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Gig Economy Essentials: Understanding the Service Agreement

If there is one agreement that every independent contractor will encounter in this gig economy, it is the service agreement.  If you are not selling or buying widgets, you are most likely providing services.  Either you will have an agreement to present to your clients, or your clients will present you with their agreement, which you will have to review.

Freelance Isn’t Free Act

Before going into more detail about service agreements, note that there is a law protecting every freelancer in New York City: The “Freelance Isn’t Free Act” which became law last year.  Under the new law, agreements for services with freelancers have to be in writing (if for $800 or more); there are protections for retaliation; payment is due in 30 days unless something else is agreed upon in writing and you have a right to complain and possibly get attorneys fees if there is a breach.  See this helpful guide for freelancers which explains the law and all your remedies.

Now about Service Agreements

What needs to be in your standard service agreement?  What should you look out for when reviewing a service agreement presented to you?  The following assumes that you are the service provider and not the customer of the services.

Description of Services

The agreement has to describe the services to be provided in clear, unambiguous terms.  Often you see language stating that services shall be provided as set forth in an attachment to the agreement or in a “statement of work.”

The statement of work has to set forth a description of all elements of the services to be provided.  There cannot be any question about what you are supposed to do, when you are supposed to do it and when you are finished with everything.  Many times these statements of work are not very precise and the parties rely on “working it out” later.  Don’t make that mistake.  If a dispute arises, you want to rely on the descriptions of your obligations.

You have to look out for inconsistencies between the statement of work and the main agreement.  Ideally, it all syncs up.  As a protection, the service agreement should state that in case of conflict, the main agreement, not the statement of work, controls the question.

Payment for Services and Expenses

How much are you going to be paid for your services and when?  Do you have to send an invoice? Will there be interest on unpaid fees?

Are you being reimbursed for expenses?  If so, do expenses require pre-authorization by the customer?

Warranties

It is often requested, and seems reasonable, that the service provider warrants that the services are provided in accordance with the statement of work, in a timely and professional manner using industry standard skills.  These are all terms that will be interpreted by the courts and basically mean that you have to provide decent work.  Ideally, you do not want to agree to provide services according to the highest standards or to customer’s satisfaction.

You may want to provide that in case of a breach of your warranty, you will only re-perform the services. This would be the exclusive remedy of the client; they can ask you to do the service again, or, if you won’t, terminate the agreement.

At the end of your warranty section, you must include language along the lines of

“OTHER THAN THE WARRANTIES PROVIDED HEREIN, CONTRACTOR MAKES NO WARRANTIES AND ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, ARE EXPRESSLY DISCLAIMED”

Limitation of Liabilities

This is a big one.  You have to have language that limits your liability, ideally you would agree to limit damages to direct damages, meaning no consequential, incidental, indirect, exemplary, special or punitive damages;  and you want to limit your total liability to a maximum cap; it could be the fees paid under the agreement or a certain fixed number.

Client Obligations

Sometimes your services are not really possible unless you get cooperation from your client.  If this is so, put it into the service agreement.  You may want to state that you have to have access to the client’s business, that you need content from the client or need the client to cooperate to get permits and licenses.

Intellectual Property

If your services involve intellectual property, this is an area where you may want to get a lawyer involved.  You have to make sure that you retain ownership of your pre-existing intellectual property and that you don’t inadvertently transfer such ownership to the client.  The client, on the other hand, may want to obtain a license to all intellectual property that is necessary to enjoy the benefits of the services that you are providing.  You also have to make sure that you don’t restrict yourself in using certain intellectual property on other clients after you are done with the current project.

Confidentiality

Most service agreements contain language about confidentiality.  More likely than not, you the service provider, will come in contact with the client’s confidential information.  You want to make sure that your obligations to keep the client’s information confidential are not too strict, so as to make you liable for inadvertent breaches.  Make sure that it is clearly and narrowly defined what constitutes confidential information, ideally only information that has been clearly labeled as confidential.  There should be time limitations on secrecy.  You should only be responsible for yourself, not for anybody else’s disclosure of confidential information.

Termination

You should have a provisions that provides that you can terminate the agreement and thus your obligation to perform services, if the client fails to pay your fees.

Relationship of Parties

You want to include that the relationship with your client is nothing more than that of an independent contractor; this avoids any interpretations that you are in some kind of partnership, joint venture or liable for the actions of the client.

Choice of Law and Courts

Ideally you want to have the law of your home state apply to the service agreement; and have the other side agree to the courts closest to you.  In my humble opinion, do not agree to exclusive arbitration.  It is too expensive and limits your rights to discovery and appeal.

 

 

 

About Imke Ratschko


Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.