A Service Agreement is a contract - either written or verbal - which sets out the terms and conditions for service between a Customer and a Service Provider. LawDepot provides a written Service Agreement. A Service Agreement may sometimes be referred to as a contractor form, an independent contractor agreement, a contractor agreement or a freelance agreement.
Service Agreement Basics
Why isn't an oral Service Agreement sufficient?

The problem with oral agreements is that they are difficult to prove. If a dispute arose, a court would have to hear evidence and decide whose version of the truth to accept. If there is a written agreement, courts will generally be obligated to uphold its terms as long as they are lawful.

What is addressed in a Service Agreement?

Service Agreements typically address the following:

  • the parties to the agreement;
  • the service being offered;
  • the term of agreement; and
  • the remuneration that will be provided to the Service Provider.

In addition, Service Agreements may also provide specifics on:

  • how confidential information is to be treated upon termination of the Agreement;
  • whether there are limitations on the Service Provider's ability to compete with the Customer's business upon the Service Provider's termination; and
  • how disputes between the Customer and Service Provider will be handled.
Who are the parties to the Service Agreement?

The parties to the Service agreement are the Customer and the Service Provider. The Customer is the individual or business seeking the Service while the Service Provider is the individual, partnership or company providing the service. Service Providers may sometimes be identified as "individual contractors", "freelancers" or "consultants".

What is the difference between an Employment Contract and a Service Agreement?

Service Agreements are used to hire Service Providers or independent contractors where the relationship between the parties is not one of employer and employee. A Service Agreement is limited to a specific project or time period and governed by contract law whereas employment contracts are usually open-ended and governed by employment law as well as contract law.

What is the difference between an employee and independent contractor?

Independent contractors are individuals who provide services for a fee but are not considered to be employees because they work for themselves and do not have an employer. Examples of independent contractors include those who operate their own practice or trade in fields such as plumbing, carpentry or graphic design or in more specialised technical settings such as accounting, engineering or computer programming.

The law treats employees and independent contractors differently, but it is not always easy to establish which category an individual falls into. In cases of dispute, courts will determine the appropriate category by examining a number of factors. Some factors will be considered more important than others. Examples of relevant factors are:

  • who is providing the tools for the job;
  • the level of skill required for the job;
  • who controls the work and the work product;
  • whether the hired party must provide oral/written progress reports;
  • whether the job is performed on the business premises;
  • the duration of the relationship between the parties;
  • the ability to delegate or sub-contract the job of the hired party;
  • whether the hired party has discretion over how long and when they work;
  • whether any insurance or benefits are provided to the hired party;
  • whether the hired party's expenses are reimbursed;
  • whether the hired party can realise a profit or loss;
  • whether the work is part of the regular business of the hiring party;
  • whether the parties have a written agreement defining the status of the hired party;
  • the method of payment; and
  • the way the hired party is treated by taxing authorities.
Is this a Master Service Agreement?

No. If you need a Master Service Agreement as well as subordinate agreements, you should consult a lawyer qualified in your jurisdiction.

Term of Agreement
What is the end date of the agreement?

The end date is the date when the Service under the agreement is no longer provided or needed.

What does "notice" mean?

Notice refers to the amount of time that is provided by one party to another when they wish to end their obligations under the agreement prior to the agreed end date. The purpose of notice is to allow the Service Provider to find another client or the Customer to find a replacement Service Provider. In most jurisdictions, the law does not offer independent contractors the same minimum notice protection that is typically offered to employees (unless the notice is expressly provided in the agreement). However, courts may award notice (or pay in lieu of notice) to an independent contractor if he/she can show that he/she was economically dependent on the Customer. In those circumstances, courts may impose a reasonable notice period or damages.

How should the Service Provider be paid?

