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References

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Dr. Daniel Houshmand, D.C.

AlternaCare Wellness Centers, LLC

"'Ask the Small Business Professor' is a must read for small business owners looking for free expert business advice. Using a Q&A format, Bruce Freeman covers important small business topics weekly by bringing in recognized experts on subjects including accounting, legal issues, trademarks marketing and sales. Don't miss it!"

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CPA

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President and Founder

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APR Principal

Maslowski & Associates Public Relations

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Subcontractor Agreements

Dear Professor Bruce:

I have my own, small consulting business and I've just started subcontracting work out to a friend. Do I need to have a subcontractor agreement in place and what should it cover?

Answer:

Anyone, friends included, who helps with a project adds to your legal responsibility and, therefore, potential liability. Uncertainty in that relationship can lead to unclear deliverables, possible violations of your contract with your client, and a lost client or the end of a friendship.

You need a subcontractor agreement. and John Gerber, Founder of UpstartLegal.com, recommends that it covers, among other things, the following:

  1. Scope of work and pay. The agreement should provide clarity regarding the work your friend will perform and how much he or she will get paid. Misunderstandings about the services for which the contractor will be responsible, as well as when, where and how they will be delivered, are common problems.
  2. Contractor status. The agreement should include a statement that the parties are independent contractors, and that the contractor is not your employee. Whether a worker is an employee or contractor is often not a simple determination. IRS and applicable state requirements govern this issue, and you should consult with an attorney to assure contractor status for the relationship if there is any question.
  3. Intellectual property. Your clients expect that you won't expose them to legal liability for violation of third-party rights, such as copyright, trademark or trade secrets. Your agreement should make the contractor responsible for any of these issues that arise from his or her work. Additionally, the agreement should ensure, through an assignment or "work made for hire" provision, that work that you engage others to perform belongs to your firm, and not the person you engage.
  4. Confidentiality. Your contractor should agree to protect and not disclose confidential information of yours, as well as your clients, that he or she may receive in connection with the engagement.
  5. Contractor's authority. The contractor is not your representative and should have no authority to bind you or your company to any contract or obligation. This includes additional subcontractors, as can often be the case when small companies take on big engagements.
  6. Noncircumvention. You can impose prohibitions against the contractor soliciting your clients, employees, and other key business relationships, including for a period of time after termination of the contractor relationship. While enforceability varies from state to state, it is important to have a statement that the contractor will not compete for your clients.
  7. Termination rights. You should have the ability to end the relationship if it isn't working out to your satisfaction, and you may be able to enforce different consequences depending on whether you have cause for termination.

    8. For further information, please visit www.upstartlegal.com.

Uncertainty can lead to unclear deliverables, possible violations of your contract with your client, and a lost client or the end of a friendship.