Contractor Agreement: What to Include and Watch For
A legal contract between a client and an independent contractor that defines the scope of work, payment terms, intellectual property rights, confidentiality obligations, and the nature of the working relationship.
A contractor agreement is a legally binding document that establishes the terms of your working relationship with a client. It protects both parties by clearly defining what work you’ll do, how and when you’ll be paid, who owns the work you create, and what happens if either party wants to end the relationship. Having a solid contractor agreement in place is essential for avoiding misunderstandings, protecting your rights, and ensuring you’re classified correctly as an independent contractor rather than an employee.
Key sections include the scope of work and deliverables, payment terms and schedule, intellectual property ownership, confidentiality and non-disclosure provisions, termination clauses, and explicit statements about your independent contractor status.
contractor-agreement
A contractor agreement is a legal contract between a client and an independent contractor that defines the scope of work, payment terms, intellectual property rights, confidentiality obligations, and the nature of the working relationship.
- Essential clauses protect your rights: Every contractor agreement should include scope of work, payment terms, IP ownership, termination rights, and independent contractor status language to protect both parties.
- IP ownership matters: By default, you may own the work you create, but most agreements include “work for hire” clauses that transfer ownership to the client upon payment.
- Watch for employee-like restrictions: Clauses requiring specific work hours, exclusive availability, or prohibiting other clients may jeopardize your independent contractor status.
- Termination terms are negotiable: Standard notice periods range from immediate termination to 30 days, with “kill fees” for early termination protecting contractors from sudden income loss.
- State and country laws vary: Some jurisdictions have specific requirements for contractor agreements, and international contracts need additional considerations for taxes and jurisdiction.
Key Sections of a Contractor Agreement
Scope of Work and Deliverables
This section defines exactly what you’re being hired to do. It should include specific deliverables, project milestones, deadlines, and any limitations on the work. The more detailed this section, the better protected you are against scope creep.
What to include:
- Specific tasks and deliverables with clear descriptions
- Project timeline and key milestones
- Acceptance criteria for completed work
- What’s explicitly not included in the scope
Red flag: Vague language like “and other duties as assigned” can lead to unlimited scope expansion.
Payment Terms
Clear payment terms prevent disputes and ensure you get paid fairly for your work.
Essential elements:
- Your rate (hourly, project-based, or retainer)
- Payment schedule (upon completion, NET-30, milestone-based)
- How you’ll invoice and what information is required
- Late payment penalties or interest charges
- Expense reimbursement procedures
Red flag: Payment terms longer than NET-60, or clauses that allow indefinite payment delays based on client’s receipt of payment from their clients.
Intellectual Property Rights
This section determines who owns the work you create. It’s one of the most important and frequently negotiated clauses.
Common approaches:
- Work for hire: Client owns all work immediately upon creation
- Assignment upon payment: You retain ownership until fully paid
- License: You retain ownership but grant client usage rights
- Portfolio rights: Ensure you can display work in your portfolio
Red flag: Clauses claiming ownership of work you created before the contract or outside its scope, or restrictions preventing you from doing similar work for others.
Termination Clauses
These provisions explain how either party can end the agreement and what happens when they do.
Key provisions:
- Notice period required (common: 14-30 days)
- Immediate termination conditions (breach, non-payment)
- Payment for work completed before termination
- Return of materials and confidential information
- “Kill fees” for early termination without cause
Red flag: Clauses allowing client to terminate without payment for work already completed.
Confidentiality and Non-Disclosure
These clauses protect the client’s sensitive information but shouldn’t be overly restrictive.
Reasonable provisions:
- Definition of what constitutes confidential information
- Time limit on confidentiality (typically 2-5 years)
- Exceptions for information that becomes public or you already knew
- Return of confidential materials upon termination
Red flag: Unlimited confidentiality periods, overly broad definitions that could restrict your ability to work in your field, or clauses preventing you from disclosing your own business information.
Red Flags to Watch For
Clauses That Suggest Employee Status
Certain contract provisions can blur the line between contractor and employee, potentially creating tax and legal problems for you.
Warning signs:
- Set work hours or required attendance: “Contractor must be available 9-5 Monday-Friday” or required attendance at daily meetings
- Exclusive availability: Prohibitions against working for other clients or restrictions on taking other work
- Equipment and tools provided: Required use of client’s computer, software licenses, or email system
- Detailed work supervision: Client controls how work is performed, not just the end result
- Benefits language: Any mention of vacation days, sick leave, or employee-type benefits
These provisions can lead to IRS reclassification as an employee, creating tax liabilities and legal complications.
Unfair or One-Sided Terms
Non-compete clauses: Broad restrictions preventing you from working in your field or with similar clients can destroy your business. These should be very limited in scope, geography, and duration.
Unlimited liability: You should never accept unlimited liability for damages. Liability should be capped (often at the contract value) and exclude consequential damages.
Unilateral changes: Clauses allowing the client to modify terms at any time without your consent are unfair and potentially unenforceable.
Automatic renewal: Contracts that automatically renew unless you opt out can trap you in unfavorable terms.
Work for free: Required unpaid revisions beyond a reasonable number (2-3 rounds is standard) or vague “satisfaction” clauses that let clients demand endless changes.
Unreasonable Legal Provisions
Unfavorable jurisdiction: Clauses requiring disputes to be resolved in distant jurisdictions (especially for international contracts) can make legal action impractical.
Waiver of rights: Provisions requiring you to waive rights to jury trials or join class actions.
Indemnification overreach: Being required to indemnify the client for things outside your control or for the client’s own negligence.
Frequently Asked Questions
Can I negotiate a contractor agreement, or do I have to accept it as-is?
Absolutely negotiate. Most initial agreements favor the client, and companies expect contractors to request changes. Focus on the most important terms: payment schedule, scope limitations, IP rights, and unreasonable restrictions. Even if a company says their agreement is "standard," they often have flexibility, especially for valued contractors. The worst they can say is no, and professional negotiation demonstrates business maturity.
Do I need a lawyer to review my contractor agreement?
For significant contracts (high value, long-term, or with complex terms), a lawyer's review is worthwhile. They can spot problematic clauses you might miss and suggest protective language. For smaller projects or if legal review isn't feasible, educate yourself on key terms, use contract review checklists, and when in doubt, ask for clarification or propose amendments to concerning clauses. Many bar associations offer limited-scope legal consultations at reduced rates for contract reviews.
What if the client wants to start work before the contract is signed?
Don't. Starting work without a signed agreement leaves you completely unprotected. You have no legal guarantee of payment, no clarity on deliverables, and no recourse if disputes arise. If a client pressures you to start immediately, that's a red flag. A legitimate client will understand that proper contracts protect both parties. If urgency is genuine, you can offer a very limited scope of work under a simple interim agreement while the main contract is finalized.
Should I use my own contract template or the client's?
Both approaches work. Using your own contract gives you more control and ensures your interests are protected, and it positions you as an established professional. However, many larger companies require their own agreements for legal and procurement reasons. If using the client's contract, review it carefully and negotiate unfavorable terms. If using your own, be prepared for the client's legal team to request changes. Having your own template is valuable for smaller clients who may not have their own agreement.