a. How to Properly Document the Relationship
In Hong Kong, cases have shown that whether a person is acting in his or her capacity as an employee or an independent contractor is often a mixed question of fact and law. Therefore, such a distinction of the two relationships will not merely rest upon a written document, but also upon all factual circumstances of a particular case.
Notwithstanding such, if both parties intend to have an independent contractor relationship, they are strongly recommended to incorporate clear and express provisions into the independent contractor agreement to reflect such intention, and to put the matter beyond doubt as much as possible. Express provisions that reflect independent contractor factors can play a significant role in indicating the nature of the relationship between the parties. Among all express provisions, the most important provision will state clearly that the person is engaged as an independent contractor and not an employee or subsidiary of the principal. Other examples of these independent contractor factors include:
• contractor’s right to hire his or her own workers and delegate work to them;
• contractor’s right to control over how the work is to be carried out, for example by using his or her own work tools in completing the work;
• contractor’s right to select the site at which work is performed;
• contractor’s right to procure services from other potential clients;
• contractor’s right to fix his or her own time schedules as opposed to following a strict schedule prepared by the principal;
• contractor should take up liabilities for all of the debts, losses, and expenses on his or her income solely; and
• payments to the contractor should be result-based and not just based on hours spent on working.
In addition, the principal must avoid setting out conditions that imply subordination, such as assigning a supervisor to give contractor directions on how the work is to be carried out. The independent contractor should also undertake not to allege that he or she is the employee of the principal during and even subsequent to the termination of the independent contractor agreement.
b. Day-to-Day Management of the Relationship
Parties are advised to seek and obtain independent legal advice in the course of negotiating the independent contract agreement. All discussions should be documented by the parties to ensure that the clear intentions of the parties, at the time of the agreement, is delineated in the agreement. The significance of a properly defined and documented independent contractor relationship should not be overlooked as it sets out a clear and enforceable mutual understanding of the rights and obligations of the parties.
On top of safeguarding the rights of the parties whilst concluding the agreement, the principal should make every effort to preserve the level of independence granted to the independent contractor. These include the rights provided in the independent contractor agreement as stated above. Any interference of these rights by the principal might be a factor hinting an employer-employee relationship instead of a business-independent contractor relationship. As such, principals are recommended to draw up written evaluations on a routine basis concerning the independent contractor’s scope of work. Such evaluations may be useful in refuting any future claim of re-characterization.