Video: How to set the terms of cooperation with a freelancer?

Chapters of the article

• Before the start of cooperation
• Which contract should I choose for my collaboration?
• Beware of the shvarcsystem!
• Cooperation contract
• Licensing agreement
• Work contract

Before the start of the cooperation

Certain agreements can be concluded before the start of the cooperation, which foreshadow the subsequent cooperation. Such an agreement can be a so-called NDA (non-disclosure agreement). Its basic aspects should be:

• A basic definition of the project: it is necessary to clearly specify which project or which activities are covered by the agreement. The definition should be specific enough so that both parties are clear about what exactly is covered by the NDA.
• Definition of confidential information: Confidential information should be defined as broadly as possible to minimize the possibility of unauthorized disclosure.Examples of confidential information should be specified, such as technical documents, business strategies, client lists, etc. The scope should cover all relevant information that may be shared within the project.
• Contractual penalty: setting a penalty for breach of contract provides an incentive for the other party to maintain confidentiality. Calculate it in an amount sufficient to take into account the potential damage caused by the leak, or negotiate potential damages separately. Also consider setting different levels of fines depending on the severity of the breach.
• Identify who may have access to certain information: It is important to clearly define who has access to confidential information, including employees, subcontractors and third parties. It is also a good idea to define approval processes for sharing information with new project participants.

When concluding a contract, we do not recommend using contract templates downloaded from the internet. Their defects are unlikely to become apparent when the contract is drawn up and signed, but only in the event of a breach of the confidentiality agreement and possible legal disputes, by which time it may often be too late.

Which contract should I choose for cooperation?

There are several types of contracts that can be used to define the actual course and content of the collaboration, such as a collaboration agreement, a work contract, and in certain circumstances a licence agreement. An employment contract also remains a classic option.

Be careful especially if you would cover your relationship with a cooperation agreement, but in reality it would be a disguised de facto employment relationship. In such a case, the “employer” can be fined up to CZK 10 million and banned from work for up to two years, and the working individual who agreed to this form of agreement can be fined up to CZK 100,000.

Beware of the scam system!

There is an unethical practice in the labour market known as the “shvarcsystem”, which is a special form of illegal employment. This method consists of a company ‘hiring’ people operating under a trade licence, who then invoice the company for their services as if they were the company’s client. In reality, however, these people are working under the conditions usual for normal employees, which includes various disadvantages typical of employees, such as limited flexibility, but without the usual benefits such as paid holidays or notice periods.

This type of employment allows the employer to avoid the responsibility of paying health and social security, which reduces the company’s costs. A person working under a shvarcsystem is formally a sole trader, but in reality does not operate as a sole trader.

To avoid disguised illegal activity, beware of the following elements of your collaboration:

• The remuneration is determined by the employer’s rate, not by the contractor’s price list,
• the contractor has a single customer,
• the contractor uses the customer’s tools (business phone, computer),
• the customer requires the supplier to perform the work personally,
• the supplier appears to third parties as an employee,
• the work is typically performed in an employment relationship,
• it is a continuous relationship, not a casual one,
• the pay periods of employees and self-employed workers coincide,
• The self-employed person does not put any resources into his/her activity except for the work itself,
• Self-employed workers are provided with similar benefits as employees.

However, the existence of only individual elements does not automatically imply a quasi-cyst. Typically, there is an accumulation of several points.

Cooperation Agreement

The cooperation agreement itself is a so-called unnamed contract, its specific requirements are not found in the Civil Code. However, from the nature of the contract, certain necessary components can be identified :

• Definition of the parties: this point is the cornerstone of every contract. It states who the parties involved in the contract are and ensures that they are clearly identifiable. The name of the parties should not be missing, or the name of the company and contact details (address, phone number, email).
• Definition of the subject of cooperation: This point specifies the main purpose of the contract. It must clearly define what the subject of the cooperation is, e.g. provision of services, supply of goods, exchange of information, etc.
• Basic conditions of cooperation: This includes important aspects such as scope of work, time frame, exclusivity and other specific requirements. For example, the contract may stipulate that the supplier must not provide similar services to competitors.
• Liability: Here it is necessary to define what responsibilities each party has and in which situations. This defines the extent to which the tradesman is responsible for the quality of the services provided and the consequences of any errors or delays.
• Payment terms: these define how and when the cooperation is to be paid for. This may be payment based on hours worked, tasks completed, or payment may be phased. A detailed description of the payment terms helps prevent disputes over finances.
• Liquidated damages – Used in the event that either party fails to meet their obligations under the contract. This item is key to ensuring compliance with the contract and often acts as a deterrent to non-compliance.
• Methods of termination: this is where you need to specify how the contract can be terminated early, including conditions for unilateral termination, agreement by both parties or in other specific circumstances. This section should also include information on what happens to outstanding obligations after termination.

Licence agreement

Alicense agreement is typically used for the use of an item of intellectual property (e.g. music, graphics, etc.). A variation of a licence is an exclusive or non-exclusive licence. Exclusive means that the owner of the intellectual property right is not allowed to grant a licence to a third party, which is usually more advantageous to the customer. It is advisable to explicitly negotiate the possibility of interference with the work, so that the client is not solely dependent on the original author of the work.

Contract for work

The contractor undertakes by this contract to carry out the work at his own expense and risk for the client and the client undertakes to accept the work and pay the price.

Typical for this contract is:

• independent work,
• independence of the contractor,
• the acquisition of the work at the contractor’s own expense and risk,
• the result is the execution of the work,
• payment.

More detailed information can be found in our video

We would like to thank APEK – Association for Electronic Communication for their cooperation.