Firing a Contractor With a Contract
Firing a contractor with a contract is an event that may be necessary if they are not meeting the requirements of the job.3 min read
Firing a contractor with a contract is an event that may be necessary if they are not meeting the requirements of the job. While a company has the right to fire an employee, they cannot fire independent contractors in the same way. Since independent contractors are not considered employees, they are not subject to labor laws and are instead bound by the terms of their contract. Even though an independent contractor is under contract, if they fail to live up to their agreement, there is an option to fire them.
Things to Know When Hiring an Independent Contractor
You should never hire an independent contractor without having a clearly defined written agreement in place that provides specifics on the performance requirements. There are some things to remember when drafting an agreement with an independent contractor:
- Include language in regards to the termination of service process, especially the ability for either party to terminate unilaterally for cause.
- Since the IRS maintains a distinction between an employee and independent contractor, you need to make sure that a contractor is not treated as an employee especially in regards to tax liability.
- Never treat a termination lightly, there are some industries, such as construction, that actually allow liens to be filed against a property.
- Always make sure the language is geared toward an independent contractor, not an employee. It is important to keep this distinction throughout the term of the contract.
If a job is not up to your performance standards and you feel the need to terminate a contractor, it is also good practice to double-check your reasoning to ensure that it will not bring about any costly repercussions. If you wrongfully terminate a contract, you could be held liable for damages.
Reasons to Terminate a Contract
There are both good and bad reasons to seek out the termination of a contract with some of the most common reasons being:
- The contractor is unable or incapable of completing the contract.
- The contractor absconds from his/her duties or otherwise leaves the project.
- The contractor states that he/she will no longer be bound by the terms of the contract.
- Fraud is committed during the project.
- Nonpayment by the owner or contractor.
- Nonperformance by contractors or subcontractors.
- Poor timeliness of the performance.
- A lack of communication.
- The inability to get along.
You should be cognizant of possible unforeseen problems or delays that are unavoidable, such as weather delays or material shortages. These are considered normal delays and should not be reasons for terminating a contract. If the delays are due to lack of labor and you go for days or weeks without hearing from your contractor, it should be cause for concern.
One of the most common reasons given for terminating a contract is poor or faulty performance, though this reason can sometimes backfire. When proof of performance occurs, the contractor will need to be given ample time to try to remedy the defects before you can legally terminate the contract.
What to Know About Filing a Termination Notice
In the event terminating a contract is necessary, there are some issues that should be considered and procedures that should be followed before the termination notice is issued.
- If the performance has bond coverage, then the surety provider should be notified, and they can encourage the contractor to fix the default. The surety has the right to take over the project, pay the owner for liability, or replace the contractor with a new one. Carefully review the terms of the surety before attempting a cancellation.
- If you intended to send a termination notice, it is advisable to first get an expert's evaluation to see the status of the project and record the current condition in the event it goes to litigation. They can advise you on what defects may be correctable as well as provide an unbiased opinion of the state of the project.
- If the contract falls behind due to a lack of due diligence, then the other party should notify the contractor in writing of their concerns and request a modified completion date. If the contractor fails to respond to the first letter, then a second letter should be sent saying it a reasonable deadline cannot be met, you will have no choice but to terminate the contract.
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