By: Sharon Toerek, Principal, Toerek Law and Author, the Agency Protection System
It’s a modern reality for all agencies that engaging freelancers and independent contractors is necessary from time to time to meet your clients’ work needs without permanently inflating the agency’s headcount, or to temporarily add expertise that the agency might not have in-house. But in addition to adding flexibility for the agency, engaging freelancers and independent contractors also creates new areas of legal risk. What are those risk areas, and how should the Agency address them?
Where are the legal risks for Agencies that use freelancers and independent contractors?
Agencies and their clients tend to default to the assumption that paid work is owned work. It’s a logical expectation – business people usually expect that rights will “follow the money.” It’s also incorrect and not reflective of the way intellectual property laws actually work in the United States.
Just as your agency owns all intellectual property rights in the work you create for your clients until you assign those rights, in writing, to your client, freelancers and independent contractors own all intellectual property rights rights in the work they create for your agency, or your agency’s client, until they assign those rights to your agency. It may not seem rational, but it’s the way copyright law works in the U.S.
Additionally, most freelancers want the ability to display completed work in their own personal portfolios, and strategic partner firms may want the ability to show the work on their company websites and portfolios to demonstrate their capabilities. Your agency might be fine with this, but even when it is, there should be approvals and limits in place so that the freelancers understand when they need permission to display the work, and how to properly credit the agency and the agency’s clients when displaying it in a creative portfolio.
Because of this, a well-drafted portfolio display clause is an important part of your agreement with a freelancer or an independent contractor. Your agency should always require attribution when an independent contractor displays completed work, and should also require that freelancers or vendors get permission from the agency to display any client assets in a work portfolio or capabilities piece.
Finally, how would the agency feel if your freelancer went directly to your client to do the same work it was previously doing through your agency? What if a strategic vendor or partner firm hired one of your agency’s best account executives? What happens if a freelancer discusses confidential information about your agency or a client? These questions can be covered in one of three types of restrictive covenants in the Agreement – Confidentiality, Non-Solicitation, or Non-Competition.
What does your agency need to do to manage legal risks associated with freelancers and independent contractors?
The bottom line? Your agency needs a WRITTEN agreement with any independent to protect its interests and clarify roles and responsibilities.
The solution? Have an Agency-Independent Contractor Agreement whenever your agency engages a freelancer, independent contractor or third party vendor to assist in fulfilling client work or creating client assets. This agreement can be applied either to an individual freelancer or a third party strategic partner company (for example, a video production or mobile app development firm) with whom your agency contracts.
What should the Agency Independent Contractor Agreement include?
We previewed a few of the most frequently encountered legal issues that agencies face when using independent contractors, but there are other business and legal questions that should be addressed in a written agreement with any independent contractor with whom the agency works.
Every Agency-Independent Contractor Agreement needs to include these points (and probably some others – this list is not exhaustive):
- Services to be provided; fees – a description of the work, and how much the agency will pay for it.
- Ownership of IP rights in completed work – a statement about intellectual property rights in the completed work.
- Incorporation of contractor pre-existing work – language that addresses intellectual property in any work done BEFORE the contract with the independent contractor was signed.
- Warranty of originality of work; non-infringement – commitments about originality of the freelancer’s work
- Nondisclosure/confidentiality – language that addresses secrecy and the handling of confidential agency and client information
- Non-solicitation of agency clients, contractors, and employees
- Remedies (like damages and injunctive relief for the agency)
- Indemnification and Liability – provisions to protect the agency from wrongful conduct or mistakes by the independent contractor
- Status of contractor as independent – language to satisfy the IRS regarding classification of the independent contractor
- The “Boilerplate” – contract terms to address issues like dispute resolution, contract termination, and other business points.
What’s the easiest way to make sure the Agency doesn’t miss something here?
By being proactive and having a toolkit of ready legal agreements, templates and checklists prepared and available for your agency freelancer and independent contractor relationships, as well as the many other routine legal matters the Agency will face regularly.
I hope you found this information helpful! To make the assignment process as efficient as possible, I included an easy-to-use template for an Independent Contractor Agreement (and other documents the Agency will need to manage its freelance resources) inside my Agency Protection System. You can learn more about the system here.
And while you’re there, you can also download a number of free checklists and tools that your agency can use right away.