Steps to Protect Yourself with Freelance Contractors

After having dealt in my practice with issues related to the use of freelance contractors through popular crowd sourcing websites, I’d like to share lessons I’ve learned in regards to how to better protect yourself when utilizing freelance contractors on crowd sourcing websites.

The use of crowd sourcing sites such as Elance, Guru, Amazon’s Mechanical Turk, TaskRabbit, or InnoCentive are becoming increasingly popular with businesses of all types, including startups, to handle a wide variety of tasks, from website design to data mining to handing out flyers to even brainstorming solutions to strategic problems. While using crowd sourcing sites can be cost-effective for startups and small businesses, there are a few issues business owners should be cognizant of when utilizing crowd sourced freelance contractors.

First, crowd sourcers should be sure to draft and have freelancers agree to an outline of the project requirements, goals, and deadlines; if at all possible, institute mechanisms to monitor the progress of the project to either ensure its completion or catch and correct issues when they first arise. As with any transaction, you should put everything (the goals, conditions, deadlines, etc.) in writing — the terms of service of many crowd sourcing sites require disputes between employers and freelancers to be arbitrated through the site, so having everything in writing will help you in the event you have to arbitrate a dispute.

Second, where your project involves the creation of intellectual property it is important to ensure that ownership of the IP is settled to the parties’ satisfaction. Where intellectual property is created by independent contractors, the contractor is the owner of the IP unless the parties execute a “work-for-hire” agreement that clearly states that the employer is the owner of all the IP. This can be particularly necessary where a freelancer is contracted to develop a website with unique features for a business — the business may wish protect the unique features through process patents if possible, or establish them as trademarks or trade dress. But unless the business firmly secures those IP rights through a work-for-hire agreement, the web developer may turn out to be the actual owner of that IP and can use it in future projects.

Finally, and perhaps most importantly, you should avoid paying all or part of the purchase price until a particular milestone or the project as a whole is completed to your satisfaction. Many crowd sourcing sites hold the purchase price in escrow for the parties and have policies that once escrow funds are released they cannot be clawed back. If a business feels it is owed released escrow funds back, it will likely have to resort to the courts. In that case, it may be difficult to locate a freelancer — as a practical matter, it may be impossible to file suit against some freelancers if they are located overseas — and in my personal experience, crowd sourcing sites are reluctant, for whatever reason, to help employers locate freelancers. Be sure that your written agreement with freelancers has clear standards for completion (try to avoid vague standards like “to the employer’s satisfaction”) that you can point to in the event a freelancer insists on payment before completion.