A service agreement is a contract as it is a legal document that outlines the specific services that will be provided by one party to another. In addition, a service agreement typically includes details about pricing and payment schedule, disclosures and a delivery timeline.
A service agreement can be beneficial for both parties involved as it helps to ensure that expectations are clear and that there is a mutual understanding of what is to be delivered. It can also help to reduce the risk of misunderstandings, frustration, and loss of revenue.
Service agreements can benefit service providers greatly. Without a service agreement, they may not be able to ensure payment by the customer and it can be difficult to prove that services were provided as agreed between the parties. When there is no written contract, it will be difficult to enforce the terms of the agreement.
If disputes arise in the future, the service provider will struggle proving their case in court. A service agreement can be beneficial for both parties involved as it helps to ensure that expectations are clear and that there is a mutual understanding of what is to be delivered.
As a contract, a service agreement may likely include details on termination of the agreement, conflicts of interest and consequences for breach of contract (including if deadlines are not met). Note that service agreements may vary depending on the industry or type of professional service being provided. For example, a service agreement between a lawyer who practices criminal law would have different terms than one between an IT consultant and a business.
As an independent contractor is not considered an employee, the performance management and disciplinary processes which apply to employees are not the same for contractors.
However, businesses can still sue independent contractors. Typically, a business will have a legally enforceable agreement in place with the independent contractor. This will allow the business to sue the contractor if they do not perform work to the agreed standard or if there is another contravention of the contract. This is a civil proceeding which lies in the common law courts jurisdiction.
There may be other avenues available to you to sue an independent contractor, but it is important to seek legal advice to ensure you are aware of all your options. Business Kitz’ sister company, Legal Kitz, can offer you top-tier legal advice at an affordable price. Contact us now to find out more.
An independent contractor can have a non-compete agreement (or non-compete clause, which can be incorporated into the services agreement) which limits any potential conflicts of interest between the business and the contractor.
A non-compete agreement aims to prevent contractors from competing with the business they are engaged to work for. The agreement tends to remain on foot during and for a period after the work has been performed, to ensure the legitimate rights and interests of the business continue to be protected.
Many commercial contractor agreements will include a restraint of trade clause, which broadly covers non-compete concerns. In addition, a restraint of trade clause can prevent the contractor from working with rival businesses and soliciting employees of the business to work for the contractor.
A director can be engaged as an independent contractor; however, it is important your business understands the rules and regulations imposed by the Australian Taxation Office (ATO) in regard to Superannuation obligations.
If a director is engaged as a contractor primarily for their labour, then the ATO will likely deem them to be an employee for Superannuation purposes. Distinguishing between who classifies as an employee or independent contractor requires an inquiry into the substance of the relationship (i.e. who delegates the work hours, work location, who is providing services etc) rather than the form (i.e. merely agreeing to be ‘contractor’ or ‘employee’).
A director who invoices through a different business (‘the Business’), rather than the company they are directing (‘the Company’), is not eligible for superannuation to be paid via the Company. This is because they are deemed to be an employee of the Business. However, a contracted director who directly invoices the Company, and who receives director fees, is eligible for superannuation.
It is important you seek legal advice when engaging a director as there can be serious consequences if tax obligations are not complied with. Business Kitz, and its sister law firm, Legal Kitz, can assist you in navigating this.
One cannot simply convert an employee to be an independent contractor and have them performing the same job. This is because independent contractors and employees are classified differently according to Fair Work, and thus businesses have different obligations to independent contractors than they do to employees.
For an individual to work as an independent contractor, they must provide services under a contract and negotiate their own working arrangements and fees. Conversely, an employee undertakes to perform work for an employer themselves and usually over a consistent period of time.
Therefore, to convert an employee to an independent contractor, one must begin with ending the employment relationship (i.e. terminate the employment contract). A number of factors must then be considered when engaging the worker as an independent contractor:
- Intend that the worker will be engaged as an independent contractor, which can be evidenced by the worker providing an Australian business number and signing a services agreement.
- Ensure the worker is able to delegate and subcontract the services to be performed to another person or entity.
- Ensure the worker retains a high level of control over the work they perform, their hours, work location and how they do the work.
- Agree that the worker will bear the risk of financial responsibility and risk for the work performed.
- Ensure that the independent contractor primarily (if the circumstances permit) uses their own tools and equipment.
These steps can ensure that the new arrangement is in fact an independent contracting arrangement, and not merely an employee relationship hiding behind an independent contracting façade. This is vital to secure yourself against sham contracting, which can attract serious legal consequences.
In the absence of an agreement to the contrary, an independent contractor will own the intellectual property that the contractor creates. An independent contractor is not an employee of a person or business, but rather independently provides services to that business or person. For this reason, the ordinary rules of intellectual property ownership in employee-employer relationships do not apply to independent contractors.
Businesses who engage independent contractors and who wish to retain intellectual property rights over the work performed by the contractor under the agreement can expressly draft the engagement agreement to accommodate for this requirement (usually through a well drafted intellectual property clause). Otherwise, if the agreement is silent about the ownership of the intellectual property, the law will likely only imply a licence from the contractor to the business to enable the business to use the intellectual property created by the contractor. The disadvantage of this is that licences can be revoked at will by the owner.
If you or your business wishes to retain intellectual property rights over work performed by an independent contractor, contact Business Kitz for a high-quality service provider agreement template which can be tailored to your needs.
- Easy to use
Clear and comprehensive guidance notes.
Editable schedule and re-usable from employee to employee.
- Fair Work compliant
Regularly updated by our compliance team.
- Risks covered for casual employees
Australia’s highest quality agreement template covering key risks for casual employees.