Though an oral agreement can be legally binding, you're better off drafting a formal contract for work agreements. A well-crafted contract protects your rights and can clarify expectations for both parties. After you've written your contract, ask a legal service or a contract lawyer to review it. It costs you a bit extra, but it helps ensure that your contract is valid.
Contract Basics and Structure
Identify each party in the contract by full legal names. If you're dealing with a business, be sure to put the proper suffixes – such as "LLC" or "Inc" – when you identify them. If you're working as an independent contractor or an employee, identify yourself by your legal name. If you're a business or have a DBA, include your business legal name.
Nolo.com recommends that you structure the contract to have short numbered paragraphs. There's no magic to this structure; it just adds clarity and makes the contract easier to read. Label the contract – for example, "Contracting Agreement Between X and Y," date it and include a space at the bottom for both parties to sign and date it.
Contract Details and Terms
In the contract, be specific about the scope of work services and product you're going to render and the time period for doing so. If you offer a certain number of revisions or free consultations with your product, include that information as well. Mention when the buyer is obligated to render payment and what the charges or wages are to be. Clarify who is liable for payroll taxes and whether bonuses are to be offered.
Note whether the client or employer needs to pay for work expenses, like mileage, work tools and supplies. If it's an employment contract, it should note the employee's job title and description along with any employment benefits.
Read More: What is Contract Law?
Detail when each party can choose to terminate the contract and what the specific procedures and time period is for doing so. For example, you could say "Either party can terminate this contract with 30 days' notice to the other party." If it's an employment contract, note what wages are to be paid, if any, for accrued vacation and paid time off upon termination.
Although it may be uncomfortable to discuss, you need to include clauses and provisions for what happens if things go wrong. Discuss whether a client is liable for payment or a "kill fee" if the project is canceled after you've started work. Include how any disputes are to be resolved, either by arbitration, mediation or a court of law. If you're located in a different state than your client, decide which state's laws govern the contract.
Use ordinary, clear language throughout your contract. Avoid "legalese" and business jargon. The contract is there to help you settle disputes in the event that the parties do not agree on a specific provision – you want to leave no room for wild interpretations of the language. A contract that contains ambiguities or contradicts itself is not helpful and might even be harmful, causing problems if you ever need to enforce its terms through the courts.
Updates and Changes
Your contract isn't necessarily set in stone. Things can change in the course of a business relationship, and it's okay to change the terms of your contract. You can do this by revising the contract or adding an amendment. After writing in the amendment, both parties must initial any added information and sign and date the contract for a second time.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.