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How to smoothly end an independent contractor relationship

Sometimes partnerships or contractor agreements must end due to issues with the quality of the work, a change in your business needs or a reduced budget for outsourced services. Oftentimes, these contracts are with freelancers who have been around for years. Maybe they’ve even been invited to your company’s holiday party. How can you successfully separate from these individuals while causing the least amount of turmoil?

This article will support you through the process of ending your working relationship with a longstanding independent contractor, helping you:

  • Communicate and address any performance issues
  • Understand the legal risks of ending a freelance contract
  • Apply HR best practices when terminating a contractor agreement

Try resolving problems first

Your independent contractor may not be a W-2 employee, but they are human, and you should attempt to resolve any issues before moving to contract termination – much like you would with a regular employee.

For example, if a full-time employee’s communication or performance were off, you would probably take them out for lunch and discuss the issue, getting it out in the open. You would try to find a resolution and continue working together. If you’re in this situation with an independent contractor, it doesn’t hurt to pay them the same respect and try to work out your stylistic or communication differences.

This approach isn’t just best practice from the human perspective. Consider the business needs; it costs time and money to find someone to replace this individual, even as a 1099 worker.

It’s good practice to know the potential impact on your company’s bottom line before raising issues with a contractor. Ask yourself:

  • Is this issue really important?
  • Does it affect the end result of the product or service that this person is providing?
  • Is my concern so important to address that it would actually impact the result?

If the answers are no, the resolution could be figuring out how you can resolve the problem without ending a relationship. From both the human and business perspectives, the right thing could be waiting to resolve minor issues until a project is finished, setting a meeting to discuss the issue or even looking at the problem from a new perspective and deciding it’s not as huge you once thought. All of these are good to consider before moving to end your relationship with an independent contractor.

If you’ve determined it’s time to end a contractor relationship, regardless of whether there are problems with the person’s performance, there are legal factors to consider before proceeding.

Again, independent contractors who have provided services to your business are self-employed, so you cannot terminate their employment as you would a W-2 employee. Instead, ending a contractor relationship involves terminating the professional services agreement and statement of work between your company and the contractor.

For this reason, as long as you have correctly classified your independent contractor, labor laws do not apply to your relationship with this individual. However, you are responsible for honoring the terms of your agreement under contract law, which will help you avoid a breach of contract lawsuit.

Specifically, you’ll want to review your original agreement with the independent contractor to understand and carefully follow any:

  • Termination provisions – Under what conditions can the agreement be terminated?
  • Notice provisions – How many days’ or weeks’ notice must be given to legally terminate the agreement?
  • Payment terms – How many days or weeks do you have (after the contractor submits a final invoice) to pay for services performed up to the time of the agreement’s termination?

Before you begin the process of terminating a contractor relationship, reach out to your legal counsel. Their guidance will be especially important to you if:

  • Any aspect of your agreement is unclear
  • There is no written agreement
  • You wish to dispute the final payment

Seeking clarity on the legal aspects of terminating a freelance contract helps you honor your agreement with this individual and minimize your risks.

Terminating a contractor agreement: HR best practices

When it’s time to communicate with a contractor about ending your professional relationship, make it your goal to treat this person like you would a W-2 employee in the same situation. This is best practice because:

  • All people want to feel respected and valued for their contributions – regardless of their employment status.
  • Professionals for hire are often well-connected to other freelancers doing similar work, and they might share a negative experience with their network.

So, here are ways you can show consideration at the end of a freelance contract.

  1. Give adequate notice of at least two weeks, or up to 30 days, when possible (ensuring you follow any notice provisions in your professional services agreement).
  2. Gently remind the contractor of any agreement terms regarding intellectual property and works made for hire.
  3. Notify all internal employees and customers who worked with the contractor.
  4. Provide an opportunity for goodbyes appropriate for the length and nature of the contract relationship (e.g., card from the group, lunch, etc.).
  5. Offer resources, providing a:
    • Contact in your accounting department for questions about tax filing
    • Contact for requesting files they could use in their professional portfolio
  6. Volunteer to recommend the contractor on LinkedIn or to leave a review on a freelance website.
  7. Leave the door open to work together again in the future if appropriate.

Applying HR best practices, even when terminating a freelance contract, extends your employer of choice reputation beyond the workforce you traditionally employ.

Summing it all up

Graciously closing out a significant independent contractor relationship involves:

  • Making a sincere effort to resolve issues
  • Honoring your agreement with the individual
  • Treating the contractor with the same consideration that you would an employee

Regardless of pay style or structure, people want to be valued. When you follow HR best practices while working with independent contractors, you communicate that you’re an organization that honors work contributions of all kinds. Get the insight you need to manage your people more proactively. Download our complimentary e-book now: 7 Most Frequent HR Mistakes and How to Avoid Them.