Published on May 19th, 2015 by Alan L. Sklover
“The second mouse gets the cheese.”
– Terry Pratchett
ACTUAL “CASE HISTORY”: These days, as employers are seeking to limit employee-related expenses, yet retain the services of valuable individuals, they are increasingly turning to the hiring of individuals not as employees, but as independent consultants.
The reduction in employee headcount provides employers with lower overall expense, especially as to benefits and legally-required payments, such as mandated contributions to healthcare under the Affordable Care Act, Social Security, unemployment benefits, and workers’ compensation plans. In addition, most of the many other laws that protect employees from discrimination, retaliation, harassment and non-payment of wages, are not applicable to independent consultants.
For this reason, we are seeing more and more people “selling their services” as consultants rather than as employees. The most common scenario is for a company to provide to a consultant its “standard form” of consultant agreement for signature. And just as commonly, important points in those “standard forms” are slanted heavily in favor of the interests of the company, and not the consultant.
But, “forewarned is forearmed.” You have every right, and an obligation to yourself and your loved ones, too, to request changes in the language and terms of any agreement. Here are the most important points to raise if it is a Consulting Services Agreement.
LESSON TO LEARN: Most employees do not have written contracts, for many different reasons, chief among them that employers commonly view written agreements as commitment they don’t want to make, and may be difficult to get out of. (That said, senior executives do commonly have written employment agreements that do protect them.)
On the other hand, most consultants do have written contracts, provided by the company, that lean heavily toward the protection of the rights and interests of the company. As a consultant, you look to your own resources – and not legal protections – to protect you and what should be yours. If you do not, you have only yourself to blame.
WHAT YOU CAN DO: In any Consulting Services Agreement submitted to you for your review and signature, look to see if these “21 Smart Points” are already provided and are clear, and in your interests. If not, consider asking that they be inserted to clarify and modify the consulting services agreement, either (a) incorporated into the main agreement given to you, or (b) set forth on a “Rider,” “Addendum” or “Amendment” in each instance to be signed by both sides when the main agreement is also signed.
1. If your requested Clarifications and Modifications are put into a separate Rider, Addendum or Amendment, make sure it has a “superseding” clause. Quite simply, a Rider, Addendum or Amendment should be signed simultaneously, and have language that expresses the point that, in the event of inconsistency with the terms of the main Consulting Services Agreement to which it relates, the terms of the Rider, Addendum or Amendment supersede the terms of the main agreement.
If your company-customer does not present you with a “standard form” consultant agreement, we offer a simple Model Consultant’s Agreement to use as a basis upon which to begin your consulting work. To obtain a copy, just [click here.] It shows you “What to Say, and How to Say It.™ Delivered by Email – Instantly!
2. What are the Services to be provided? This is generally well-described in company-provided Consulting Services Agreements. That said, you should always review the described services and make sure it is accurate, not too broad, and that you can reasonably provide them in the timeframe provided.
3. Where are the Services to be provided? Whether you will be taking a bus or subway to your assignment, or having to regularly travel overseas, for example, is an important part of such an agreement. Accordingly, the metro area in which the services will be primarily performed should be agreed upon in the agreement.
4. Consider the wisdom of a “Resources and Access” provision. Do you expect the company to provide any resources you see as necessary to perform your services, such as administrative assistance, an office and a desk, office supplies, and the like? Likewise, do you believe you might need access to files, or the company’s computer server? If so, the particular “resources” and “access” should be spelled out.
5. For how long is the assignment anticipated to last? So that you can plan your professional life and your availability for other, potential, future assignments, how long the assignment is supposed to last should be stipulated.
One important and related aspect of this issue is how much advance notice must the Company or the Consultant give to the other when he, she or it wants to end the consulting relation.
