This Services Agreement is designed for use between a corporate employer (the “Company”) and an individual or corporate consultant (the “Consultant”). It can be signed either by an individual consultant or by a corporation or other entity. If one of the objectives of the Company is to avoid an employer-employee relationship with a service provider who is an individual, it can be beneficial from a planning perspective for the consultant to set up an intermediary corporation or limited liability company which then enters into this Agreement as the Consultant.
This form is intended for use in any state in the United States. However, as is the case with any agreement for use in the United States, regard must be had for the possibility of variations in the laws from state to state (which are commented on below where material). In the context of commercial relationships, the laws do tend to be substantially similar among the states, but there are areas of substantive difference. In this regard, the state of Louisiana stands out in particular, as it bases parts of its commercial and other laws on the civil codes rather than on the common law. When in doubt, it is imperative to consult with competent legal counsel admitted in the state in question.
This form provides a good starting point for preparing a first draft of a Services Agreement. However, as with use of any form, it is very important to take the time to read the form in its entirety to ensure that it is customized appropriately for use in your individual situation. For all but the simplest of transactions, it can be anticipated that some customization will be in order; and as mentioned above, it may also be advisable to consult with competent legal counsel.
This form is styled very much on a U.S. model, with specific identification of the parties and definition of the business purpose of the Agreement in one or more recital clauses at the beginning of the Agreement. It is also customary to recite the mutual receipt of consideration. The length of the form and the tendency towards more detail may also come as a surprise to persons not accustomed to dealing with U.S. lawyers. That having been said, an attempt has been made to use “Plain English” and avoid the use of legalese wherever possible to do so.
NOTES ON USE OF THIS FORM
The parties’ names and states of residence/incorporation (as applicable) should be inserted at the beginning of the document. The brackets and bracketed language that is redundant should be deleted.
RECITALS (“WHEREAS” CLAUSES)
Unless specifically warranted by the nature of the parties’ relationship, no customisation of the recitals is required.
Alternate signature blocks are included to accommodate execution by corporate parties and individual parties. These should be duplicated and/or deleted and customized as required. The italicized language in brackets is for guidance only and should be deleted.
1. SERVICES AND COMPENSATION
Paragraphs 1.1 through 1.5 contain the basic terms of the consulting relationship. Paragraph 1.1 allows the parties to specify the scope of matters on which the Consultant will be providing services. The brackets and bracketed language that is redundant should be deleted.
The parties should complete the information in paragraphs 1.2, 1.4 and 1.5 relating (respectively) to the time commitment expected of the Consultant, the location at which the Consultant will render services and the person or persons to whom the Consultant should report at the Company (which is set up to be a title, e.g., Regional Manager of Sales, but which can be a named person, e.g., John Smith).
Paragraph 2.1 provides for the compensation of the Consultant – an hourly consulting fee and reimbursement of certain business expenses. Paragraph 2.2 anticipates that the consulting fee will be paid monthly after presentation by the Consultant of a monthly invoice.
3. OWNERSHIP OF INVENTIONS
Paragraphs 3.1 through 3.4 provide that any inventions and other intellectual property that is developed by the Consultant on the Company’s time and using resources provided by the Company must be turned over and assigned to the Company. This is a common provision to include in employment and consulting agreements, and is normally not legally problematic in the context of non-employee consultants.
4. CONFIDENTIAL INFORMATION
This is a short form confidentiality provision which may be adequate in many cases. If more detailed or more extensive protection is required, consider using a free-standing Nondisclosure Agreement available elsewhere on the ContractStore website (or incorporating the confidentiality provisions from that Nondisclosure Agreement). Note that this provision is expressed to survive termination of the Agreement, and does not expire by its own terms.
5. NONCOMPETE COVENANT
This is a short form noncompete provision which may be adequate in many cases. If more detailed or more extensive protection is required, consider using a free-standing Noncompete Agreement available elsewhere on the ContractStore website (or incorporating the noncompete provisions from that Noncompete Agreement). Note that this provision is expressed to survive termination of the Agreement for the noncompete period (12 months). It is deliberately limited in geographic scope and duration to reduce the risk of challenge on grounds of being “unreasonable”; any increase in geographic scope and/or duration should be the subject of consultation with competent legal counsel admitted in the state in question.
6. INTELLECTUAL PROPERTY
This paragraph is intended to prevent one party from claiming intellectual property rights which are not expressly conferred by the Agreement.
