Presentation given at Freelance Camp Toronto on October 3, 2010. Independent Contractor Agreements

1. Dotting the i’s and Crossing the t’s Hermie Abraham Sapna Mahboobani

2. DISCLAIMER This presentation is designed to provide you with information only and does not constitute legal advice. Furthermore, the information is intended to provide a general overview of legal structures and independent contractor agreements and is not comprehensive or exhaustive. THE EXAMPLE CONTRACT CLAUSES ARE NOT IDEAL CLAUSES AND SHOULD NOT BE COPIED INTO CONTRACTS. IN MOST CASES THEY ARE EXAMPLES OF VERY FLAWED CLAUSES.

3. Agenda Independent Contractor vs Employee Anatomy of a service agreement Wrap-up

4. Employee vs. Independent Contractor

5. Employee vs. Independent Contractor

6. Legal Test for Independent Contractors Does the individual set his/her own hours? Does he/she maintain control over the work done? Does the individual provide his/her own tools and equipment? Is he/she subject to supervision? Does the individual have the ability to work for other employers concurrently?

7. The Dependant Contractor The dependant contractor fits neither the definition of an individual contractor, nor employee – they are somewhere in between. Legal test to determine whether an individual is a dependant contractor: The length of service with the employer The types of restrictions imposed against the individual against working for competitors The degree of exclusivity in the working arrangement The time and resources the individual devotes to the company

8. Freelancing while Employed? Review the employment contract with your employer. Know your implied ‘legal’ duties: The duty of fidelity Duty of Confidentiality Fiduciary duty Know what is at stake: Lawsuit for damages Injunction Anton Pillar Orders

9. Sole Proprietorship Minimal Legal Formalities Easy to form, wind-up, buy and dispose off assets Owner and sole proprietorship are same legal person Single tax return for personal income and business Personal assets not shielded from business liabilities

10. Corporation Required to incorporate and make annual filings Owner and corporation are separate legal entities Separate tax returns for personal income and business income Personal assets are shielded from business debts and liabilities Canadian Controlled Private Companies may be eligible for the small business deduction

11. Written versus Unwritten Contracts Verbal contracts are binding between the parties. However, if there is a dispute, it is much harder to determine what the parties originally intended to agree to. Written contracts are preferred. They should be clear, unambiguous, and set out all of the key terms of the working relationship between the parties to the contract.

12. Parties and Effective Date Include the legal names of the parties to the contract and the date of the contract was entered into. EXAMPLE: This independent contactor agreement is made the 3rd day of October, 2010 B E T W E E N: ABC Corporation, a corporation constituted under the laws of the province of Ontario (the “Company”) - and - 1234567 Ontario Limited, a corporation constituted under the laws of the province of Ontario (the “Contractor”)

13. Recitals Recitals are formal statements in a written document that set the facts that form a basis or reason for the agreement. EXAMPLE: WHEREAS, the Company is in the business of manufacturing widgets; AND WHEREAS, the Contractor has particular knowledge and expertise in regard to controlling defects in widget production; AND WHEREAS, the Company and Contractor have agreed for the Contractor to provide certain prescribed services to the Company as set forth in this Agreement; NOW THEREFORE, in consideration of the terms and conditions described below and the sum of $1.00 paid by each party to the other, the sufficiency and receipt of which is hereby acknowledged, the Company and Contractor agree as follows:

14. Relationship/ Capacity The contract should clearly specify that the relationship is one of Contractor and Client. EXAMPLE: The relationship between the Company and Contractor is and shall throughout the term of this Agreement, be one of principal and independent contractor. Nothing in this Agreement or in the provision of Services shall construe or imply an employment, partnership or any other legal form of relationship.

15. Scope of Contract The contract should always include a clearly defined scope that explains what the independent contractor will deliver to the client and how and when this will be delivered. EXAMPLE: The Company retains the Contractor to provide the Services described in Schedule “A” (Description of Services) for the charges set out in the Remuneration clause below, and in accordance with all other terms and conditions of this Agreement.

16. Equipment, Location etc Where the organization agrees to provide the independent contractor with office space, administration support, a computer or anything else, this should be detailed in the contract. EXAMPLE: The Company shall provide the Consultant with office space and administrative support at 123 King Street, West, Toronto, ON. In addition, the Company shall provide the Consultant with a Toshiba computer, serial # 54321 to be used solely to deliver the Services.

17. Term of Contract The contract should state term of the engagement (when the services begin and end). This could be a fixed start and end date for the engagement or could be the completion of a particular deliverable.

18. Contract Breaches and Termination of Contract The contract should define what constitutes a breach – i.e. an event that would render the contract ‘void’ and no longer capable of performance. The contract should also state what happens in the event of contract termination. Will the independent contractor be compensated for loss of earnings for the time remaining in the contract?

