What are consultancy agreements and what do they include?
A consultant is a self-employed, independent contractor who is engaged by a client to provide expertise for a particular project. Consultancy agreements have more scope for flexibility, given the fewer statutory regulations they are governed by in comparison to employment contracts. However, there are still important terms to clarify and agree on at the point of contract.
Duties - how do I clarify what my consultant does?
Both client and consultant need to know how the services are being performed. A duties section should set out how long the consultant is being contracted for, and the nature of the work. The consultant can either be assessed on the basis of services provided for a definite or indefinite period of time, or they can be assessed on the basis of key deliverables which must be achieved regardless of the work’s duration. The duties section should spell out all obligations of both parties.
Characterisation - how do I make sure they’re working as a consultant?
It is crucial to draft the consultancy services contract in such a way to ensure that the consultant can be classed as a self-employed individual. Self employment means that the client will not be required to make deductions of income tax and employee National Insurance contributions (NICs) from the consultant's fees and pay employer NICs, and that the client is not obliged to abide by various statutory and common law protections.
Although a status clause can be placed in the consultancy contract to dispel any confusion between both parties, it will not override any other indicators of employment. A court will likely find that there is an employment relationship if the client has control over “what", "how", "where" and "when" work is done.
Characterising the consultant properly can be accomplished with a substitution clause, which gives the consultant the right to send a substitute to provide the services in their place. Though parties may choose not to include this right out of commercial necessity, restrictions on substitution may be shown as evidence of worker or employment status especially where no reasonable reason can be given for the prohibition of a substitute. Another clause which may help establish self employment is where a consultant is obliged in the agreement to supply their own equipment and materials.
Confidentiality - how do I keep sensitive information contained?
Since consultants are not employees, they are not bound by any implied term of confidentiality. Because of this, it is desirable for the client to insist on confidentiality provisions in the contract which allows for enforcement.
Further, a client may wish to enforce confidentiality even after the contract duties have been performed. This can be done through a restrictive covenant, which applies for a limited period after the contract is brought to an end.
In order for a restrictive covenant to be enforceable, it has to protect a legitimate interest of the client (such as a trade relationship, or a client’s confidential information) and it has to apply reasonably with regard to the interests of the parties and the public interest.
Insurance/Indemnities - how are my costs covered where things go wrong?
A client may insist in the contract for example via warranties that the consultant maintains appropriate insurance in the event of liability. This will ensure that compensation is more reliably recovered. Relevant insurance policies include professional indemnity insurance, public liability insurance and commercial general liability insurance.
Equally, the client may stipulate indemnity clauses, which oblige the consultant to cover the cost of various scenarios. This includes any loss caused as a result of the consultant's acts or omissions in the course of providing the services, and any loss arising from the consultant being deemed an employee.
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Intellectual property - how do I protect my IP under the agreement?
By default, any intellectual property created by the consultant vests in them rather than the client. This is because there is no employer-employee relationship which gives rise to IP transfer. Additionally, attempting to claim rights in other jurisdictions over any IP created in the UK can be difficult where there is no statutory presumption of ownership. Because of this, it is advisable for a client to stipulate that ownership of whatever IP is created is immediately assigned to the client. Additionally, a client can require that the creator’s “moral rights” over being identified as creator are waived.
Data protection - how do I remain GDPR compliant?
Data protection clauses are equally desirable where the individual consultant is a “data subject” and where they are a “data processor.”
In the first instance, clients must process the personal data of their consultants in accordance with the UK GDPR and the DPA 2018. Clients are obliged to provide consultants with a privacy notice, which notifies them about the personal data that the client holds relating to them, and how they can expect their personal data to be used and for what purposes.
If the consultant is processing personal data on behalf of the client, the UK GDPR requires specific instructions from the client to be stipulated in the contract. The consultant's ability to engage a substitute, or sub-processor, must be restricted. This can be done by requiring the consultant to seek the client's written authorisation to provide a substitute.
What if the consultant is using a service company?
Either party can use a side letter addressed to the company to set out the relevant obligations and duties. A substitution clause will allow the company to contract out to the “third party” consultant.
Covering these key areas will allow you to achieve the precise working relationship you are looking for, and ensure that your projects are completed without undue worry.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.