statement to the agreement and mark it Attachment A. A link to that document is set out in the 'Agreement Entities outside NSW' and should utilise the declaration set out in Attachment B of the Agreement.
It is important that these invoice arrangements are complied with and any declarations required, are completed and attached to the contractor's invoices. If these invoice arrangements are not complied with and the correct statements are not attached, your business could become liable for the contractor's unpaid workers compensation premiums, remuneration obligations and unpaid payroll tax.
Other contract work
It is important that the agreement includes a clause that provides the contractor and the representative with the ability to provide services to other people and businesses during the life of the agreement to emphasise their independence from you and to strengthen your position in the event it is argued that the representative is your employee. The clause allows the contractor or the representative to provide services to other persons with your prior written consent. This may allow you to prevent the representative acting in competition with you, while being consistent with the principal/contractor relationship.
Nature of relationship
This clause confirms that all parties acknowledge that the relationship between the contractor and you, and the representative and you, is one of independent contractor and principal. Although there is a written contractual statement that the parties are independent from one another, there is still a risk that your actual conduct (such as the manner in which you control the way the work is performed) will be seen as indicia of an employment relationship. As such, it is important you and your managers administer the agreement as an independent contracting arrangement.
The agreement provides for termination by either party on one month's notice. You may wish to include a shorter or longer period of notice. Please review this clause carefully to ensure that it meets your requirements.
The clause allows you to elect to make a payment in lieu of all or part of the notice period, rather than retain the contractor for the entire notice period. There is also a provision for immediate termination of the agreement by you in certain circumstances, including if the contractor or the representative commits a serious breach of the agreement or fails to remedy a breach of the agreement, or engages in acts of serious misconduct etc.
The agreement can also come to an end on the expiry date. This includes any new expiry date (which has been agreed in writing), if you have agreed to extend the duration of the agreement.
This clause also obliges the contractor and the representative to return all property of the company to you, including intellectual property and confidential information, on termination of the agreement for any reason, or at any other time at your request.
Confidential information, intellectual property and moral rights
The confidential information clause is designed to protect information which is confidential to your business from use by the contractor or the representative, without your prior written consent. You should check that the scope of the confidential information clause meets your needs.
The agreement does not include an intellectual property and moral rights clause. If you have intellectual property that the contractor or representative will have access to during the term of the agreement, you should consider including an intellectual property and moral rights clause. If you wish to include such a clause, we suggest that you obtain legal advice to assist in the drafting of a clause to suit your business' needs.
Post agreement restraints
Depending on the nature of the duties being performed by the contractor/representative, it may not be necessary to require all contractors/representatives to agree to a post-agreement restraint. The idea of the post-agreement restraint is to restrict the contractor/representative from engaging in certain activities after the agreement has ended in order to protect the legitimate interests of the company. The activities the contractor/representative cannot engage in includes soliciting your employees or soliciting your customers or clients after the agreement has ended for the period of time and in the area specified in the agreement.
You should seek legal advice to customise the restraint to relate to the specific contractor/representative.
In order for a post-agreement restraint to be enforceable, it must be 'reasonable' in the circumstances of the particular contractor/representative's engagement. Specifically, the restraint must be reasonable in relation to the activities sought to be restrained, the geographic area and the duration of the restraint. The courts will not enforce restraints that impose an unreasonable restraint of trade on a contractor/representative or that extend beyond protecting the legitimate business interests of a company.
The particular restraint clause included in the agreement includes provisions enabling a court, if it is to review the contract, to read down the covenants in relation to the contractor/representative if they are found to be void, invalid or otherwise unenforceable.
In NSW only, the Restraint of Trade Act 1976 gives the NSW courts power to read down the provisions of a restraint that would otherwise be unreasonable and thus unenforceable, unless the restraint is manifestly unreasonable on its face. That is, the company should not include a clearly unreasonable restraint in a particular contractor/representative's agreement hoping it will simply be read down.