6. How is payment for services to be calculated, and by what date must payment be received? Are the services to billed out on an hourly basis, daily basis, weekly basis, monthly basis, or upon reaching certain stages of a project? Also, whenever we talk about getting paid for services, we must also make sure it is clear how long before payment must be received? You don’t want to wait years, so make sure a more reasonable amount of time is clearly stipulated.
7. It is also important to be clear about what expenses are reimbursable, and by what procedure. Without clarity about expenses, great disagreement can take place. Don’t make any presumptions in this regard; and if there is one common mistake in this regard, it is to rely on spoken assurance. Instead, get it in writing. If certain limits, deadlines, forms, policies or procedures exist and must be utilized, then make sure you know all about them beforehand.
8. If you are being told you might later receive a “significant award” – such as stock options, a full-time position, or a bonus – make sure the assurance is in writing and clear. It is often the case that consultants are hired for a modest hourly or daily rate of payment, but with the added inducement that they will likely receive a significant award, such as stock options, or a full-time position, at a later date. Such assurances should be in writing, as clearly as possible. Loopholes are often had to spot and, so, this is one area about which clarity is most important, and an attorney’s assistance may be in order.
9. Consider asking for an “alternative award” If the original “significant award” is not delivered for any reason. What happens if that stock grant, bonus or full-time position that was dangled in front of you like a carrot, for some reason never comes to be. Will you be left “holding the bag” or should you go home with an “alternative award.” We think the latter. As frequent readers of this blog will recognize, we call this an “In the Meantime Clause,” that is, if, “in the meantime” you do not get the reward, an alternative payment or other award will be made. A single, lump-sum payment that approximates the value of the undelivered “significant reward” is the most common.
If you would like to read our article on “In-The-Meantime Clauses,” just [click here.]
10. Exclusivity, or non-exclusivity, that is the question. As a consultant, are you entitled to take on other consulting assignments during this assignment, or is it the expectation that you will devote your complete, full-time efforts to this project? If non-exclusive, can you work for competitors of the company while you provide services to the company? Don’t presume; be clear.
11. If any of your “significant rewards” are subject to a “Plan,” an “Award Agreement,” or a company policy, ask to see it before you sign on the dotted line. If, for example, you are promised stock options, and the Consulting Services Agreement says something like, “subject to the Stock Option Plan,” then ask to see that Plan or Award Agreement, because it may contain provisions that will later deny you that reward. For example, if, as a Consultant, you are provided 100,000 stock options “subject to the Plan,” and the Plan says they vest only while you are an employee, you may not be getting anything at all. So, watch out.
12. Does the company have a certain style of written record or report? If you have to submit time sheets in a certain format, ask to see a copy of an acceptable format. The same thing goes for expense reimbursements and your periodic progress reports. Ask to see acceptable forms in each instance.
13. Consider asking to be indemnified. It just could happen that something you are to be involved with as part of your services on behalf of the company may end up in litigation, or come under the review of a regulator or prosecutor. Even consultants can get “named” in such proceedings. For this reason, you would be wise to request that you be indemnified and held harmless for any such occurrence.
14. Might it be wise to provide services through, or get paid through, a “personal services entity?” Many businesspeople and professionals do their business through a corporation, a limited liability company, or a professional corporation due to the tax and liability-related advantages they may offer. Whether you should do so is a decision to make with an attorney and an accountant. If you decide to do this, or already have such a “personal services entity,” you might ask that (a) it be named as the Consultant, (b) you have the right to have the consulting fees paid to it, or (c) both.
15. Use of your name and/or signature should not be permitted without your prior written consent in each instance. Many times we see companies insert clauses into consulting agreements – especially in the medical, software or scientific areas of endeavor – that say something like “The Consultant will sign any documents necessary to perfect patents, copyrights, grant applications or regulatory reports, during or after the term of engagement. If he or she does not do so, then he appoints the Company to do so in his absence.” It is quite important that any signature of the consultant upon any documents be used only with his or her prior written consent, in each instance.
