How to write a freelance contract
Here’s some advice for you as an independent contractor
Sooner or later many of us will try our luck as independent contractors for different reasons. Some because of a lack of job offers, others because of wanting an adventure and having the opportunity to earn extra income.
Whatever the reason why you want to try your luck at being an independent contractor, at some point you’ll have to either write a freelance contract or sign one that’s presented to you by a client. This is why it’s important that you’re at the very least familiar with the main points found in this type of contract.
First, it’s important for you to know that as an independent contractor, you don’t have the same rights as a regular employee. For example, you don’t have the right to receive sickness benefits or vacation pay, and your client doesn’t have to pay any employer tax or deduct any taxes. So you should consider all of these factors when determining your pricing.
Being an independent contractor has — like everything else in life – both advantages and disadvantages. For instance, you have the opportunity to earn more and decide what kind of assignments you’ll accept. Disadvantages include your having a more unstable income. Also, you’re not only an expert in your field but also a salesperson who has to ‘sell’ yourself. Given that you’re the top-level executive in your company as well, you’ll get more pressure from your client about the quality of your work, work hours, etc., than you would working as an employee or consultant in a company.
Your most important document as an independent contractor is the freelance contract. It’s important that this contract is adapted to and regulates the details of each job. It’s also important that it regulates the conclusion of each job as well as any default on it.
We’ve written up a brief guide with tips and advice to help you when writing/signing a freelance contract, including the most important points to remember about entering into this type of employment relationship.
- Contract: Although an oral contract’s just as binding as a written one, you should always have a written contract because it lists all of the terms in your agreement.
There are a lot of people who get caught because they haven’t read the contract carefully enough before signing it. So it’s important that you take the time to read the entire contract and understand everything in it before doing this!
- Parties: You should make sure that the ‘contractual party’ listed in the contract is the one you want to enter into an agreement with.
These parties are usually the two companies that are entering into a contract, and the parties’ representatives are the two individuals who represent these companies and have the right to commit them to this contract.
All companies are registered in the Register of Business Enterprises in Brønnøysund. The individual who’s authorized to sign company contracts is normally listed here as well (special company signatory).
In addition to authorized individuals listed in the Register of Business Enterprises, individuals with ‘ostensible authority’ can also sign contracts on behalf of companies.
The term ‘ostensible authority’ means a type of authorization that allows an individual to enter into contracts which, as per law or practice, are common for the type of position this individual has in the company (f.ex. head of sales, head of marketing, store clerk, etc.). The most common type of ostensible authority c is regulated by the Private Limited Liability Companies Act, which stipulates that the CEO represents the company externally in matters having to do with its day-to-day management.
While other employees can also sign contracts on behalf of the company, they normally get written authorization to do this from one of the individuals who have the right to sign contracts on behalf of their company.
- Scope/Changes: It’s important that the contract contains a detailed description of how your job must be performed. This is because at some point during the contract period, situations may arise where your client will want to make changes to the original contract, f.ex. because their needs have changed, they want to extend the contract, etc. If this happens, it’s wise to have already agreed on how these changes will affect the contract, for instance stating how prices and/or deadlines will be adjusted in accordance with the new situation.
- Finishing a job: It’s important to regulate when and how a job will conclude. There isn’t always a need for deadlines, f.ex. when hiring a consultant. But most contracts contain a certain number of deadlines and consequences if these deadlines are not met. (See point 7 for more information.)
It might also be important to include information on how to hand in notice to the other party, and/or if a job can actually be terminated by one of the parties. It’s important for you to realize that because you’re not an employee (but are an independent contractor), you’re not at all protected by the Working Environment Act.
- Price/Payment: This specifies what’s included in the agreed price; for instance, there may be a fixed price for an entire job but an hourly rate for other types of work. Remember to include VAT in your prices.
It’s not unusual to agree on a fixed price for a job, adding an hourly rate for work performed due to changes made to the original contract.
Agree on when payment is to be made (it’s common to send out recurring invoices, f.ex. on a monthly basis). In cases of small jobs, it’s common to agree that an invoice will be sent once the job has been completed.
