legal-contractor

> **Templates only - not legal advice.** Have an attorney review before signing or distributing.

# Legal - Independent Contractor / Consulting Agreement

Generate an independent-contractor (1099 in the US) or consulting agreement. The biggest risk in this document is **misclassification**: drafting a "consulting agreement" for someone who is functionally a W-2 employee creates IRS, DOL, state-DOL, and unemployment-insurance liability - typical settlement is **$5K–$50K per misclassified worker**, plus back taxes and statutory penalties.

This skill therefore opens with a classification gate. If classification is shaky, it refuses and routes to `legal-employment`.

## When to use

- Hiring a true freelancer or consultant - has multiple clients, sets own schedule, provides own tools, performs work outside your core business
- Engaging a specialized agency / firm via a contractor-of-record
- Project-based engagements paid by deliverable, not by time

## When NOT to use

- Hiring full-time staff who will be integrated into operations → use `legal-employment`
- Engaging an executive / fractional C-suite → may be employee under most tests; use counsel
- Engaging through a staffing agency → the agency is the employer; you're the client of a B2B agreement; use `legal-contract` MSA
- Hiring across borders → local counsel in the contractor's country; permanent-establishment risk for the company

## Required inputs (ask upfront)

1. **Jurisdiction (HARD GATE)** - country + state/province for governing law. **If the user does not answer after one ask, REFUSE to generate.** Reply: "I cannot generate a contractor agreement without a governing-law jurisdiction. Worker-classification rules differ sharply (CA AB-5, NJ ABC test, MA, IL, IR35 in UK), and the wrong defaults create misclassification liability."
2. **Contractor location** - country + state/province where the work will be performed. May differ from the company jurisdiction; both matter for tax and classification.
3. **Scope** - deliverables, milestones, acceptance criteria
4. **Payment terms** - fixed fee, hourly, milestone-based, retainer; currency; payment cadence; net-15/30/60
5. **Term** - fixed end date, project completion, or open-ended with termination-for-convenience
6. **IP assignment** - work-for-hire vs. license-back; pre-existing IP carveout
7. **Exclusivity** - can the contractor work for competitors? (caution: exclusivity is a strong **employee** signal under both IRS and ABC tests)
8. **Tools and expenses** - who provides equipment? who reimburses?
9. **Number of expected clients** - only this company, or multiple? (single client = employee signal)

## Workflow

### Step 1: Worker-classification gate (HARD - refuse if shaky)

Run the same screening as `legal-contract` Step 1a. Reproduce the questions verbatim:

#### IRS 20-factor (high-signal questions)

1. Instructions - does the company control when/where/how?
2. Training - does the company train the worker?
3. Tools - who provides them?
4. Work hours - who sets the schedule?
5. Order of work - who controls task sequence?
6. Reports - required regularly?
7. Payment - by time (employee) or by deliverable (contractor)?
8. Expenses - who reimburses?
9. Multiple clients - yes (contractor) or no (employee signal)?
10. Right to discharge - at-will (employee) or only for breach (contractor)?
11. Integration - is the role part of the company's core operations?

#### ABC test (CA Lab. Code § 2775; NJ; MA; ~20 other states)

The hiring company must prove ALL THREE:

- **A**: Worker is free from control and direction in fact and under the contract.
- **B**: Work is outside the usual course of the hiring entity's business.
- **C**: Worker is customarily engaged in an independently established trade.

Failing any prong → employee classification.

#### IR35 (UK)

If contractor is UK-based:
- Working through a PSC?
- Right of substitution (can they send someone else)?
- Mutuality of obligation (must the company offer work and the worker accept)?
- Control over how, when, where?

#### Decision and routing

- **CLEAR CONTRACTOR** - proceed to Step 2.
- **SHAKY OR EMPLOYEE** - REFUSE. Reply:
  > "Based on your answers, the working relationship has material employee indicators (specifically: [list factors]). I will not generate a contractor template. Drafting a 'consulting agreement' for a functional employee creates IRS back-tax exposure, state DOL penalties, and class-action liability under CA Lab. Code § 2775 / NJ ABC test / similar. Use `/legal employment` for an employment agreement, or engage an employment attorney to evaluate the relationship before classifying."

Record the gating decision (questions asked, answers given, decision rationale) in the document's attorney-review-notes section.

### Step 2: Confirm tax framing

US: this is a **1099-NEC** relationship. Tell the user:
- Company will issue Form 1099-NEC if total annual payments to the contractor reach $600 (federal threshold; some states lower).
- Company collects W-9 from the contractor BEFORE first payment (with TIN; mandatory under IRS rules). Backup withholding (currently 24%) applies if W-9 not collected.
- Contractor pays self-employment tax (15.3% SE tax + income tax). The company does NOT withhold.
- Contractor is NOT eligible for company benefits, unemployment, workers' comp (in most states).

UK: confirm IR35 status determination. Medium/large engaging companies must issue a Status Determination Statement (SDS); if Inside IR35, PAYE/NIC apply.

EU: contractor must be self-employed under local law (Selbstständig in DE; lavoratore autonomo in IT; auto-entrepreneur in FR). Permanent-establishment risk for the company if scope of contractor work is broad.

### Step 3: Generate the contractor agreement - verbatim canonical clauses

Reproduce sections in this order. Replace bracketed placeholders. Do not summarize.

#### 1. Parties and Effective Date

```
This Independent Contractor Agreement (the "Agreement") is entered in