The relationship clause in your contracts

Updated: 8 December 2019

The relationship clause is common in business contracts.

So what exactly is it?

It's a clause that clarifies the nature of the working relationship with the other parties to the agreement.

Sample relationship clauses

In its most basic form, the relationship clause will make a negative statement that the relationship is not one of employee and employer.

But in many cases, this is not enough.

Basic negative relationship clause

Here’s the basic negative relationship clause:

The service providers relationship with the client is not employer and employee.

Below is a more thorough relationship clause.

Relationship

  1. The Service Provider’s relationship with the Client is that of an independent contractor.
  2. Neither the Service Provider nor the Client will have (and must not represent that it has) the power, right or authority to bind the other, or to assume or create any obligation or responsibility, express or implied, on behalf of the other or in the other’s name;
  3. Nothing stated in this agreement should be construed as constituting the Service Provider and the Client as partners, in a joint venture, or as creating the relationship of employer and employee, master and servant or principal and agent between the parties;
  4. The relationship between the Service Provider and the Client is not exclusive. Either party may in any capacity work with, for or hire any third parties, works or services of any description.

Brief vs detailed

You are more likely to avoid disputes if you provide detail about what the parties relationship is and what it is not.

Why the relationship clause is important

The relationship clause is important for these reasons:

1. Contractor not employee

It clarifies an independent contractor situation so the other party is aware that they have not been hired as an employee and claims employee entitlements.

As a side note - it's not enough to say that someone is not an employee in a contract, then treat them as one off paper. This is called sham contracting and you can get into a lot of trouble for this.

2. Dealings with others

You can avoid a situation where a contractor holds themselves out as being authorised to act on your behalf.

3. No other relationship

In addition to clarifying that the other party is not an employee, you can avoid any other relationship misunderstandings, by clarifying there is no joint venture or agent relationship.

4. Exclusivity

Although last on the list, exclusivity is a big one.

You want to make it clear that the contractor has the freedom to work with other clients if this is the case without being locked into a contract that excludes this situation.

Note that one of the hallmarks of a contractor relationship is that the contractor is free to work with others. This is unlike an employee who is bound by the common law duties of loyalty and fidelity.

Be careful with contracts that claim a contractor relationship but impose restrictions on who the contractor can work with.

Questions? Comments? Leave them below.

I wish you success in all your ventures!


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Vivian Michael
 

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to deliver the best quality business legal services to entrepreneurs launching an Australian business, wherever they are in the globe.

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