16. If “assigned,” the Agreement should also be “assumed.” Most consulting agreements have a clause that says the company may “assign” the consulting agreement to a company with which it merges, or by which it is purchased. That is fine, but that does not make the merged company, or the purchasing company, bound to fulfill the company’s promises. That is not a commitment by the merged company or the purchased company unless it “assumes” the obligations in a written, signed agreement. Such protection ought to be inserted.
17. If later “conversion” from consulting to employment is possible, request “relate-back” to first date of service. Imagine you are a consultant for 18 months, and then you are hired as an employee, something lawyers often call “conversion” of the relation from status of consultant to status of employee. Imagine that you are then told that you must wait for 12 months to be covered by the retirement savings plan, because only employees with 12 months of service are eligible. That would seem awfully unfair, given that you had already given the company 18 months of service. To prevent this, or similar short-changing, we commonly ask that the first date of consultant service to the company be considered the first date of employee service to the company for all purposes, what is commonly called “relate back” of service.
18. Purported “Cause” or “Breach” should be described, in writing. Almost every agreement of any kind provides that it may be cancelled in event of the occurrence of “Cause” – meaning a kind of bad behavior – or an event of “breach” – meaning a failure to provide the promised services. In either instance, to avoid unnecessary disputes and to ensure accuracy and honesty, the company should be required to provide the Consultant with a written statement describing in detail to purported “Cause” or “Breach.”
19. Post-Termination Efforts to be Paid. Most Consulting Services Agreements provide that, after the term of the agreement is over, the Consultant will nonetheless assist the Company in a number of ways, including answering later-arising questions, assisting with any later-arising litigation, and filing of patents or copyrights. Time involved in any and all such efforts should be paid time at the Consultant’s then-applicable hourly, daily or weekly rate.
20. Mention of Work in Consultant’s Resume and Marketing. We always recommend that the company expressly permit the Consultant to mention on his or her resume or in his or her marketing materials the facts that he or she consulted for the company, the dates of his or her consulting for the company, who he or she reported to, and the general nature of the work performed. This may avoid later disputes about the consultant’s right to do so.
21. “Survival” of These Modifying Clauses. What happens once a consulting relation is over? Do any obligations continue? The answer is “yes, but only provided the parties agreed they would continue.” For this reason we always request that a “survival” clause be inserted into all agreements that says, one way or another, that all obligations of the company to the consultant, and of the consultant to the company, that have not been fulfilled during the term of the relation, will be agreed to be “surviving” until fulfilled.
These 21 Smart Points may not all be applicable to all consulting arrangements. And, too, other precautions may be in order. These 21 Smart Points are, however, the most common that arise and represent most, if not all, of the points you may need to consider and raise.
P.S.: Let us help you. If your company-customer presents you with its own “standard form” consulting agreement, we offer a sample addendum containing The 23 Most Common Changes to Suggest to Consulting Agreements, with a Sample Transmittal Memo. To obtain a copy, just [click here.] It shows you “What to Say, and How to Say It.™ Delivered by Email – Instantly!
SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you – traps and pitfalls, included – and to avoid the likely bumps in the road. Making sure your consulting services agreement contains as many “protective” points for you as possible is an important part of that process.
Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.
*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.
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Sklover Working Wisdom™ is a trademarked newsletter publication of Alan L. Sklover, of Sklover & Company, LLC, a law firm dedicated to the counsel and representation of employees in matters of their employment, compensation and severance. Nothing expressed in this material constitutes legal advice. Please note that Mr. Sklover is admitted to practice in the state of New York, only. When assisting clients in other jurisdictions, he retains the assistance of local counsel and/or obtains permission of local Courts to appear. Copying, use and/or reproduction of this material in any form or media without prior written permission is strictly prohibited. All rights reserved. For further information, contact Sklover & Company, LLC, 45 Rockefeller Plaza, Suite 2000, New York, New York 10111 (212) 757-5000.
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