- Each party’s obligations: The client regulates your obligations during the contractual period. When working on several jobs at the same time, you might be forced to ask for a certain amount of help from your clients. When this happens, it’s important that your contract states what the client will help you with and when they’ll do it. It may also be wise to include a description of how a client’s delay will affect the contract (f.ex. missed deadlines).
- Breach of contract/Liability: A breach of contract occurs when a service is delayed or insufficient.
If this happens, the client has a claims deadline, meaning that a client must make a statement as soon as possible after becoming aware of the fact that you’ve not been fulfilling your part of the contract. The deadline for doing this is normally “within a reasonable amount of time”. This is generally the time a client needs to investigate the situation and determine that there is in fact something wrong.
There’s a distinction between contractual liability and non-contractual liability:
Contractual liability: This results from when a contract hasn’t been fulfilled. For example, you become liable for the other contracting party for losses they’ve suffered because the contract hasn’t been fulfilled in the right way.
We recommend the following with regard to contractual liability:
- Read the contract’s point on liability and try to understand how it might affect your company
- Limited your company’s liability as much as possible, f.ex. to the contract amount, revenue, etc.
- Make sure that you’re not liable for any consequential damages beyond those that are reasonable
In cases of delayed deliveries, a daily penalty charge may also be imposed.
Non-contractual liability: This results from when you’re liable for damages and losses caused by your products and services. For example, you provide a service as a consultant, and your actions or advice leads to your client losing money.
Non-contractual liability is normally covered under a liability insurance policy.
- Rights/IPR: Intellectual/Immaterial Property Rights comprise “non-physical objects” you’ve created using your own knowledge, including methods, procedures, inventions, brands and their identifying characteristics as well as other copyrights.
Since you’re not an employee, laws and other standard regulations for employees’ rights don’t apply to you. Any IPR questions must therefore be regulated separately in a separate contract.
You must make sure in the contract that you don’t transfer greater rights to the client than what’s desirable and necessary.
If you’re a consultant and are going to develop a new method of doing something, and this on assignment from a client who’ll cover your costs while doing this, it’s reasonable that this client will get the rights to this method. On the other hand, if, when working for this type of client, you instead use a method already developed by you (but are merely adapting this method for this particular job), it’s unreasonable for your client to get more than the right to use your adapted method in their own business. You keep all rights to your basic methods and perhaps also the right to use your adaptation for future clients.
Be careful in this type of situation! These details should be assessed and clarified in all of your contracts because they might become extremely important for your future business as an independent contractor.
- Loyalty and Confidentiality: There may be a ‘duty of loyalty’ stipulation in a contract; if so, it may be both clearer and stricter than for regular employees. There’s also an unwritten ‘loyalty principle’ in all contractual relationships that doesn’t necessarily appear in the contract itself.
The duty of loyalty means that you as a contractual party must be loyal to the party with whom you’ve entered into a contract.
This means among other things that you are normally obligated to give the other party any information which you believe might be significant for them.
There may also be provisions in the contract concerning confidentiality, in other words you’re prohibited from revealing certain types of information you receive as an independent contractor.
Breaching a duty of loyalty/confidentiality can lead to liability charges as well as criminal liability charges (see point 7).
- Non-Competition Clause: A non-competition clause is included in a majority of contracts; it stipulates that you can’t start up a competing business.
Look into what a non-competition clause means for your company. If this clause actually means that you won’t be able to accept any other jobs offered to you, the point should at the very least be reflected in the final agreed price.
Make sure that the non-competition clause doesn’t contain more restrictions than are absolutely necessary. This is because in certain situations this clause can be so restrictive that you won’t be able to accept any jobs from any others in the same branch for, say, 3-6 months after finishing your current assignment.
An unreasonable non-competition clause can also be overridden (see the Contracts Act, sections 36 and 38).
Additionally, it’s common practice to negotiate a customer clause, meaning a restriction to your access to contacting your clients’ customers and/or suppliers for a certain period after your job is complete.
- Choice of Law: This means that contractual parties may freely choose which country’s law is to apply to their contract. It’s wise to choose Norwegian law in most situations. If you do enter into a contract where foreign law applies, it’s wise to seek advice from an attorney in the relevant country.