Every business utilizes the services of other vendors. These vendors tend to be established sole proprietorships, LLCs, or corporations. However, there is a rise in the business world of using individual freelancers for short term projects or for very specific ongoing tasks.
More businesses are using freelancers, as there is opportunity for increased efficiency, lessened stress on a business’s own resources, the knowledge that a job is being handled by a specialist, and in some cases, cost savings. There are also risks associated with trust and control.
Here are some best practices to consider:
Always make sure the relationship is clearly defined.
In the middle of this freelancer revolution is also a heated controversy that is causing increased litigation and billions of dollars in legal fees-the practice of treating employees as independent contractors.
This area of the law is controversial, but you can prepare to steer clear of disputes if you answer the following questions:
Is it clear that the freelancer was in business providing these services before you formed a relationship? Does the freelancer have a portfolio, a website, or a maintained profile on one of the well-known freelance directories? If the answer is yes, then that helps make the case that he/she is an independent contractor.
Don’t let litigation like this keep you from hiring freelancers. Most companies who get nailed for this are blatant in their violations. Just remember the basics. If you treat them like employees and control their work and methods, you are putting yourself at risk. If it is clear that the individual is in business for themselves, and you treat them like a vendor in all of your interactions, you will typically avoid these kind of disputes. It’s a great idea to talk to a business attorney if you’re not sure about a particular relationship, or if you’d like them to develop guidelines and policies for your company to follow to avoid independent contractor/employee disputes.
Consider How You Pay
Freelancers should typically be flexible to a reasonable measure as far as payment specifics. If they are asking for payment all upfront, this is typically a red flag. (Some industries may be different.) Most of the time, it is advisable to have an arrangement in which payments are spaced according to the progress of the project.
There is built-in protection by using some of the larger freelancer networks, as they will hold the funds (like an escrow) and only release them to the freelancer upon project completion.
Get it in writing.
We continue to answer legal inquiries almost weekly from small businesses or freelancers who are in a dispute without a contract.
You need to clearly lay out what the agreement is, how to handle common situations, and get it in writing.
Ideally, a business attorney should review and help design all of your agreements. However, we realize there are some businesses that feel they do not have the resources to do this. In these cases, try to remember that “something is better than nothing.”
Even if you summarize the basic agreements and write them down and have both parties sign, that is still preferable to having no documentation at all.
Address ownership of the work product.
Some have a personal preference against their website designers including their name on all the footer pages, such as “Built By Joe Schmoe Web Designs” with a link to their site. Regardless, you certainly wouldn’t think that your web design contractor “owns” your website.
Be careful to include in contracts you write or agree to that the work product produced will be owned by you. Believe it or not, there are many software systems, website creators, engineers, photographers and freelancers of all varieties that believe they are the sole copyright owners for products you commissioned them to create.
In some cases, it may not be unreasonable for them to assume this, especially if you didn’t discuss the particulars with them. Just be sure to clarify in discussions and in the contract that the project is a work made for hire and that you retain all ownership. It is also a good idea to have the freelancer agree that they are not including works that they did not create. Running with the website designer example, we have heard of cases where a logo designer or website designer delivers their product, and years later the business is sued for copyright violation. Images or logos on the site were blatantly copied. Not only was the company scammed, but they are now responsible for the legal costs of defending against another company who feels they were stolen from.
You should also consider a confidentiality agreement. This may not be necessary for work like a logo or brochure design, but for engineering consulting, it most certainly is.
As always, be sure to consult with an experienced business law attorney before taking any action on matters like these. This blog is for reference/information purposes only and is not legal advice.