LEGAL ISSUES FOR CONTRACTORS

Being a contractor is fundamentally different to being an employee. The fact that you are a contractor has intellectual property ownership, tax and superannuation consequences and increases the possibility of claims against you for negligence and contractual breach. From an employer viewpoint the contract relationship offers risk sharing, tax relief and the need for greater intellectual property understanding and supervision.

• Who is the owner?
  • Copyright
  • Trade marks
  • Patents
  • Circuit Layouts
• What are the express rights of:
  • the owner
  • the user
  • the developer
• What are the implied rights of:
  • the owner
  • the user
  • the developer
• Library Code
  • transport protocols
  • database routines
  • GUI routines

• Grounds
• Breach of contract
  • Damages
  • Injunctive relief
• Compare with Employment termination
• Escrow
• Return of documentation and other confidential information

• Employee vs Contractor
  Although all the terms of a contract must be considered, various factors which will indicate that a worker is an independent contractor:
  • The contract is for a given result;
  • The worker bears the risk of commercial loss or profit;
  • The worker provides own assets and equipment;
  • The worker sets own hours of work;
  • The contract does not contain leave provisions;
  • There is unlimited power of delegation.
  • Group Tax
  • Multiple clients
• Corporate structures
  • Company
  • Trusts
  • Superannuation Funds

• A confidentiality agreement should be signed by the contractor and the customer
  • Is the confidential information clearly defined?
  • What are the restrictions on disclosure and if disclosure is permitted at all, to whom can the information be disclosed?
  • What are the restrictions on use, copying, storing and faxing the information and what security procedures need to be followed?
  • Is an indemnity required regarding the breach by any permitted disclosee and what is the discloser's liability in relation to the use of the information by the disclosee?
  • In the case of a contractor, what breaches give rise to a right to terminate the contract.
  • If a contract is terminated, what are the restrictions on the disclosure of information after termination.
• Confidential documents should be marked as such and access to all confidential information should be limited only to those who need to know about it. A record should be kept as to who has had access to and who has created confidential information.
• A reminder of the parties' obligations should be given at the beginning of meetings which will involve the disclosure of confidential information such as contract negotiations, and should be followed up with a memo or letter to each person who was present.

Typical causes of action arise under:

• a breach of contract
  • Expectation Loss
  • Reliance Loss
• the Trade Practices Act (1974) (Cth) ( “the TPA” ) and other relevant consumer legislation such as the Goods Act (Vic) 1958 ( “the Goods Act” )
  • Misrepresentation
  • Exclusion clauses
• the law of Torts
  • Breach of duty of care which results in damages being suffered

• At common law, parties are free to structure their contracts to include exclusion clauses, however, in most circumstances under the Trade Practices Act and the Goods Act any clause which excludes or limits contractual liability that cannot be excluded or limited is void.
  • The exclusion clauses are interpreted strictly against the party seeking to rely upon them.
• Many limitation of liability clauses drawn internationally, especially clauses drafted in the USA, will not hold under pressure in Australia.

• Limiting your exposure by a proper choice of legal structures, for example a company or a trust, to separate operational entities from asset holding entities.
• Directors' liability
• Professional Indemnity Insurance

• Retain intellectual property ownership until payment received
• Use a staged payment plan which coincides with the development timetable

• The Court may strike out the clause if it is unreasonable, if the scope is too wide.
• When drafting the clause consider the desired impact on your competitor's future business

• Written agreement
• Document all dealings with contractors and confirm them in writing
• Physical security of confidential information
• Predetermined performance standards

• Intellectual Property Assignments
• Required notice for termination
• Restrictions on use of confidential information

Contracting provides greater flexibility in the scope of agreements between customer and contractor, however, there are many clauses which need to be included in a contracting agreement to ensure adequate protection for both parties. While it is possible to draft a one-sided contract, commercial reality will usually dictate that some form of compromise will have to be made by all parties involved to ensure that the contract is enforceable should a dispute arise between the parties.

STEVE WHITE
WHITE SW COMPUTER LAW
JULY 1998

www.computerlaw.com.au

© White SW Computer Law 1998

This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquiries and seek appropriate legal advice.