Contract termination can sound like a legally complicated idea. But it just means how or when your contract ends.
There are many ways a contract can end. If you are doing a project you can set your contract up so that it terminates when the project is done. There is no need for anyone to specify a date or to give notice to terminate.
You can also specify an end date. So if you are retained to work for say six months, then you can set the end date when you set up the contract.
Trial periods need clear contract termination dates
This is also useful when setting up a trial period – which has to have an end date. You would then replace the trial period with a contract that sets out your normal arrangements. Or if you can put the trial period and the normal contractual arrangements into one document. We have seen it done both ways – it is just a choice of what works best for you and your client.
Whatever you do, it is important to be clear about when the trial period ends and what happens afterward if no one takes any specific action. Some trial periods lapse automatically, others automatically convert into a normal contract.
Retainers and contract termination dates can be more complicated
If you are on a retainer it can be tempting to simply have no termination date and leave the contract as ‘ongoing’.
If you have not set out any specific arrangements or dates for when you want to increase your rates, you will have set an expectation in your client’s mind that you will work indefinitely for this rate. This is a particular problem if you are working on an introductory rate.
Just like trial periods you need to set a date when your introductory rate will end. Ideally, you will set things up so that your normal rates are clear before the introductory rate is offered. Don’t forget to make sure your contract deals directly with when and how your normal rates apply.
Tax and ongoing contracts for service
While it can be comforting to have an indefinite retainer arrangement, it can increase the risk of you being viewed as an employee.
Most employment contracts are ongoing with no predefined end date. And most employment contracts can be ended by giving notice.
Making your service contract look the same, can add to the other risk factors that could put you and your client into tax difficulties.
If you are also struggling to get your client to accept a substitute and find your client treats you just like an employee, this can be the final ‘nail in the coffin’ when it comes to determining your tax status.
You have to weigh up the security of an ongoing retainer, with the possible slight increase of risk of you falling within PAYE (or IR35 if you are invoicing through your own company).
Notice to terminate
Many people are confused about what notice is. Notice is when you give someone notice that something will happen in the future.
For example, in one month’s time, I won’t be working with you anymore.
This is a notice that sets the time in the future when something will happen.
If a contract can be terminated by the giving of notice (and most can one way or another) and notice is not given in circumstances where it should have been given, then the person who did not get appropriate notice can seek what is known as ‘damages’.
Damages are the loss caused by one person not following the contract properly. This does not mean that if your contract sets out one month’s notice by each of you to end the contract you will automatically be entitled to one month’s money if it is terminated without proper notice.
If you did not make a loss as a result, then you have suffered no damage.
If you were lucky enough to get a higher-paying client or a better freelancer within days, then you may find there are no damages to claim!
You may find you are entitled to one month’s damages for lack of notice calculated at exactly zero!
Generally speaking, the notice period will be either the amount set out in your contract or if it is not specified ‘reasonable notice’.
All contracts end
When you are just starting out as a freelancer it is natural to focus on how to get clients, and then on how to onboard clients. Similarly, if you are taking on a freelancer your focus is often on selecting the right person and then getting them started.
None of us like to think about what happens when we go our separate ways. But it is in the nature of things that we do go our separate ways.
KoffeeKlatch contracts are designed to help you not only onboard but ‘off board’. By using the documents you created when you were getting started, it is easier to start the process of going your separate ways.
With a clear arrangement, you should both know who has paid for what (and who owns what now), who has access to what (and needs to be removed), and who needs to be paid what and why.
And, of course, if one of you is unhappy, there is a route to raising your concerns and trying to resolve them.
Contract termination is just one important thing to think about
We know from supporting our customers in the KoffeeKlatch support group, that contract termination is something we rarely like to think about until it is too late.
Our contracts, and welcome videos, are designed to get you thinking about how you want to arrange your business to suit your needs. It can take time to get on top of it all if you are not used to dealing with contracts or data privacy. But we are here to help you – which is why your documents come with a support period too.
For more information about KoffeeKlatch contracts check out our home page or chat with us on our Facebook page.