7. RELATIONSHIP OF PARTIES
Additional liabilities may attach to the parties’ relationship if it is deemed to be an agency, partnership, joint venture, employment or other similar relationship. Paragraphs 7.1 and 7.2 are intended to make clear that the parties are independent contractors and have no authority vis-à-vis one another other than is expressly provided in the Agreement. Paragraphs 7.3 and 7.4 are intended to clarify that the Consultant is liable for obligations relating to its employees.
8. LICENSES; COMPLIANCE WITH LAWS
This is “boilerplate” language. Under U.S. law, a person can have considerable exposure for the activities of other persons, and therefore it is common to seek protection from this by way of contract clauses such as this one.
Insurance can be dealt with in more detail than is provided here, depending on the nature of the parties’ relationship. It is possible for insurance clauses to be several pages long. This language is intended to leave specific decisions as to insurance coverage up to each party, based on notions of what is commercially reasonable.
Indemnification provisions are customary in contracts particularly where significant liabilities are possible. This is a standard form provision that purports to make each party responsible for any damages caused to the other party as a result of negligence or other misconduct, breach of contract, or claims from certain third parties. Note that this provision is expressed to survive termination of the Agreement, and does not expire by its own terms.
11. TERM AND TERMINATION
This Agreement is set up to be in force for a fixed term to be specified in paragraph 11.1. Upon the expiration of this term, the Agreement renews on a month-to-month basis and can thereafter be terminated by either party with a month’s written notice.
Paragraph 11.2 describes some limited circumstances in which one party or the other can terminate the Agreement prior to its term. Note that paragraph 11.2.2 allows termination on an at-will basis upon sixty days notice, which should be reviewed carefully in case it would not be in the interests of one party or the other to allow such an abrupt termination.
Paragraph 11.3 provides that certain terms may survive termination of the Agreement, and paragraph 11.4 obligates the Consultant to return certain materials to the Company upon termination.
12. CHOICE OF LAW; DISPUTE RESOLUTION
Choice of law can be contentious in U.S. contract negotiations because there are 50 states to choose from, and each party may have an instinctive bias in favor of using its own state law. Unless there is some reason to pick another state’s law (e.g., more favorable substantive law), it is customary to pick the laws of the state with which the drafting party is most familiar (again, usually its own state). This choice of law provision picks the laws of a single state (federal laws apply regardless of the state law election), which is most likely to be respected by the courts if it has some relationship to the contract (subject to application of mandatory principles of local public policy).
The dispute resolution provision offers alternative language for arbitration and litigation. Even where arbitration is elected, it is helpful to include an exception for attempts to seek injunctive relief. The clauses do leave blank a number of matters, including the place of arbitration and the choice of state for litigation-based dispute resolution. The choice of rules is also bracketed in case the parties elect to use a different set of rules (e.g., the International Chamber of Commerce).
In U.S. litigation, the prevailing rule is that each party bears its own litigation costs (subject to some narrow statutory and other exceptions). The language in paragraph 12.3 is intended to impose the so-called “English rule” to litigation costs.
These paragraphs contain a number of “boilerplate” provisions. It is possible to omit some of them, but any deletions should be thought through carefully in light of the tendency of U.S. courts to engage in activism in the interpretation of contracts and the possibility that state law does not cover the precise issue being addressed. Of particular note:
• The force majeure periods in paragraph 13.1 should be adjusted in light of the nature of the Agreement and the term of the Agreement as a whole.
• Notice information should be completed in paragraph 13.2. Notice by e-mail could also be added as an option if the parties are comfortable with this method of notice.
• Paragraph 13.5 contains a basic non-assignment provision which the parties should review carefully.
• Paragraph 13.7 should not be deleted. Most states have moved away from an “all-or-nothing” approach to enforcing illegal or unenforceable contract provisions, and the severability provision in paragraph 13.7 is an attempt to instruct a court to adopt a flexible approach to the Agreement in the event that one or more clauses prove to be illegal or otherwise enforceable, provided that it is still possible for the essential intent of the parties to be achieved.
14. ENTIRE AGREEMENT; MODIFICATION/WAIVER
This paragraph is commonly referred to as a “merger” clause, and is intended to avoid pre-contract discussions from surviving into the written contract. It also stipulates that amendment and waivers of the Agreement must be in writing in order to be effective.