Contracts, Attorneys and The Independent Executive
Nothing can take the place of qualified advice on contracts and attorneys for independent executives, but our long experience has taught us a lot
We are not attorneys. Although we have spent more money and time than we care to admit being advised by attorneys, insurance experts, and accountants, we have not been educated, trained, or certified in these areas of expertise. This article in no way constitutes legal, tax, or risk-mitigation advice and is intended solely for clarification and awareness purposes. For discussion and advice specific to your situation, contact a professional.
With that said, here is an overview of the information we have found to be most helpful and relevant to independent executives.
Keeping It Legal
A number of drivers contribute to whether a company should bring on an individual as an independent contractor or an employee for the business to remain compliant. The use of independent contractors by private industry has been in place for decades through temp agencies, which offer companies the flexibility and ease of a non-employee-based workforce while remaining compliant. As the need for a more independent and flexible workforce increases, so will options for recruiting, selecting, and engaging this workforce beyond traditional temp agencies; hence, the rise of the human cloud and online marketplaces.
Beyond the SOW, there will be key points you will want to include in your terms and conditions for legal purposes. Again, we are not attorneys and are not providing legal advice. We advise that you speak with an attorney to get appropriate advice for your situation. This may also vary by state. Some executives have worked for years without a contract, while others have spent thousands on attorney fees putting one into place. Either way, at one point or another, you will likely end up needing to review and execute a client’s contract. Here are a few of the top areas to focus on.
Confidentiality and Nondisclosure Agreements
At the very least, there will likely be some type of confidentiality agreement, (also known as a Nondisclosure Agreement). Although the law of ethics and integrity dictates that information shared between you and the client is confidential, some clients feel a little better having it in writing. You also may have information that you prefer to remain confidential. Every once in a while, we have come across an executive with a background in the venture capital and investment community who has a blanket policy not to sign these. Their reasoning has to do with raising capital and is not typically applicable when working as an independent executive.
Intellectual Property for an Executive
You probably have built up some proprietary information and tools and will be using them during your engagement. They are intended for the use of the company within the parameters of the engagement only. You don’t want any confusion about ownership of your tools. The engagement includes the use of them, not transfer of ownership. Are there any parameters of extended use or other application? What permissions are needed? Make sure you protect your proprietary information or intellectual property (IP) in the contract you sign, whether it’s your agreement or the client’s agreement.
This pertains more to contracts with intermediaries or other business owners you may partner with. Does your involvement require you to secure business only through that entity, regardless of the lead source? For example, you have a colleague you worked with years ago, who has reached out and is referring you to one of his or her clients. Is this now your client, or is it the intermediary’s or joint venture’s client? Does your revenue-share agreement apply? An exclusivity agreement is only between you and your intermediary, not you and the client.
Although these may be common at the executive level with employment contracts, we do not see them in client-vendor contracts. Any concerns that may otherwise be covered by this type of clause is usually covered as part of the confidentiality and non-disclosure agreement.
This is common in vendor contracts, whether it is with an intermediary or a client. It makes clear to both parties who is ultimately responsible for issues and costs arising from errors. In client contracts, a mutual indemnification up to the amount paid to the vendor is most common. When working with an intermediary, you will typically be asked to indemnify the intermediary. Once you are connected with the client, the intermediary is neither directly involved with nor in control of you or the client in your activities and actions. Since there is no participation, it is difficult to argue in favor of holding them responsible for any errors the vendor or client make.
Entities That Protect Your Executive Assets
Working independently as a business owner does come with some additional responsibility and risks. Understand the tax liabilities, the laws, and the risks based on your services, your situation, and the state(s) you are doing business in. A decade ago, it was not uncommon for an executive to simply “hang out their shingle” and they were in business. Laws have changed, and the government is having a tough time properly classifying independent contractors. Consider seeking out professional advice on the type of entity that is best for you, including types and tax implications. Some common entity types are:
- Sole Proprietor
- LLC (Limited Liability Corporation)
- C Corporation
- S Corporation
- LLP (Limited Liability Partnership)
Again, we are not certified experts in any of these areas. Hopefully, this article has offered enough base information for you to understand what certified experts you need to consult for your particular situation and know what initial questions to ask.