19. Compensation The contract should state how much the contractor is being paid and how Fixed-fee or time & materials Who is responsible for expenses? Contractor is responsible for withholdings Taxes, CPP and EI contributions Late payments and interest Invoicing

20. Representations and Warranties Promises parties make about past, current and future facts and behavior about themselves EXAMPLE: The Independent Contractor represents and warrants that:i) The Services shall be performed in accordance with, and shall not violate, applicable laws, rules or regulations, and standards prevailing in the industry and the Independent Contractor shall obtain all permits or permissions required to comply with such laws, rules or regulations; ii) The Materials shall be original, clear, and presentable in accordance with generally applicable standards in the industry;

21. Confidentiality and Non-disclosure Confidential information should not be disclosed to third parties EXAMPLE: In connection with the performance of Services hereunder, the Independent Contractor may be exposed to confidential and proprietary information of the Company, whether or not so identified (including without limitation this Agreement). All such confidential and proprietary information shall be subject to the terms and conditions of the Non-Disclosure Agreement, as annexed in Exhibit B.

22. Proprietary Rights Contract should state who owns the intellectual property rights in the product Moral rights may be waived EXAMPLE: Independent Contractor hereby assigns to the Company any and all right, title, and interest Independent Contractor may have in and to such Materials, including all copyrights, all publishing rights, and all rights to use, reproduce, and otherwise exploit the Materials in any and all formats or media and all channels, whether now known of hereafter created. The Independent Contractor agrees to execute such instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, and protect the Company's ownership of such Materials, and all other rights, title, and interest therein.

23. Non-Compete Clause Non-compete clause prevents the independent contractor from competing with the client Must be reasonable Seen as restraint-in-trade and not in the public interest Non-solicit clause prevents the independent contractor from soliciting the client’s customers or employees Non-solicit clauses are more likely to be held in court than non-compete clauses

24. Indemnification Indemnification – When party A compensates party B for losses caused by party B EXAMPLE: The Independent Contractor hereby indemnifies and holds harmless the Company, its subsidiaries, and affiliates, and their officers and employees, from any damages, claims, liabilities, and costs, including reasonable attorney's fees, or losses of any kind or nature whatsoever ("Loss") which may in any way arise from the Services performed by the Independent Contractor hereunder, the work of employees of the Independent Contractor while performing the Services of the Independent Contractor hereunder, or any breach or alleged breach by Independent Contractor of this Agreement, including the warranties set forth herein. The Company shall retain control over the defense of, and any resolution or settlement relating to, such Loss. The Independent Contractor will cooperate with the Company and provide reasonable assistance in defending any such claim.

25. Limitation of Liability Limit on what or how much party A will indemnify party B EXAMPLE: The Company shall not be liable for injury or death occurring to the Independent Contractor or any of its employees or other assistants in the course of performing this Agreement.

26. Boilerplate Clauses Most of these are found across any agreements Usually have the same general format Must be reviewed

27. Notice How will the parties communicate important events EXAMPLE: Any notices to either party under this Agreement shall be in writing and delivered by hand or sent by nationally recognized messenger service, or by registered or certified mail, return receipt requested, to the address set forth above or to such other address as that party may hereafter designate by notice. Notice shall be effective when received, which shall be no greater than one (1) business day after being sent by a nationally recognized messenger service or three days after being sent by mail.

28. Assignment Transfer of rights and obligations of contract to a third party EXAMPLE: The Company may freely assign this Agreement, in whole or in part. The Independent Contractor may not, without the written consent of the Company, assign, subcontract, or delegate its obligations under this Agreement, except that the Independent Contractor may transfer the right only to receive any amounts which may be payable to it for performance under this Agreement, and then only after receipt by the Company of written notice of such assignment or transfer. This Agreement shall be binding upon and inure to the benefit of the parties' successors and assigns.

29. Governing law Jurisdiction who’s law will govern the interpretation and dispute resolution of the contract EXAMPLE: The Agreement will be governed and interpreted by the laws of Ontario.

30. Amendment Method by which the contract can be amended EXAMPLE: The parties can amend this Agreement only by written agreement signed by both parties

31. Entire Agreement Contract represent all terms that parties have agreed to EXAMPLE: This Agreement and its attachments contain the entire understanding between the parties with respect to the subject matter of this Agreement and supersedes any prior discussions, negotiations, agreements and understandings.

32. Independent Legal Advice Parties understand the contract and have had a chance to consult a lawyer EXAMPLE: The parties have read and understood the Agreement, have consulted with their lawyer and sign the Agreement on their own free will

33. Execution Contract must be signed by the parties or authorized representatives of the parties. Contracts must be delivered to be enforceable.

34. Summary As a freelancer… Make sure you and your client conduct your business as an independent contractor and principal (and not as employee and employer). Decide on a business structure that best meets your business needs. Have a written agreement between you and your client. Make sure you understand the terms of the contract and negotiate terms that are favourable to you.

35. Questions?

36. Thank You! 330 Bay Street, Suite 800 Toronto, ON M5H 2S8 P: 416 907 2568 sm@sapnalaw.com www.sapnalaw.com

37. Disclaimer This presentation is designed to provide you with information only and does not constitute legal advice. Furthermore, the information is intended to provide a general overview of legal structures and independent contractor agreements and is not comprehensive or exhaustive.