Chapters of the article
What do we understand by the term “cooperation contract”?
In business, you may also come across other names for a cooperation agreement – most commonly a framework cooperation agreement or a framework contract. The Civil Code imposes requirements for each type of contract, without the negotiation of which the contract cannot be considered valid. As far as business relations are concerned, they may regulate and define the content of the contract and the related rights and obligations differently from the Code. The same applies to a cooperation agreement for self-employed persons. Even this slight benevolence often results in insufficiency and the problems associated with it. On the other hand, this is precisely the reason why this type of contract is so sought after.
What should an external cooperation contract contain?
Every contract should answer the basic questions = who enters into the contract, what is the subject matter, how, when and where the performance will be provided and at what price. But let’s specifically focus on the main points of a self-employed collaboration contract and discuss what you should not forget.
1. Definition of the contracting parties
While this is a complete primer, we must mention it. In practice, we encounter that some cooperation agreements contain shortcomings already in this point. In every cooperation agreement, specify who the parties are. If the contract is concluded with a legal entity, its identifiers should not be missing (company name and form, registered office, company ID number, VAT number, representative person, registration in the commercial register). A cooperation agreement for self-employed persons does not have to be bilateral – several persons can be involved at the same time.
Ideally, it should also be signed by the statutory representative listed for the legal entity in the commercial register. Otherwise, in the event of a problem, there is a risk of a dispute over the person’s authority to sign such obligations at all.
2. Subject of cooperation
This is a key part of the framework agreement and is often relied upon in any disputes. The cooperation should therefore be defined as precisely as possible. In this case, it is advisable to think carefully and in detail about every detail. A broadly agreed upon subject matter increases the liability of the trade contractor and it is sometimes advisable to stick to a more detailed specification only in the specific order. However, this is not the rule. While there are many free templates for collaboration agreements floating around the internet, using them could end up costing you a lot of sleepless nights. They can never contain a precise definition of the subject of your cooperation.
3. Basic terms of cooperation
To minimise problems, it is advisable to specify the individual steps that will lead to the fulfilment of the subject of the agreement. Do not forget to specify the necessary activities of both parties. This also entails the other obligations that all parties involved have towards each other. Most often, the contract specifies what must be done before the start of the cooperation or at its termination (for example, the ongoing protection of confidential information). It is also advisable to stick to “reporting”, especially when remuneration is based on performance. The supplier should then be able to verify, for example, the number of contracts won to which it has contributed through its marketing activities. This is especially true for various types of affiliate cooperation.
Every business cooperation contains an element of legal liability for the services or other performance supplied. Clearly define where the liability of the freelancer as supplier extends and where the liability of the client as recipient begins. This boundary is very individual for each contractual relationship and we certainly do not recommend underestimating it. We often encounter cases in legal practice where unclear definitions cause significant legal problems. In particular, we recommend paying close attention to the regulation of contractual penalties, see below.
5. Payment terms
Payment terms must also be set out as precisely as possible. In the external cooperation contract you should regulate how your cooperation is evaluated. Does the client pay for the time you spend working for them, or are you remunerated for finished products or services? In case your cooperation lasts for a long time, it is also necessary to set up regular payment terms (for example, by bank transfer on the 20th of the following month or on the basis of an invoice). In the case of a one-off cooperation, it is possible to agree on an advance invoice on the basis of which the client pays the agreed amount in advance.
In some collaborations you can also agree on a performance fee. In this case, be sure to mention the rule according to which the bonus will be paid or provide a link to the detailed specification of this bonus.
Tip: Have you been left with unpaid invoices due to poor payment terms? Read our article on how debt recovery works.
Most of our clients only resolve the contract after problems
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6. Contractual penalties
For cases of breach of contractual obligations, which are relatively common, it is necessary to negotiate contractual penalties. Remember that the contract should provide for penalties for both (or possibly all) parties involved. Most often, we encounter contracts where penalties are remembered only for the client.
There should be penalties for unpaid invoices (e.g. a fraction of a percentage of the amount due for each day of delay), late delivery of services or unjustified and premature termination of cooperation.
7. Termination of the cooperation contract between self-employed persons
Before starting a collaboration, consider how long you plan for the contract to last. Whether you opt for a fixed-term or an open-ended contract, be sure to clearly specify the notice period or the conditions for immediate termination of the contract (cases where the services provided are not paid for or the contractual performance is not delivered). Do not forget that the contract should set out the methods of withdrawal for all parties involved.
However, sometimes the contract continues and nothing “happens” under it, i.e. in particular no invoicing takes place, even in these situations we recommend formally terminating the contract.
8. Further and final provisions
Quite often you will have to resolve the issue of non-misuse of the information, patents or licenses provided. Either you can write the treatment of these directly into the self-employed person’s cooperation agreement, or you can use a secondary provision in the form of a non-disclosure agreement. To get all the important information, read our article on NDAs or what to look out for when entering into a non-disclosure agreement.
The final provisions are then the same as any other contract. State:
- how the contract can be amended or supplemented,
- how many copies of the contract are made,
- how the contract can be terminated (if not defined in the termination clause of the cooperation contract),
- the declaration of the parties to the contract that it has been concluded after free expression of will.
Quick checklist before signing the cooperation agreement
- Check that all facts are stated in the contract in sufficient detail and clarity.
- Do not rely on free templates of the cooperation agreement and define the subject of the cooperation as precisely as possible.
- Clearly define the responsibilities of each party.
- Spend enough time to define the payment terms – the amount, the method of payment, specifying bonuses. This section should include setting regular payment terms or advance invoice terms.
- Verify that the contract provides for penalties for breach of contractual obligations for both parties. As well as the terms for termination of cooperation.
Cooperation contract “abused” by the scarcity system
For a long time now, many employers have been resorting to a cooperation contract between self-employed workers instead of a traditional employment contract in order to save on social security and health insurance contributions. However, the “shvarcsystem”, as this phenomenon is called, is not a standard relationship between two independent entities in the role of supplier and customer. Their cooperation has the characteristics of an employment relationship.
What are the classic features of a shvarcsystem?
- There is a relationship of superiority and subordination between the cooperating parties (the boss is clearly in charge).
- The work is carried out on behalf of the employer, who is responsible for it.
- The employer’s resources (e.g. laptop) are used for the work.
- The work takes place during set working hours at the employer’s workplace.
If your collaboration shows the features above, it could be classified as a shvarcsystem. It should be noted, however, that the State Labour Inspection Office always assesses the specific situation = it evaluates the concluded cooperation agreement, assesses superiority/subordination and other parameters of work performance.
Both parties pay for the shvarcsystem
The Inspectorate can impose fines of hundreds of thousands to several million crowns on the employer, which can be increased by the retroactive assessment of tax and insurance contributions. However, even an employee who works under an IČO will not avoid the penalty. He or she may be fined up to CZK 100,000.
How to avoid the shvarcsystem?
It is important to maintain a purely business-like relationship when doing business and to avoid the characteristics typical of the roles of employee and employer. A good cooperation agreement can help with this.
If you are working on an ICO for a client, you should ideally make your own decisions about working practices, not be in a subordinate role to the client and do the bulk of the work at your own or a neutral workplace. Not all of these criteria need to be met, of course, and as mentioned above, a well-set up collaboration agreement will help to reduce the risk. However, one of the most important features is that you will be working for other clients, even on smaller jobs, and that the main client will not fully restrict you from doing such work. However, it is important to say that as long as you are not deliberately operating a shvarcsystem , you have nothing to worry about.
If you are not sure that your cooperation agreement is legally in full order, use our services. Just submit it online and you can have it checked within 48 hours.