How to draft a consultancy agreement

While it’s vital to prepare an employment contract when hiring part-time or full-time employees, it’s just as important to draft a proper consultancy agreement when hiring self-employed people in your business, according to Andrew Fishleigh.

Here are the basics of what should be included in a consultancy agreement. As with employment contracts, you can obtain standard documents from various sources, but it’s generally best to ask a solicitor to draft an agreement that is tailored to your business.

This is especially true in the case of consultancy agreements, because the implied duties owed by an employee to an employer do not apply in the case of consultants.

For example, the intellectual property in material created by an employee during the course of his employment belongs by law to his employer (unless otherwise agreed). There is no parallel provision in relation to consultants.

Accordingly, when engaging consultants, you must enter into a proper consultancy agreement with them that specifically states that it is agreed between the parties that intellectual property created by the consultant during the course of his work for you belongs to you.

Here is a list of the key provisions you normally see in a consultancy agreement:

• Names and addresses of the parties;
• Start date;
• Description of the services to be provided: It’s very important that the consultancy agreement precisely describes what you are expecting the consultant to do, including details of any deliverables;
• Time period during which services will be provided: You need to know that the work will be done within a reasonable time period so the timing should be specified in the contract;
• Consultancy fee (amount and timing of payment): The agreement needs to state precisely what the consultant will be paid and whether he/she is entitled to charge any additional expenses on top of his/her fee. Invoicing at month end is normal;
• Right for the consultant to appoint a substitute to deliver services on his/her behalf: For tax reasons, a consultancy agreement needs to specify that the consultant can appoint someone else to carry out the work for you on their behalf. You should ensure, however, that the agreement states that they can only do this with your prior approval;
• Ownership of IP: The agreement should state that the intellectual property in work done by the consultant for you belongs to you;
• Statement of self-employed status and indemnity from consultant in respect of his/her tax and NI: The agreement should specifically state that the consultant is not employed by you and should require the consultant to indemnify you in respect of his/her own tax or NI since HMRC will look to you for any unpaid tax and National Insurance;
• Liability: The consultant may wish his/her liability to you for defective or negligent work to be subject to an agreed limit. This will require careful negotiation. You may wish to insist that the consultant maintains a minimum level of insurance against any potential claim you might have against him/her. If you do, this should be stated in the agreement;
• Confidentiality: The agreement should impose a duty of confidentiality on the consultant so that he/she cannot disclose confidential information relating to your business to any third party;
• Termination provisions: The contract should identify the circumstances in which either party can terminate the contract (eg early termination for breach of contract); and
• Restrictions post termination: Consider appropriate non-poaching and non-solicitation clauses in respect of clients, contracts and key staff.

Related article: Should I hire employees or self-employed staff?

Andrew Fishleigh is an experienced employment lawyer at?Keystone Law?advising employers and employees in contentious and non-contentious matters.

This article was originally published on 17 July 2013.

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