Preventing and managing disputes

Most of the time contracting work goes smoothly but sometimes things go wrong. Getting the contract right at the start of your business relationships will mean fewer problems down the track. A written contract is a better way to achieve this than a verbal contract.

Whether your contract is verbal or written, if you agree to provide a service to a hirer for money, you have entered into a contract. You are promising to do a job for the hirer and the hirer is promising to pay you. But unless you have proof to show what was agreed at the beginning of the business relationship, you may not be able to challenge it successfully later on. A written contract will give you and the hirer much greater certainty and clarity than a verbal contract. This is because a verbal contract depends on understandings and recollections about what was agreed.

Read information on Negotiating a contract before entering into a contract as an Independent Contractor.

How to manage disputes that arise

Many of the problems you have as an independent contractor can be solved simply and quickly by considering the hirer's point of view and giving the hirer time to consider your point of view.

But sometimes things get more complicated and a problem can turn into a dispute. Often disputes are about things that affect your business bottom line, such as unpaid invoices, disagreements about the quality of the work or a clause in the contract.

Depending on your concerns, your options may include:

  • having an informal discussion
  • negotiating
  • sending a late payment reminder letter.

Before taking any action, consider the following:

Identify the problem

If you think that something is unfair or not right with your contracting arrangement, it is important to understand what the problem is and how it affects your relationship with the hirer.

Check your facts

If you have a written contract, the first thing for each of you to do is to read it carefully. This may help you understand the problem more clearly and get your facts right before you take any action. There may also be a dispute resolution clause in the contract that needs to be followed. Many independent contracting arrangements use verbal contracts, or part verbal/part written contracts. While risky, these contracts are just as valid as a written contract if there is proof of what was agreed. For example, you may have supporting paperwork that forms part of the contract. If the dispute becomes serious, this paperwork may be used as evidence in court.

Examples of supporting paperwork for verbal contracts include:

  • an email that confirms what was agreed
  • a list of specifications
  • a quote with relevant details about materials, timeframes etc.
  • any notes about your discussion—for example, the basics of your contract might be written on the back of an envelope (whether signed by both of you or not). Written contracts help reduce the risk of a problem turning into a dispute.

Could there be a misunderstanding?

There may be some facts, background or current circumstances that you don't know about so it often pays to give the hirer the benefit of the doubt before you take any action. In the same way, it often pays for the hirer to give you the benefit of the doubt before taking action.

Example: how a problem can arise from a misunderstanding

Lachlan signed a contract with Maria to clean the offices of Rekall Ltd for seven hours each Saturday. Maria came into the office on Monday and was upset to find that her office had not been vacuumed. Maria assumed that Lachlan hadn't cleaned any of the Rekall offices and so did not pay the next invoice he submitted.

Lachlan hadn't cleaned Maria's office on that Saturday because he had spent extra time cleaning up another room in Rekall's offices where there had been a company party on Friday night. He didn't tell Maria what had happened as he assumed she knew about the party. He was therefore surprised when Maria did not pay his next invoice. The problem clearly arose from a misunderstanding. If Lachlan and Maria sit down and discuss the situation they will be able to resolve their problem without having it escalate into a dispute.

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