Your rights: Treat contracts with caution

By JOHN HANNAN of Phillips Fox

Q. I have returned to New Zealand after being away for almost 10 years. I've been talking with a small agency about working with them as an associate working with clients in areas where I have particular experience and generating add-on business. Can you please give me some advice on how to negotiate a relationship such as this so that there is a complete understanding of what is involved from the beginning rather than have any misunderstandings and disappointments later.

A. It sounds as though the agency wants to engage you mostly for business development purposes, to generate the add-on business. The first thing you need to decide is whether to work as an employee or independent contractor.

Working as an employee has advantages. At least part of your remuneration should be salary, so you will have a minimum income. You will be entitled to be paid holidays and sick leave. You will have some degree of job security. You cannot be dismissed unless you fail to perform, commit misconduct, or the employer no longer needs your services because of changes in its business.

But since the employer is taking the risk that you will not produce enough add-on business to make your employment worthwhile, the salary it will offer will probably be less than you could negotiate as an independent contractor. You could possibly resolve this by offering to work for a base salary, plus a commission or incentive arrangement.

The agency must give you a written draft employment agreement before the deal is made final. It must give you time to get advice on this. The employment agreement should set clear performance criteria and set a clear basis for how any commission or incentive arrangement is calculated. It should state what leave you are entitled to and what expenses and facilities, if any, you must provide and pay for. Normally the employer should provide all or pay for all facilities an employee needs - for example, a car, mobile phone and computer.

An alternative is to become an independent contractor to the agency. Remuneration can be structured on a retainer plus commission/percentage of fees, or a pure commission or percentage of fees earned. The commission or percentage of fees will be higher than you would get as an employee because you are taking the risk. You won't have entitlement to paid leave or sick leave and would have to make your own provision to pay tax and ACC levies and insurance (which you will need).

You will be able to deduct expenses for tax purposes. The agency will probably expect you to provide most of the facilities you need. You will have no security in such an arrangement - usually, either side can end independent contract arrangements with one month's notice. But the notice period can be negotiated.

You should get your independent contractor agreement in writing, although that is not a legal requirement.

It is important for the agreement to deal with the following things. It should say precisely how the agency is going to pay you, and when and how it will pay. It should also specify what facilities the agency will provide, if any, and what expenses it will pay.

It should set performance targets. It should also specify who "owns" the clients you get in. If you obtain a new client for the agency, are you entitled to take that client with you if you move on? Most independent contractor arrangements for "relationship" roles like this will have a restraint of trade clause that prevents you from poaching the agency's clients if you move on. But if you get the client in the first place - and are taking the risk of earning little or nothing if you don't get clients - you may want to be able to take that client with you.

In a role like this, the agreement needs to specify who owns copyright in written material you prepare.

Be clear about what you have to do, how you will be paid for it, when you will be paid, and whether the clients you get belong to you or the agency. If the agency is going to assign clients to you, they should be listed and there should be agreement about how and when the agency can re-assign those clients away from you.


Employment Relations Service

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