Is this software developer contractor agreement a red flag?

Question

I received an offer from a company to work as an independent software developer contractor. The agreement contains some clauses that specify that I should indemnify the company.

This one agrees to have unlimited liability and forces me to have insurance. I asked about what the mentioned "adequate cover" and what are the mentioned "reputable insurers accepted by the company" but I received no answer from them.

You shall have personal liability for and shall indemnify the Client or any of its Affiliates for any loss, liability, costs (including reasonable legal costs), damages or expenses arising from the provision of the Services and shall maintain in force during the period of this agreement adequate insurance cover with reputable insurers acceptable to the Client.

The next one looks to me like I'm giving up my right to raise any claim or sue them. Is this ethical to do? is this a red flag?

You shall be fully responsible for and indemnify the Client against any liability, assessment or claim for:

(a) taxation whatsoever arising from or made in connection with the performance of the Services, where such recovery is not prohibited by law; and

(b) any employment-related claim or any claim based on worker status (including reasonable costs and expenses) brought by you or any substitute against the Client arising out of or in connection with the provision of the Services, except where such claim is as a result of any act or omission of the Client.

My question is if this is a common practice or this's a red flag and I should avoid working for them.

Answer 1

You should try to put a limit on your liability because you will only be able to insure to a limit. Have a search for draft contracts or join you national freelancer organisation.

Answer 2

This is basically a legal question and could depend on jurisdiction.

In a Danish context, the situation is quite normal when you have en entity between the contractor and the end customer. This entity naturally wants to avoid getting caught up in a situation which really only involves the contractor and the end customer.

Having said that, the intermediary entity will often try to smooth things out before anyone goes to court, as they wish to retain a working relationship with both parties.

This clause should be seen as a 'if all else fails, you're on your own'.

And you should off course have insurance - which is your way of passing off the risk.

Answer 3

1. They're asking you to carry appropriate insurance. In the USA this is typically Professional Liability Insurance and General Liability Insurance. There's no red flag there. I'd expect a client to ask for that. As a consultant, I would never provide my services to or enter into a contractual agreement with a client without having PLI and GLI to make sure I'm protected.

2. They've added what looks like a one-way indemnity clause. You should hire an attorney to review the clause, assess your potential liability, and advise you.

Answer 4

For section 1: we use similar language in our contracts. The purpose for us using it (specifically, "including reasonable legal costs), damages or expenses arising from the provision of the Services") is that there should be no reason for legal costs. If we have to sue you for your failure to provide the services, you pay the cost. If we get sued because you used someone elses work, you should bare the cost for you are the one who stole in this situation. The reason for insurance could be for the same reason (in case you can not cover the cost with your personal finances if something like the stuff mentioned before comes up. You are right to clarify what insurance and you should make sure it is in writing (in the contract or via email) what they consider reputable insurance and what is adequate in their minds.

For part 2, my understanding is that if that state requires you to pay taxes on services (some states do some don't) you are supposed to cover those taxes if they request as long as they are legally allowed to by law. You can always clarify this part with them and ask them for an example.

For part B of that same paragraph, you are being hired as a contractor. That part is there because they are making it clear you are an independent contractor and can not get any employment related benefits they have (because you are not an employee). If you were able to get these benefits you would be considered their employee by law.

Keep in mind we are only general business consultants for our own clients and not lawyers