When Termination Templates are Needed
Despite the fact that you have a perfectly drafted independent contractor agreement or consultant contract covering all related terms and conditions, you are likely to run into situations where you must terminate the relationship with your independent contractor at some point in the future. There are any number of situations where the business relationship does not work out and separation is required. It is crucial to put this termination in writing and the way to do so is to use a proper termination of independent contractor agreement template . Having a template in place will save you considerable time, money and hassle. Since these situations are specific to each engagement, using a template agreement and then customizing the specifics to your situation will save a lot of time. You will also ensure getting a document in writing which is crucial. Getting an employee to sign off on a termination of employment is one thing. It is another to take the same course of action with an independent contractor, especially when you don’t know what legal remedies may be available to them or where they are located.
Elements of a Termination Agreement
The termination of independent contractor agreement template should, at the very least, contain the following elements: Reasons for Termination: The reasons for termination of a contractor should be clearly stated in the termination letter, and acknowledged by the contractor in the next paragraph as having been understood. If a contractor is dismissed "for cause," the reasons for dismissal should be explained to the contractor so that he or she understands why the employment is being terminated. Effective Date: The termination agreement should state when the employment relationship has terminated, or will terminate. A contractor can be terminated, effective immediately, or notice can either be given, or required. Obligations Post-Termination: The effect of the termination on the contractor continues after the termination, in many instances. The contractor usually has obligations regarding confidential information obtained during (s)he contract. These obligations should be stated in the termination agreement or termination letter.
Steps to Personalizing a Termination Template
When you receive a sample "Termination of Independent Contractor Agreement" template, it is probably going to be a generic kind of document that you cannot simply use for whatever you need without tailoring it. A general termination document will contain general contractual language that can be used for any employee who you might want to terminate, but the problem (in writing this type of document in specific) is that everytime you use a sample general template for a contract; you risk using a clause or a form that does not apply to or mention the specific contractor involved in your purposes.
Therefore, the first step is to look at the original agreement that you have with your independent contractor. Consulting the original agreement will help you understand why you are terminating the contractor and how you intend to approach this. Once you have consulted the original contract (and even if you have not) you can now view the termination form that you have and see where there are general clauses that need to be changed.
For example, if your contractor is currently working as an independent photographer and it is only his photography services that you intend to terminate, then you probably want to remove clauses that discuss other kinds of independent contracting work, like graphic services or various multimedia services. When you customize a general template, you will be looking for ways to make the document more specific.
Legal Issues and Compliance
When dealing with the termination of an independent contractor, it’s vital to be aware of the legal factors that could be brought to the forefront as a result of the contract being terminated. Labor laws at the local, state and federal level can affect how a termination should occur. For example, while there are no federal laws regulating contractors and independent contractors, there may be differences between state and local laws regarding these relationships. Depending on the location of the business, it’s important to consult an attorney or examine local laws to completely understand any potential consequences that could result from the decision to terminate a contract. In some cases, the company hiring the contractor could be liable for various issues, primarily concerning potential IRS issues. As a general rule, if an employment relationship exists, the company is responsible for paying income taxes , unemployment insurance and FICA. If it’s determined that a contractor is actually an employee, the company could face penalties from the IRS. If a company is compelled to pay unemployment benefits for a worker who was actually a contractor, these costs could be very expensive. Even if the worker is not let go at the termination, it’s still important to ensure to use a termination of independent contractor agreement template in the event that the relationship does end in the future. This will make it easy to end the agreement in a manner that protects both parties. Ultimately, the easiest way to prevent adverse consequences from the termination of an independent contractor is to simply make sure that the person being terminated is actually a contractor. If the relationship or work being done falls under the category of employee, you could be creating a variety of legal issues concerning reporting and taxes that you’ll then have to either address or face penalties for.
Best Practices for Contract Termination
When dealing with the termination of an independent contractor agreement, there are a number of best practices that should be followed to ensure that it is done effectively and professionally. First and foremost is the need to clearly communicate with the independent contractor about the reasons for the termination. This can help to avoid any unnecessary confusion or resentment. In some cases, it may be wise to provide constructive feedback on their performance and to give them the opportunity to address any issues before a termination is executed.
The next best practice is to document the entire process. This is not only important from a legal perspective in case the termination is later challenged, but also to ensure that there is a clear record of what was done and why. The documentation should include any communications between the parties, as well as any amendments or modifications to the termination agreement itself.
Additionally, it is important to be as professional as possible throughout the entire termination process. While an independent contractor agreement does not always require the same amount of formality as an employment contract, it is still essential to maintain a level of professionalism throughout the process. This includes providing reasonable notice to the independent contractor to allow them to make necessary arrangements for their future, as well as treating them with respect during the termination process.
Finally, always ensure that the independent contractor has completed all necessary paperwork and processes before the termination is finalized. This may include paperwork for their corporation as well as any forms that provide proof of the end of their contract with your organization. Having these completed before the termination is finalized can go a long way in helping to avoid legal issues once the contract has ended.
Common Errors and Pitfalls
One of the common mistakes that can be made with a Termination of Independent Contractor Agreement is the signing of the document to be effective as of some point in the past. For example, paying them from x date to y date really was purportedly for the period from a to b. The issue in this situation is that if you list a past date in the termination, you are sending a signal that you are willing to accept the risk that if a lawsuit is filed, you may have to deal with the issue of why did you sign the termination in the future as opposed to at the time you terminated. You can get caught in a perjury issue or lying issue if you really did not intend to terminate until later.
Another olive branch that is sometimes thrown by the company is the offer of severance . A termination of independent contractor agreement may include a severance schedule in it, and in some cases, the company chooses to offer severance of some amount. But, the problem with this is that it can be construed as an olive branch to ratify a non-compete or confidentiality requirement when in fact, there is no legal basis to have a non-compete or confidentiality requirement in the agreement. The companies should always check their state laws to determine if their policy of putting a severance provision into the agreement simply to ratify a non-compete or non-solicitation, or simply their desire to do so, is something that is consistent with the law in that state. In other words, act lawfully.