Question: If an independent contractor is a subcontractor to a business, can the independent contractor bid against that business on a totally unrelated project? That is, does an independent contractor have a duty of loyalty, like an employee has?
Also, can an independent contractor be liable for anything under the law of agency?
Answer: Dear Dawn: As you may know, I am not licensed to practice law in Hawaii, and am not familiar with its laws. However, I can share with you my understanding, gained over many years, of the law in most of the United States, and elsewhere, as well:
1. An independent contractor has only those duties to its client that it has agreed to. The relationship between an independent contractor and its client is an “arms-length” relationship. It is created by agreement, and is limited by the limits of that agreement (whether in writing or spoken.)
Unlike an employee, who has an implied duty of loyalty to his or her employer, an independent contractor has no duty of loyalty under the law to the other party, unless that independent contractor has agreed to such a duty in an agreement. So, an independent contractor has every right to compete with the party to which it is an independent contractor.
2. That said, an independent contractor is bound by the common law that forbids, for example, theft of secrets. While direct competition with an independent contractor’s client is fine, an independent contractor cannot, as examples, take advantage of confidential or proprietary information of its client that it may have learned of in the course of doing business, for that would be common law theft of trade secrets, or take equipment or supplies, for that would be considered theft of property.
3. In turn, the client of an independent contractor is also bound only by its agreement, and nothing more. In turn, the business who hires an independent contractor has essentially no duties to the independent contractor, except as is set forth in their agreement. So, a client of an independent contractor is not required by law to provide that independent contractor with the things it has to, by law, provide its employees, including (a) a safe workplace; (b) overtime; (c) unemployment insurance; (d) workers’ compensation; or (e) social security contributions.
4. An independent contractor who has agreed to act as an agent is bound like an agent. An agent is someone who acts in the place of, and on behalf of, another person or entity. Independent contractors sometimes act as agents for others, such as when an attorney (who is an independent contractor to his or her client) acts on behalf of his or her client in negotiating a business deal, and on behalf of that client may agree to deal points or even sign a contract. If an independent contractor acts as an agent, then that independent contractor is liable under the law of agency. It’s that simple. Incidentally, the “law of agency” is a reference to the principles of law applicable to agents and their “principals,” which principles of law vary little from state to state.
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