What Might Happen if You Don't Have a Freelance Contract-EP67

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Hello fans of Better Biz Academy!

Today's episode is inspired by numerous posts I have seen in various Facebook groups and emails that I tend to get about whether or not people really need a freelance contract, how on earth you find one and what should be included on one etc.

So, today I am only going to focus on one particular aspect of the whole contract debate, which is: what happens if you don’t have one.

Full Transcript:

Hello fans of Better Biz Academy! Today's episode is inspired by numerous posts I have seen in various Facebook groups and emails that I tend to get about whether or not people really need a freelance contract and how on earth you find one and what should be on there etc. So, today I am only going to focus on one particular aspect of the whole contract debate, which is: what happens if you don’t have one?

I see a lot of people go into new freelance relationships and they don’t realize that they need a contract until it’s too late and they have been burnt by the person.

If you are getting your jobs on Upwork, Guru, Freelancer, or other similar platforms where there is a third party managing the relationship, holding funds in escrow etc., you don’t really need a contract. But for any private job that you have with someone, including your neighbor, that small business owner you met at a Chamber of Commerce meeting, whoever it is — you need a contract with them and there are more reasons than just your legal protection at stake.

The contract serves a lot of purposes in a freelance relationship, not the least of which is defining who is responsible for what. When you are communicating with someone only over email or even using the phone a little bit, the margin for error is huge. So, if you don’t have a contract, there is always the possibility that you are going to go do a whole bunch of work and then the client is going to come back and say, "This isn’t what I was looking for" or "This isn’t what we agreed to." It gets you both on the same page. So, yes you want to have a freelance contract in order to kick off any business relationship that is not on a site like Upwork. So, consider that it does more than just protect you legally.

And you know in this episode I am only talking about what happens if you don’t have it. What could go wrong if you don’t have it? That's a biggie because clients tend to underestimate the scope of their project and if you don’t have a contract; let's say, if you agree to something for a $1000 and then the client keeps requesting phone calls and you spend way more time on this project than you thought and it drags on for ever and ever — that's going to be really problematic for you because the client may think that's just included in their $1000 and if that wasn’t your expectation, but it’s not clarified in writing, you really have no protection.

Another thing that could happen if you don’t have a contract is; there is no real written record that the job existed. So, I have even had clients before; when I first got started I did not realize the importance of contracts. We would start on a job and they'd just email me and say, "hey I want to hire you", and I'd go, "oh okay great, the price is this" and then I'd do the work. While sometimes people are fair and will pay you what you agreed to verbally; if there is no written record of it and you need to file a legal claim later on there is no signed contract, at least in the United States, there is very little that could be done to pursue that. I mean it was just - it depends on the laws of your state and whether or not verbal contracts are accepted and all that, but you are going to end up probably spending more time on legal and filing fees than it's worth. Whereas, a contract in place clarifies that relationship between you and the other person and gives you some course of action if there is a problem. And the lack of a need for a contract is one of the big reasons that I stayed on Upwork as long as I did, and I still do business on Upwork because there is real clarity about what the job is and who is responsible for what on a site like that where you both have to agree to the terms before you kick off.

If you don’t have a contract, you really have no record of what you and the client agreed to. It’s really easy for them to say that they have been stiffed, you guys never agreed to anything, it was a gentlemen's agreement and all of that. It exposes you to so much. So, you could have client easily take advantage of you, just because you never agreed in writing. And it’s actually dangerous when you know the person because sadly, this is a case where the person might actually try to take advantage of you more because they are counting on your good nature, they don’t think you are going to blow up the relationship because you know one another. Maybe you know each other personally, or it’s your cousin or it’s a friend of a friend and they may actually have a higher chance of trying to take advantage of you with no written contract because they doubt that you will take them to court or that you will push the issue. You'll just not be paid, or you'll take abuse from them or be asked to do a whole lot more than you originally agreed to and you will just do it out of the goodness of your heart. So, if you don’t have a contract, it not only causes this tense relationship between you and this person, but it could actually damage a friendship or a relationship with a family member because they thought XYZ and you thought ABC and you guys were never on the same page and you never signed and agreed to anything.

