Practice Areas

How Does A Company Properly Terminate Independent Contractors?

February 2011

By: Nancy E. Joerg, Esq.

Many of our law firm's clients use independent contractors. When the independent contractor relationship is no longer satisfactory, or the reason for the relationship no longer exists, clients often wonder how they can properly terminate the relationship.

WHEN THERE IS A WRITTEN AGREEMENT: One of the first things I ask the client is whether there is a written agreement between the independent contractor and the company. If there is, I ask the client to send it to me for my legal review. I carefully evaluate it for any provisions relating to "termination."

Many independent contractor agreements have termination provisions which describe under what conditions the agreement can be terminated by either the Company or the independent contractor. These independent contractor termination provisions should be strictly followed to avoid breach of contract lawsuits.

Additionally, independent contractor agreements frequently have notice provisions under which a certain number of days or weeks notice must be given by the terminating party to legally terminate the agreement. These provisions should be strictly followed.

WHEN THERE IS NO WRITTEN AGREEMENT: If there is no written agreement between the parties, then the question must be asked: What are the terms of the oral contract between the parties? Did the parties ever discuss how the relationship could or should be terminated if necessary?

If there is no written agreement and no specific oral provision relating to the termination of the oral contract, then the parties are best served by simply discussing the situation and deciding what is the best way to end the relationship. If the independent contractor has spent money on materials and supplies to fulfill the project and the company suddenly terminates the relationship, the independent contractor could reasonably bring a lawsuit for a breach of an oral contract. It is always best for companies to work out mutually agreeable terms to the termination of the relationship in order to avoid a potential lawsuit.

Practical Tips: When drafting a termination provision for an independent contractor agreement, make sure that it is not too complicated. Below is a sample termination provision that is simple yet effective:

This Agreement may be terminated:

A. Without cause, by thirty (30) days' prior written notice by either party; or

B. With cause, immediately upon material breach of any term of this Agreement by either of the parties.

Regarding notice provisions, the independent contractor agreement should not state that the parties can walk away at any time because this indicates an employment relationship. An employment at will relationship means that both the company and the employee have the right to terminate the employment relationship at any time, with or without cause or notice. If your independent contractor agreement contains a provision that allows the parties to terminate the relationship at any time, revise the agreement to include a notice provision with at least some kind of a notice period required for termination of the contract.

Questions? Please contact Senior Attorney and Shareholder Nancy Joerg at 630-377-1554, or najoerg@wesselssherman.com.