The Service Provider can be paid or remunerated in many different ways. If the Service Provider will be paid a certain amount (rate) for each time period, use "Hourly", "Weekly", "Monthly" or "Yearly" as appropriate. If the Service Provider is to be paid a certain fixed amount for the complete performance under the agreement, use "Fixed Amount". If the remuneration is several payments or involves the trade of services or goods, use "Other". If you have a certain rate for the services performed together with additional remuneration, use this question for the basic rate and use the "Additional Remuneration" question to describe the additional remuneration.

What is additional remuneration?

Additional remuneration refers to any remuneration the Service Provider will be paid in addition to the basic remuneration specified under the question "How will the Service Provider be paid?".

What does "Penalties for late payment?" mean?

This question refers to whether the Customer will be penalised for failing to pay the Service Provider on time. Select "Do not specify" to not mention whether there will be penalties for late payment. Select "No" if the Agreement will expressly state that there are no penalties for late payment. Select "Yes" to be able to expressly state what the penalties will be for late payment.

Restrictive Covenants
What is a confidentiality clause?

The confidentiality clause prevents the Service Provider from using or disclosing the Customer's confidential business information to a third party.

What is meant by Company/Partnership under the Type of Customer and Type of Service Provider fields?

A Company is a duly registered corporate entity. A partnership is an unincorporated business operated by more than one individual. If you are entering the agreement as the representative of a business then you would select the Company/Partnership option. If you are acting strictly for yourself then select the Individual option.

What does the Assignment clause do?

The Assignment clause prevents the Service Provider from transferring their rights or responsibilities to another party without the Customer's consent.

What does the Capacity/Independent Contractor clause do?

The Capacity/Independent contractor clause reiterates that the Service Provider is hired as an independent contractor or consultant and not as an employee of the Customer. Note that disguising an employment relationship as an independent contractor in order to avoid having to pay employee benefits like holiday pay, pension, worker's compensation and income tax is illegal. A court may find that a work relationship is an employee/employer relationship if the person hired is closely supervised and directed by the hirer. An independent contractor usually provides a skilled service, is paid for a specific result, controls how the services are provided, is free to refuse additional work, and usually bears the cost of repairing faulty work. A court would take all these factors into consideration when deciding if a particular work relationship was a sham contracting arrangement.

What does the Modification of Agreement clause do?

The Modification of Agreement clause states that any changes to the agreement must be made by written consent of all the parties to the agreement.

What does the Time of the Essence clause do?

This clause provides that all dates and time limits are strictly enforced.

What does the Entire Agreement clause do?

The Entire Agreement clause confirms that there are no other provisions or terms outside of this agreement.

What does the Severability clause do?

The Severability clause declares that if the courts find that a particular clause of the agreement is invalid or unenforceable, the validity of the remaining provisions of the agreement will not be affected.

What does the Return of Property clause do?

The Return of Property clause states that the Service Provider will return all property belonging to the Customer upon termination of the Agreement.

What does the Indemnification clause do?

An Indemnification clause is where the Service Provider agrees to pay back the Customer for claims made against the Customer by any third party for any damage or loss arising out of the provision of the services.

What does the Notice clause do?

The Notice clause indicates how all notices under this agreement will be given.

What does the Enurement clause do?

The Enurement clause declares that any rights and responsibilities of the parties will pass on to their successors.

What does the Titles/Headings clause do?

The Titles/Headings clause states that the titles/headings of each section are inserted for clarification only and are not for purposes of interpretation.

What does the Gender clause do?

The Gender clause declares that words in the singular or masculine sense also encompass words in the plural and feminine sense, respectively.

What does the Waiver clause do?

The Waiver clause states that if one party waives its rights to enforce a breach by another party, this failure to enforce its rights will not be held as a waiver of any subsequent breaches.

What does the Ownership of Materials clause do?

The Ownership of Materials clause declares that materials developed in the course of the services will be the exclusive property of the Customer. The clause further holds that the Service Provider will not be held responsible for damages resulting from the use of the mentioned materials for work other than services contracted for in the agreement.

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