Employee or Independent Contractor: Tips for Drafting Multinational Independent-Contractor Agreements

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact

In our last two posts, we identified international legal implications of an independent-contractor relationship (Part One) and issues to consider before choosing an independent-contractor engagement (Part Two). In this, our third blog post in the Employee or Independent Contractor series, we will discuss key points for drafting an effective independent-contractor agreement for multinational organizations. 

Drafting Tips

After making a well-informed decision to move forward on an independent-contractor agreement, the next step is preparing an effective document. In some cases, the company knows it will likely lose if the independent-contractor challenges his or her status in court, and therefore deterrence is a highly-important goal in the drafting process. However as companies can always expect courts and legal authorities to look beyond a document to evaluate a relationship that hints even slightly at employment, it is equally important to make sure that the document describes the reality of the parties’ relationship. Subject to applicable local law, below are some general guidelines.

  • Include a robust provision explaining clearly that the parties intend the relationship to be that of an independent contractor as opposed to an employee. Explain that the contractor has the skills and expertise to perform the services without supervision and will not be provided supplies.
  • Choose carefully which corporate entity enters into the contract and pays the contractor.  If the contractor is deemed to be an employee, this is the entity that will likely be deemed his or her employer. This is also important for tax purposes—this entity might wind up filing a tax return in the foreign country and paying taxes on the contractor’s generated profits. 
  • If applicable, state that the contractor is registered as an independent service provider and include his or her local business registration number in the document—this is a requirement in some jurisdictions.
  • Where there are some factors pointing toward an employment relationship (such as policies the company desires to apply to the contractor, or ongoing monitoring), there is a delicate balance to consider. On one hand, including such factors in the contract can offer some protection—individuals are generally free to contract on certain terms and conditions. On the other, though, the contract is the first thing that a court will see—and a contract that on its face looks like an employment relationship is a concern.
  • Make explicit that the contractor is responsible for compliance with all laws (including any immigration laws in connection with any business travel or in the case that the contractor is an expatriate) and tax payments, as well as for obtaining applicable insurance. In some countries, it is helpful to mention specific statutes.
  • Consider drafting bilingually, in the company’s home-country language and local-country language. Again, this is a requirement in some jurisdictions, and is especially advisable when the local language is the contractor’s native language.
  • Structure payments on a per-project basis, and require the contractor to submit invoices. Avoid salary payments, hourly payments, or any guaranteed “retainer” that is not tracked to performance.
  • Specify the conditions for termination of the relationship—and do not make the arrangement terminable at will. Ideally the contract should refer to one project. If the relationship is ongoing, the contract should reference statements of work that correspond to each separate project, which the contractor should be free to accept or reject.
  • If possible, do not incorporate employment policies or employment benefits. For example, do not allow the contractor to participate in employee compensation plans or provide for vacation allowances. Consider carefully whether to include employee benefits like coverage under workers’ compensation insurance.
  • Use terminology carefully. In drafting, differentiate independent contractors from employees wherever possible. Take care to avoid the illusion that the workers are company employees—badges, email addresses, and business cards should not be provided or should indicate clearly that they are not employees, for example, by displaying the word “contractor” prominently. Do not use the word “employee” in any documents applicable to contractors. Instead of “work,” use the term “services.” Instead of “supervisor,” use the term “liaison.” Instead of “discipline,” use the term “defect in performance.” However, note that it is always substance over form—these term changes need to reflect the reality of the situation in order to be of legal effect. Also note that the right terminology can change from country to country—for example, “hire” might hint at an employment relationship in some areas, but is statutorily defined to reflect a contractor arrangement elsewhere.
  • Include indemnification and remedies provisions, such as where the contractor agrees to indemnify the company or pay a certain amount if the contractor ever claims to be the company’s employee. Legally, these are more effective in some jurisdictions than others, but may serve to deter legal actions regardless.
  • Include a non-exclusivity provision. Exclusivity is a very strong indicator of employment status—if the company is considering an exclusive relationship, it should instead opt for a non-exclusive relationship but with a non-competition provision (which is still not ideal, as contractors should usually be permitted to compete). If the arrangement is expected to be full time or close to it, it is usually best to omit explicit mention of hours expectations.
  • Include a provision stating that delegation is permissible—if open delegation is not possible, consider a provision that delegation is permissible but subject to approval. Either way, it is best to know to whom your contractor is delegating as it is possible that these subcontractors might also claim to be the company’s employees. If, on the other hand, personal services are a necessity, explain the legitimate business basis for this in the contract.
  • Choose governing law carefully. The home-company’s headquarters is a frequent choice, but know that many jurisdictions will not give much weight to a choice of law clause. If the law chosen is somewhere other than where the bulk of the services were performed, the court may disregard it. Courts look at where the services are performed and the citizenship of the parties, and some countries have statutes prohibiting a choice of law other than what would be required under that country’s conflicts rules. 

With these considerations in mind, the next step in developing an effective independent-contractor agreement is considering the laws of your particular jurisdiction. In the next installment of our four-part “Independent Contractor or Employee” series we will discuss some noteworthy jurisdiction-specific issues. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

Written by:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact
more
less

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.