Another thing that can be really problematic if you don’t have a contract is, especially in the United States, there is a legal distinction between being an employee and an independent contractor. And you want your contract to stipulate the terms of the working arrangement because you either want to be categorized as an employee or as a contractor and there are certain protections afforded to you as an employee under the fair labor standards act and all of that and you are entitled to overtime or whatever it is. And it is really based on who is responsible for determining the working relationship. There are tests you can do online to figure out whether your relationship is really more employee based or contractor based, but as a contractor myself, I don’t want to sign agreements that make it seem as though I am an employee because I have a whole different set of obligations to the person than I want. So, for me I want to be really clear in that contract that I am not an employee and that I am a contractor and that they are not to do payroll withholding or request that I be on call 8-10 hours a day at a desk. So, if you don’t have a contract, there can be some legal confusion there in the United States about what rights that person owes you. And it’s a liability issue for the employer or the client as well because if you try to come back after the fact and say that you were misclassified as a contractor when you should have been an employee, that exposes them to potential legal action and having to pay your back overtime and all of this stuff. So, you want to be clear at the outset of the relationship; what you are in a legal sense as far as contributing to their business. And most freelancers are going to be contractors. Now there are situations where a client may come to you and say, hey we can only hire you as an employee and that's something you need think through the consequences and whether that's something that you want. I have taken on employee, a kind of W2-ed situations in the United States for certain freelance clients, but that's definitely the exception and not the rule. But if you don’t have a contract, it creates way too much grey area as far as what's expected of you and what you are under the eyes of the law. So, it’s good to have that clarified upfront.

Another thing that can happen to you, if you don’t have a contract and this relates in particular to anyone who does work that may require edits. Writers, even VAs, web developers, web designers, graphic designers; you are going to probably go through an iteration in your work process with a client where they have to review the work and then tell what changes they make and then you make the changes. With no contract, you are essentially in a way saying, unlimited revisions; because there has been no clarification otherwise. So, with no contract, the client can say, well I paid you a $1000 for this web design and I am not going to be happy with you or pay the rest of the invoice until you've made this page function the way I want it to. Even though I've now added 50 things to the scope of work and it's well beyond what I would typically pay a $1000 for, you have not clarified that there is a particular process they need to follow. A contract will usually say something like: after the initial draft is complete, the client will review and have a maximum of 14 days to provide feedback and after 30 days of submitted work with no comment from the client, final payment is due. Something like that, so that you can reign in the client and not have them going on and on and on forever because particularly with websites or books or really big projects that you are working as a freelancer, the client may have unlimited requests. If you don’t reign them in and establish some boundaries with what's expected and what they have actually paid for, they'll just keep pushing back - oh can you make these changes, now I want these changes, can you make the website green, now I want it purple, can I see it in pink. And if you haven’t agreed that after each round of changes, they have to certify that this is the last thing they want changed and this the final version and they have a maximum of 30 days to get email support from you -- whatever it is in your contract, if you haven’t specified that, there is going to be confusion over it and then you've got an angry client. Because if you write back and say, well that's going to be $500 more because it’s different from what we originally talked about, you and the client already have different perspectives on what you originally talked about and the opportunity for conflict there is huge. So, the client is going to be unhappy about paying more money. You are unhappy because you are being asked to do way too much outside the original scope. You have got problems on both sides and it’s unlikely that either one of you or both of you is going to walk away happy from that kind of interaction.

So, having a contract clarifies everything. And it’s not always the case that a client wants to take advantage of you; they simply may not know better. This was something I got into a lot when I first started writing. I didn’t specify revision requests and I had one client that would actually put grammar errors into my writing and then send it back to me and ask me to update it, reflecting the new inaccurate wording or inappropriate grammar. And I would write back and say that this does not - I don’t want my name attached to this, it’s not correct. And I didn’t have a contract with them. They would say, well just change it anyways, that's what we want, we think it’s right. Well then, I'd change it and they get a complaint on their website from somebody who read and said, hey this is grammatically incorrect and then they would come back to me again, three or six weeks later, after this was long over with and paid for and asked me to change it again.

