White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
Melbourne Office - PO Box 452, COLLINS STREET WEST Victoria 8007 Australia
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Email: wcl@computerlaw.com.au Internet: http://www.computerlaw.com.au

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TRAPS FOR CONTRACTORS

Steve White, Principal - White SW Computer Law

The move towards contracting in the Information Technology industry has given IT professionals far greater input as to the terms and conditions of engagement, but many people do not make the most of that bargaining power and agree to sign agreements drafted to protect the interests of the employer. Being a contractor is fundamentally different to being an employee. Contractors are more likely to be sued but have greater flexibility in relation to intellectual property ownership, tax and payment arrangements.

What are some of the key factors that should you consider when reviewing your next contract?

Intellectual Property Ownership

It may seem reasonable that the company who pays for software to be developed is the intellectual property owner. However, what about library or reusable code? If the rights in relation to library code, which may have been developed by the Contractor over many years, are assigned or given to the company then the Contractor cannot continue to use that code in the future without the permission of the company. However, if a company does not own all the software or does not have a licence to use such software, including the necessary library code, it has a problem. As you can see either party could have a disaster on its hands.

If there is no agreement in writing signed by the Contractor then the rights remain with the Contractor. Employees do not enjoy such flexibility. Even if there is no agreement, employers own all the intellectual property rights in relation to software developed by employees within the scope of their employment. This includes work, which is done partly at the work and partly at home.

Limitation of Liability, Indemnities & Insurance

It is uncommon for employees to be sued directly, however, Contractors remain liable under their contract for any loss or damage which is foreseeable as result of the contractual breach. Many contractors work in high risk areas and are exposed to unlimited claims if they breach their contracts. Contractors should seek to limit their liability by incorporating a limitation of liability clause in the contract. Such limitation cannot be too onerous, as it could result in the clause being invalid and in breach of the Trade Practices Act.

Contractors are also commonly asked to provide indemnities for claims made against the Company, placement agency or third parties for loss or damage. These clauses tend to be drafted very broadly to include both direct and indirect losses suffered and the risk of a potentially large claim being made against the contractor is rarely reflected in the fees payable. These indemnities should be deleted or their scope limited as far as possible.

Whether Contractors are required under the contract to have insurance or not, consideration should be given to taking out a professional indemnity insurance policy which gives adequate protection to Contractors from negligence claims. Make sure that you read the policy carefully as not all policies will provide protection for software developers.

Restraint of Trade

Contractors may find that their contracts attempt to restrict their ability to work in the same industry for a period of time so that similar goods and services are not supplied to the employer's competitors. Additionally, when contracting through a placement agency, the agency's contract may also restrict the contractor from continuing to work for the same employer once the original contract ends. If a restraint of trade clause is too restrictive, the courts will declare it invalid, but it can be an expensive exercise to take such an issue to Court. Before signing, contractors should check whether the contract is going to force them to re-contract through the same agency or result in them not being able to work in the area of their choice.

If you think that a supplied contract does not adequately cater for your rights, you should supply one drafted in your favour or request amendments to the original contract. Look at the alternatives being offered by others and use that information to bargain a better result. Take advantage of your position of being a scarce resource in an area of high demand - the benefits are there for the taking!

STEVE WHITE
WHITE SW COMPUTER LAW
JULY 1999

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© White SW Computer Law 1999

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.


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