How Start-Ups Can Make The Best Use Of Independent Contractor Relationships

T. Randolph Catanese, Esq. © 1999. All Rights Reserved

In most situations start-up companies lack resources. The one resource that immediately comes to mind is cash. But, another resource which is just as important is the resource of human talent. How a start-up company enters into a relationship with human talent may be the difference between success and failure. This article, the first in a series, will address the use of the independent contractor relationship.

In many situations an independent contractor relationship makes more sense for the entrepreneurial business than does a regular employment relationship. How so you may ask? Often the new business does not need a full-time employee, but rather needs strategic advice and consulting on how to move the business plan forward. An independent contractor can give the company the expertise it needs while relieving the company of an ongoing financial commitment which would be required for an employee.

Generally speaking, an independent contractor is one who has an assignment to perform, and whether or not they come to the business office on any particular day or at a certain time is not as important as the completion of the project. Most states look at the amount of control the company has over the party who is performing the work to determine whether or not a true independent contractor relationship exists.

It is very important that the relationship between the company and the individual performing the work be very clearly defined. If it is not, the government and the party performing the work may later take the position that the party was an employee and not an independent contractor. If so, the company will have liability for any federal and state payroll deductions which were required, as well as any unemployment benefits as well. Therefore, it is very important that the company accurately and completely document the relationship that can easily be done by business lawyer litigation. How is this done?

Usually, the relationship can be documented in a single page agreement or by a short form agreement (normally less than 5 pages) for more strategic independent contractor relationships. These agreements should contain provisions which clearly state that the party performing the work is doing so as an independent contractor and not as an employee.

The independent contractor agreement should also contain provisions related to confidentiality, agency, and maintenance of trade secrets. These issues will be discussed in the next segment of this series on independent contractors.

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