If the agreement is intended to be used for contractors/representatives who are situated outside of NSW, the courts in other states are unable to read down the provisions of a restraint and therefore must apply the clause as it is drafted or delete offending provisions. For this reason, we have drafted the restraint to include cascading provisions that can be severed to the extent that they are unreasonable or unenforceable.
When drafting restraints for contractors/representatives it is advisable to obtain specific legal advice.
Insurances and indemnities
When engaging corporate contractors such as the contractor, you may have obligations in relation to workers compensation if the contractor does not have its own workers' compensation insurance for the representative. Accordingly, you need to ensure that the contractor has appropriate workers compensation insurance in place.
The clause provides that the contractor must maintain its own workers' compensation, professional indemnity insurance, public liability insurance and any other insurance required by law or regarded as sound commercial practice.
The liability and indemnity clauses impose obligations and risks on the contractor and the representative and indemnifies your business against any loss, cost, expense or damage incurred by the contractor or the representative due to a breach of the agreement, a representation or warranty given under the agreement, a law or a claim by a third party.
Schedules and attachments
To make it easier to administer, we have located all the variable items which apply in relation to the agreement in a schedule at the back of the agreement.
You will need to complete the schedule and review these details each time the agreement is used to enter into a new arrangement with a contractor.
When the contract relates to work in NSW, you may need to attach to the agreement Attachment A, the NSW Subcontractor's Statement. Otherwise, Attachment B will be appropriate in other states and territories. If unsure as to the attachment to use, obtain legal advice. It is important to use the correct attachment.
Execution of agreement
The agreement should be executed in accordance with your organisation's and the contracting company's constitutions, and relevant legal requirements.
Independent contracting legislation
There is Federal independent contracting legislation which regulates to some extent some independent contractor arrangements.That legislation applies to independent contracting arrangements principally where the contractor is the director or a family member of a director.
- Subject to transitional provisions and some limited exceptions, excludes the operation of particular State and Territory laws in relation to independent contractors. However, the legislation does not affect the operation of workers' compensation, occupational health and safety, superannuation and anti-discrimination legislation in the States and Territories. This means for example, that a contractor may in some circumstances (depending on the method of engagement), be deemed to be an employee for workers' compensation purposes.
- Does not affect the operation of State legislation that applies to outworkers in the clothing industry or to owner/drivers in the transport sector.
- Creates a new national unfair contracts scheme for the review of independent contracting arrangements.
- Imposes serious financial penalties for engaging independent contractors under 'sham arrangements' (for example, attempting to disguise an employment relationship as an independent contracting arrangement to avoid responsibility for employee entitlements).
- Provides an ability to opt into the new arrangements for those who have entered into independent contracting arrangements prior to the commencement of the legislation.
Important note — before printing
Before printing this document you should ensure that you update all cross referenced clauses by following the instructions contained in the document.
Further information on how to use this agreement can be found at the 'How to use these agreements' link on the Agreements
page of the HR Advance
Important note to subscribers
The commentaries and documents in HR Advance are updated as necessary, to keep them relevant. You should familiarise yourself with the relevant commentary each time you create a document.
This document has been drafted to suit a wide variety of businesses, with a number of options available to enable you to customise the document to better suit your business. Nevertheless, you may need to make other changes to the document so that it suits the specific needs of your business. If you make additional changes, we cannot guarantee that the changes and modifications you make to the document will be legally compliant or enforceable.
This commentary and any additional information provided to assist you in creating this document, does not constitute legal advice.
If you are unsure about any aspect of this document (including the changes or amendments you make to it), you should seek appropriate advice from a lawyer, skilled in these issues. You should consult with your financial advisor in relation to any relevant taxation or financial issues concerning the document you create.
After creating this document, you should read through it carefully to make sure it meets your business needs and is consistent with other industrial instruments, policies and procedures which operate in your workplace. This commentary is not designed to be provided to employees or other workplace participants.