Well, I opened myself up to those problems because I didn’t have a contract that said, how long they had to request changes and how many rounds of changes would be allowed within the contract. So, writers, for example, may allow a maximum of two rounds of revisions. If the client hasn’t put it in their feedback up to that point, it’s now their responsibility to fix it if you are after that second round. You've got to decide what's going to work for you, but you don’t want to rely on verbal things and it's really dangerous in any work situation where the people you are working with are changing. So, you may have agreed to the terms with the CEO, but you are dealing with the project manager on a day to day basis as you are turning in work or doing your freelance contract requirements and they may have different ideas. They may not know what you and the CEO agreed to. Again, that contract is going to help you.

The other thing that can happen, if you don’t have a contract is that you won’t get paid or you won’t get paid on time. Every business that you interact with from solopreneurs to major companies is going to have different requirements in terms of their accounting and invoicing. You want to know about that upfront, so that you can account for that in the contract that you put together. If you don’t put clear payment terms in the contract because you don’t have a contract at all, then the company is well within reason to wait 90 days to pay you, right. If you didn’t say that all invoices needed to be dealt with on a net 30 basis or within 15 days after being received, they are not obligated to do that. You haven’t agreed to that. So, they may say well, it’s still sitting on somebody's desk or we'll get to it next month. And in fact, the client I have had the most payment problems with over the last five years was one where I didn’t have a contract and it was in just good faith that I was continuing to work for this person and there would be invoices that were six weeks overdue and big invoices too. $1000...$1800 and I was just - it was such a waste of my time to have to keep going back into that email and say, hey this invoice is still pending. This work was turned in almost two months ago, please pay it. And then they'd write back, oh I was sure that was paid, and you'd start this whole cycle of them trying to get out of paying it or saying that it was already dealt with and you showing screenshots inside your account that it wasn’t. So, on and so forth. Creates a big headache and it was because I didn’t have a contract - because I didn’t have something I could refer back to.

Another reason that a lot of freelancers benefit from having payment terms in their contract is because they will attach a late fee or some other type of penalty, if the client doesn’t pay within the stipulated terms. So, it’s not just about saying in the contract that you'll pay within 30 days of the work being submitted. A lot of people will have a $25 late payment charge, a 10% late payment charge, if it’s the 10th business day and it hasn’t been paid or they'll say all work will cease immediately until the invoice has been dealt with. You hope that you never have to activate these things when you are a freelancer. You don’t want to have this relationship with a client, where you have to email them and say, I have added a $25 late fee to your invoice because it hasn’t been paid. But you can’t just always rely on good faith. Now there are lots of people out there that you could count on with good faith, but you are taking such a gamble that I do recommend having a contract if you can put one together. If you don’t know if you can trust this person. Because it helps to just clarify everything and while you hope that you never have to use those terms, there could come a day when you need to exercise them, and you want to be able to say, here is a copy of our contract that we signed three months ago stipulating that a late payment charge would be added. This is standard procedure. This is my company's business practice. In the future, you can avoid it by paying the invoice on time. You never want to go there, but if you have to, it’s good to have something to back you up.

And then finally, if you don’t have a contract, you are so limited as far as what you can do if there is a problem with the terms of the contract being enforced. If you have a contract and you both are in the United States, you can file in small claims court, you can take other legal action to try to recover the money that you are due to cancel the contract or whatever it is that you need to do that relates to that important document. But if you don’t have a contract, you open yourself up to so many problems because there is no closure to the relationship. You could have a client who harasses you and wants you to continue working because they don’t accept your resignation even if you put it in writing. If there are no terms within the contract or no contract at all that says, hey the business relationship ceases immediately after written notice is provided, you'll leave an open loop that the client is unhappy about and it leads to problems. So, it’s very hard for you to exit a business relationship even for the right reasons, if you don’t have a contract. That's one reason I really really really recommend having a contract to protect you and the client.

So, there is so much to learn about contracts and yes, it’s worth having a lawyer and yes, it’s worth having a standard contract drafted by an attorney that you can tweak and adjust as necessary with your clients. But I just wanted to cover a couple of the things that typically come up as it relates to what happens if you don’t have a contract. What problems are you really exposing yourself to? I'd love to hear the other types of protections and tools you've put in place in your freelance business to minimize problems and in particular, legal issues. Check out other episodes of the Better Biz Academy Podcast to learn more about launching and growing a successful freelance business.

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