3 Legal Traps You Could Fall Into When Using Contractors
Different legal issues can arise when hiring contractors. Find out in this guide what they are and how you can avoid them.
When hiring any type of employee, it’s important to protect your business by having an employment contract. When hiring contractors, having your arrangement set out in writing is equally as important.
In this article, we’ll discuss what can happen if you hire a contractor without putting it in writing.
There’s a lot of benefits to hiring someone on a contractual basis, rather than permanently. Firstly, hiring contractors on an ad hoc basis can save you a lot of money as you don’t need to pay a consistent wage over long periods of time. Another benefit is that contractors tend to be experts in their field, meaning that they can provide a sophisticated level of expertise only when you need it.
What if it’s not in writing?
Like many things, if it’s not in writing it’s probably not legally binding. Beyond potentially causing confusion between you and your contractor, here’s some other problems that may arise:
1. Your IP rights may be sacrificed
Depending on what you’re hiring the contractor to do, not outlining your IP rights early on can become an issue down the track. If you’re hiring a contractor to design or create something for your business, it’s important to remember that this property does not become yours until it’s legally assigned.
You need some work done on your software and you ask a contractor to help. The contractor has finished the job and you’re happy with the result. However, months later , you’re contacted by another client of the contractor. This client alleges that your software infringes their copyright, even though you didn’t design it and started using the software first.
In this situation, it would be difficult to enforce your IP rights over the software. This is because you’re not technically the owner of the software (as the contractor never assigned the IP to you). This is because the Copyright Act 1968 (Cth) requires all assignments of copyright to be in writing. Assigning IP is normally done by way of a clause included in the contractor agreement. Further, you can draft specific agreements which transfer the IP.
2. Expectations won’t be clear
When you hire a contractor, it’s fair to expect that the job will be completed within a certain period of time. Further, you’ll also probably have an idea of what you want the quality of the work to be like. It’s important for both parties that expectations are laid out early on. This way, you and your contractor will be on the same page when it comes to the task at hand.
3. There will be no grounds for termination
Having your arrangement set out in writing will allow you to legally terminate the arrangement if there is a breach of the terms agreed on. Grounds to terminate the contract can include:
- If deadlines are continually not met
- Substandard performance (the work is not of acceptable quality)
- Non-performance (if the work isn’t being done)
Not having these terms set out in writing is risky, especially if a conflict arises. By having these things set out, dated and signed by the contractor, they’re agreeing to what you’ve hired them to do. More importantly, you’ll have legal rights if this doesn’t happen.
Jackie is the Content Manager at Lawpath and manages the content team. She has a Law/Arts (Politics) degree from Macquarie University and is a solicitor in NSW. She's interested in how technology can help shape the future legal landscape.