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A Service Agreement is a contract which governs the sale of services. It can be used by any person or organisation which sells services. Some common examples include people or organisations involved in trades such as building, plumbing, painting and electrical work as well as cleaning services, gardening, coaching, personal training, consulting and professional services.
The Service Agreement will set out the exact scope of work, as well as timeframes for completion of work, payment terms and dispute resolution mechanisms.
While Service Agreements simplify the process for resolving disputes, they also prevent many disputes from arising in the first place. They do this by forcing the parties to discuss the key elements of the arrangement up front. Some parties may not use a written service agreement, thinking they have reached an agreement verbally or "on a handshake". However, in many cases they fail to discuss a crucial element - such as when payment is due, where materials are to be purchased, or who is to pay for materials. If these issues are not addressed up front, they can lead to costly legal disputes when they are eventually discovered.
Contractor v Employee
People or businesses using this document may need to consider the difference between a contractor and an employee. This Service Agreement enables a service provider to be hired as a contractor. This is different from an employment contract, which would enable the service provider to be hired as an employee.
The difference between an employee and a contractor is based on many factors, and no single factor is determinative. Simply using this Service Agreement is not enough to convert an employee into a contractor. Instead, the courts will look at the entire arrangement, and decide whether the service provider is working within the business, as part of the business (like an employee) or whether the contractor is running their own business (like a contractor). Some common considerations include:
It is against the law for a business to incorrectly treat a worker as a contractor when they should be treated as an employee. In doing this, the business will be neglecting its various obligations such as payment of superannuation and employee entitlements. There can be significant penalties associated with this.
Further information is available through the Australian Taxation Office, the Fair Work Ombudsman or business.gov.au. Please also see the "Applicable Law" section below, and consider getting legal advice if further information is required.
How to Use This Document
This Service Agreement can be set up to deal with either an ongoing arrangement for provision of services, or a one off project.
In either case, the more details that can be provided regarding the various details of the arrangement, the more likely it is that disputes will be prevented. Some important details to be considered include:
- description of the work to be performed
- how it will be determined that the work is complete
- when payment will be released
- how the agreement may be terminated
- what parties should do in the case of disagreement
Service providers should provide a new Service Agreement every time they undertake a new project, although a "project" may be ongoing indefinitely, (eg on call maintenance work). A separate Service Agreement will also need to be provided to every different client.
The Service Agreement will be legally binding when it has been signed by both the service provider and the client, and has been dated. Both the service provider and the client should keep a signed copy of the Service Agreement. In order to do this, two different copies can be signed, or one copy can be photocopied and then distributed between the parties.
The Fair Work Act 2009 deals with the question of whether a worker is a contractor or an employee. Further information is also available via the website of the Fair Work Ombudsman.
The Independent Contractors Act 2006 deals with independent contractors. It deals with issues such as unfair contract terms.
If service providers are providing services directly to the public, then the Australian Consumer Law may also be relevant.
In some industries, additional legislation may apply. For example, contractors who work in the building industry may need to consider industry specific legislation that addresses such issues as licensing and staging payments. Likewise, contractors who work for a franchise may need to consider specific franchising legislation.
In addition, general principles of contract law, as provided by the common law, will also apply.
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