The 5 Most Important Components of a Freelancing Contract

October 24th, 2017

freelance contract

By Steve Wurzburg, 10x Guest Writer

Our guest writer today, Steve Wurzburg, is a partner at Pillsbury Law. Steve is a trusted adviser to emerging growth and large corporations, often guiding clients through transformative, multi-million dollar M&As and IP transactions.

Freelancing contracts suck.

They’re too long. They’re too difficult for individual freelancers to comprehend. They almost always skew heavily in the direction of the customer. Consider how much the Gig Economy is projected to grow by 2020 and these realities suddenly become a bit concerning.

So what can freelancers do? If nothing else, understanding the lingo is a good start. And if you’re looking for someone who can talk the talk, look no further than Steve Wurzburg, attorney extraordinaire at Pillsbury Law and a valued partner of 10x.

Steve’s unwavering devotion to the Bay Area’s startup ecosystem has been 35 years in the making. He has witnessed up-close the gig economy explode into existence, and he has represented clients on both sides along the way. He is fluent in contractual verbiage. Lucky for you, he’s also an effective translator. So we asked him, ‘What are the key components that every freelancing contract should include to keep both the talent and the client protected?’

Without further ado, here are 5 ‘must-include’ components of a freelancing contract, according to Steve Wurzburg:

  1. Define tasks, schedule, and compensation

Steve: “It might seem obvious, but defining the tasks, schedule, and compensation is effectively laying the framework for the contract. Both sides must know what is expected in all three of these areas. If there is a mutual understanding, there’s less chance for unwanted surprises. In the contract itself, this usually appears as one exhibit under which the parties fill in the items. Pretty simple.”

  1. Clarify IP ownership

Steve: “The next big thing is to agree upon intellectual property rights. In a traditional working situation, the general rule is the company owns what an employee invents. But if you’re an independent contractor, it’s the opposite… You own what you create. So that means if a company wants to secure ownership of what they hire a freelancer to do, they need to clarify an assignment of that IP to them. But there’s a flip-side to this. What if a freelancer feels like they need some of the IP they develop in order to complete future jobs for other clients? If this is the case, then they should issue the company a non-exclusive license to that IP rather than handing over the rights. Or alternatively, they can assign the rights but retain a non-exclusive license with the right to grant sub-licenses.

The other thing is, as a freelancer, you may have some ideas, knowledge, and work experience that you already own going into the job. If you tap into that knowledge for the benefit of a client, you’ll want to ensure that you retain ownership of it when the contract is over. You must make sure that any IP you assign to a client doesn’t include what you already knew prior to the job – they may get license rights, but they should never get ownership rights.”

Note: At 10x, we use the IP clause to add some teeth to our contract in order to protect one of the most important elements for any freelancer – their ability to ensure they are paid. We achieve this by tying any IP transfer language to the payment for the creation of said IP. In other words, no IP transfers until the freelancer has been paid for the work they’ve performed. This is a serious motivator for a company to make proper and timely payments, and a critical part of our agreements that gives real protection to our amazing freelancers.

  1. Confidentiality

Steve: Confidentiality is also big. Companies put a lot of trust in freelancers. Inevitably, a lot of information is disclosed by both parties involved. But the company often has more to lose… so it is especially important for a company or business to hold the freelancer accountable and make sure he or she has a duty to keep things confidential. As the freelancer, you may wish to require that all confidential materials must be clearly marked and labeled, just to avoid potential miscommunication. In addition, freelancers should make sure standard exclusions are in place  —this includes information already known to you, information that is publicly available, information you independently develop, and information that someone tells you without a duty of confidentiality. And the duty of confidentiality, except as to source code, should cease after two or three years.”

  1. Termination Provisions

Steve: “Termination provisions can be a bone of contention—often times the company wants to be able to terminate the project for convenience on notice (for example, maybe its customer decides to cancel the relevant product development effort). But at the same time, the company wants the freelancer to be committed to the project and unable to terminate for convenience.   Of course, either side that wants to stop the work should provide reasonable notice, and the freelancer should help transition the work upon request. If pay is by milestone, then something needs to be provided as well—perhaps the company needs to pay for the next milestone if it terminates. Or perhaps the freelancer forfeits pay since the previous milestone if he/she terminates. If payment is made regularly by the hour, then this issue is avoided. I would argue that if the company really wants to incentivize the freelancer, it can provide a completion bonus or otherwise attempt to backload the payment schedule.”

Note: At 10x, our contracts include a 2-week notice of termination. The freelancers we represent are the cream of the crop… They’re highly valued and nearly impossible to find on the open market. Once we place a resource on an engagement, they are fully committing to that project, and temporarily forgoing consideration for other jobs. This opportunity cost tends to put freelancers in a vulnerable position. Our solution is to use the 2 weeks to set up a new job for our freelancer, and to ensure a smooth transition from one project to the next.

  1. Non-Competition & Non-Solicitation

Steve: “Finally, If I were on the company side of a freelancing agreement, I would include a clause regarding employee solicitation and non-competition. Basically, the freelancer should not be able to solicit the company’s employees, and they should not be working for a competitor while working for the company. This is pretty standard and most freelancers won’t have a problem with it. But the freelancer should not agree to a non-competition covenant that lasts after the project is complete. And some freelancers will not want to restrict their ability to work for a competitor at the same time they are working part-time for a company. In that instance, I typically include a notice provision, where the freelancer would notify the company that the he/she is working for an anonymous competitor. The company would then have the right to terminate the relationship with the freelancer for convenience.”

If you like this article, you might enjoy reading Concluding Freelance Engagements