Legal Pothole #5 - Engaging with Contractors and what to do if it all goes wrong!

Nowadays, businesses are far more likely to engage contractors for specialist activities for one-off pieces of work or on some retainer as opposed to employees and if you’re a start-up, you’re likely to be contracting with other start-ups right? Answer is…right!

But who is responsible for providing the legal agreement in the first place?

The general rule of thumb is that the consultant should submit a draft agreement to the client. The reasoning behind it is that they are essentially providing the same services to many businesses so it makes sense that they have a standard agreement that they get all their clients to sign.

If a business had to draw up agreements for every consultant that they engaged, it would be very expensive and inefficient for them to do so as they would need to cover all different aspects depending on what each of the consultants are doing for them. It makes sense.

Some larger businesses will require their own legally drafted documents to be signed but it’s certainly not the norm.

But we’ve been friends for a long time, we trust each-other. Why do we need an agreement? Can’t we just shake on it and see how it goes? 

Hell no. It is extremely tempting not to have an agreement in place, especially if the engagement starts as a result of an existing friendship or acquaintance which you feel there is a level of trust. Alarm bells should be starting to ring at this point.

As uncomfortable as you think in your head that it is to ask for a proper agreement to be executed, it’s absolutely vital to make sure that you do as you can bet your bottom dollar that when the “chips are down” and if the “milk turns sour” for any reason, it’s going to be very difficult for you to enforce any agreement that isn’t in writing and spelt out clearly and properly. We see it all the time…and far too often! The old adage is “good fences make good neighbours”.

Aren’t those things just naturally covered by general principles?

Not exactly. As a business owner, it is up to YOU to make sure that those things that you are most concerned about and the “what ifs” are covered under the agreement and as much as you can cater for any potential foreseeable issues that might arise out of the engagement. Most likely the business will care more about these issues than the consultant in any event.

If you want something protected (e.g. intellectual property, transfer of ownership of something after certain things take place, confidentiality of client data, confidentiality of ideas/know-how/trade secrets/client lists/inventions etc) YOU need to make sure it is spelt out in black and white with no ambiguity. Remember, this business is your baby - so take care of it!

Not sure whether to go ahead but want to protect yourself in the meantime?

If you want to get things underway, but in the meantime protect confidentiality, a Non-Disclosure Agreement (NDA) or Confidentiality Agreement is a great place to start. Again, you need to think about the things you want to protect carefully, how that intellectual property is defined, ramifications for any breach and termination etc. 

When it comes time to formalising the arrangement, that confidentiality document can be referred to in the independent contractors agreement / supply agreement etc without having to go into that process again.  

What happens if the proverbial hits the fan?

This will depend on the nature of the breach.

If it is serious, we suggest the following at a minimum:   

Step 1 – make sure you identify all material that the consultant has access to and remove that access; 

Step 2 – Change any passwords where further damage can be done (e.g. banking, social media, website, Google, mail accounts etc). Put on hold/cancel any credit cards they may have access to and have been using.

Step 3 – Preserve The Evidence. Take screenshots or copies of all evidence you think you might need if something happens, emails, text messages, etc and back that data up immediately somewhere else safe and secure.

Step 4 – Obtain legal advice ASAP as to next steps. Feel free to give me a call if you have an urgent issue, I can guide you through the process. 

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Want to secure the future of your business today? Get in touch with Progressive Legal for honest and affordable legal advice. We are personal, accessible, approachable, transparent and passionate. We aim to be your long-term advisor not just a transaction like the traditional law firm. 

This article is meant to be informational only and should not be taken to constitute legal advice. Specific legal advice should be obtained for each individual business to make sure it is correctly applied.

Ian Aldridge
Principal Lawyer
Progressive Legal - Law for Entrepreneurs
[email protected]
www.progressivelegal.com.au