Freelance contract: what the company should secure

Most guides on freelance contracts are written from the freelancer's perspective. But what about the company that hires the freelancer? What should you as a business owner or purchasing manager secure in the contract before the work begins?

Using freelancers gives flexibility and access to specialist skills. But without a good contract you risk losing the ownership of what you pay for, creating an unintended employment of the freelancer, and being left with a dispute you cannot win.

This guide is for businesses and SMEs that regularly use freelancers, consultants and self-employed people.

The first and most important risk: IP rights

Who owns what the freelancer makes for you? It depends on the contract.

The starting point in Danish copyright law

The starting point in the Copyright Act is that the author owns the rights to what they create. Employees are an exception, here the rights often pass to the employer (for example, the copyright in computer programs created by an employee passes automatically to the employer). Freelancers are not employees, so the starting point is that the freelancer owns what they produce.

This means that without an explicit assignment clause you can risk having paid for something you do not own. You have received a right to use the result, but the freelancer can potentially place limits on use, changes and further transfer.

What the contract must say about IP

Your contract should contain a clear clause that:

1. All rights are transferred to you (or your company) on payment
2. The transfer covers all forms of use, including changes, further transfer and commercial exploitation
3. The transfer applies globally and without time limit
4. The freelancer warrants that they have the right to transfer these rights (that is, they have not used third-party material without permission)
5. The freelancer waives moral rights (the right to be named and the right of respect) to the extent Danish law allows. Note that moral rights under the Copyright Act can only be waived for a use defined in nature and extent

Example clause:

"All rights, including but not limited to copyright, ownership of software and other intellectual property rights to the Deliverables the Consultant produces within the scope of this agreement, are transferred to the Client fully and finally on payment of the agreed fee. The transfer applies globally and without time limit and includes the right to change, redistribute and commercially exploit the Deliverables."

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Freelancer or employee? The legal line

It is not you and the freelancer who unilaterally decide whether the relationship is freelance or employment. The tax authorities and the courts assess the relationship on the actual circumstances, not the heading of the contract.

The consequences of misclassification

If the tax authorities assess that your "freelancer" is in reality an employee, you as the business can be required to:

• Pay back A-tax and labour-market contribution
• Pay interest and possibly a fine
• Potentially be liable for missing holiday pay and other employee rights

This is a risk regardless of what you have written in the contract.

When is there a risk of "hidden employment"?

Weight is given, among other things, to:

• Right of instruction: Do you decide in detail how and when the work is done?
• Exclusivity: Does the freelancer work only for you?
• Integration: Is the freelancer practically integrated into your business, with fixed meetings, a fixed workplace and the company's equipment?
• Risk: Does the freelancer have a real business risk, or are they guaranteed payment regardless of the result?
• Breadth: Does the freelancer serve only one customer, or do they have an actual customer portfolio?

The more the control and integration resemble an employment relationship, the greater the risk of misclassification.

What you can do to minimise the risk

• Define deliverables and deadlines, not working hours and processes
• Let the freelancer use their own equipment and work from their own premises (where possible)
• Avoid exclusivity clauses that prohibit the freelancer from working for others
• Make sure the freelancer has a CVR number and invoices you, this is not a guarantee, but a signal of business status
• Consider result-oriented payment rather than a pure hourly rate (an hourly rate is still lawful for freelancers)

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The confidentiality clause (NDA) in the freelance contract

Freelancers get access to your business's confidential information: customers, product plans, technology, strategies. A confidentiality clause (NDA) limits the freelancer's ability to pass on or exploit this information.

What the NDA in a freelance contract should cover

• A definition of confidential information (broad but precise, not "everything we do not want published")
• The duration of the confidentiality, typically 2 to 5 years after the agreement ends; for actual trade secrets it can be unlimited
• What the information may not be used for (competing business, recruiting your employees, etc.)
• What is not confidential (information that is publicly available or known before the collaboration)
• The consequences of a breach, a contractual penalty and/or liability for damages

Many businesses simply insert the confidentiality clause directly in the freelance contract, and that is sufficient for most situations. A separate NDA is mainly relevant if the confidentiality obligation is to be established before the contract itself (for example in connection with an initial discussion).

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Description of deliverables and the approval process

One of the most frequent causes of disputes in freelance relationships is unclear expectations about what is to be delivered. Your contract should define:

The deliverables precisely

• What exactly is to be delivered? (Specific output, not "help with our website")
• In what form? (Format, technical specification, number of versions)
• To what standard? (Use examples or references if possible)

The approval process

• Within what deadline do you give feedback after delivery?
• How many rounds of corrections are included in the price?
• What happens if you do not respond within the deadline?

A clear approval process prevents "scope creep", the gradual expansion of the task beyond what was agreed, and gives both parties clear expectations.

What happens on delay

• What are the consequences if the freelancer delivers late?
• What are the consequences if you delay the delivery with missing feedback?

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Payment and invoicing terms

In freelance relationships, disputes rarely arise about the size of the fee, but frequently about when and how payment is made.

Payment plan

Define clearly:

• The payment model (fixed price per project, hourly rate, milestone-based)
• The invoicing interval (monthly, at a milestone, on delivery)
• The payment deadline (typically 14 to 30 days net from the invoice date)
• What happens on late payment (interest under the Interest Act, possibly suspension of the work)

Expenses and travel

Is the freelancer expected to incur expenses? Agree in advance:

• Which expenses can be reimbursed
• Requirements for documentation (receipts)
• Any cap on expenses

Disputes about invoicing

Agree a clear procedure for what happens if you dispute an invoice. Without a procedure, disagreements can easily escalate.

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Limitation of liability: what is the freelancer liable for?

A professional question many businesses overlook: what can you actually claim in damages if the freelancer makes a mistake?

Professional liability

A freelancer who delivers defective results can as a rule be held liable for the documented loss. But this requires that:

• The fault is the freelancer's responsibility (not your missing specification)
• You can document an actual loss

Limitation of liability in the contract

Many freelancers and consultants try to insert limitation-of-liability clauses, typically with a cap equal to the total fee for the assignment.

As a business you should:

• Make sure the cap covers the potential risks of the assignment (critical code and a marketing text have different risk profiles)
• Exclude gross negligence and intentional errors from the liability cap
• Require the freelancer to have professional liability insurance if the assignment is risky

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What happens when the contract ends?

The contract should govern what happens on termination:

Return of materials

The freelancer must return all confidential material, passwords and data.

Data handling (GDPR)

If the freelancer has processed personal data on your behalf, GDPR's rules on processors apply. You must have a data processing agreement, and at the end of the agreement the freelancer must delete or return the personal data.

Non-solicitation of employees

Should the freelancer be prohibited from recruiting your employees after the collaboration ends? Consider a clause, typically 12 months from the end of the agreement.

Handover and documentation

At the end of long collaborations, the freelancer should hand over documentation, code comments, guides and other knowledge necessary for a new resource to take over.

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Checklist: what the freelance contract must contain (the company's perspective)

• A precise description of deliverables with deadlines
• An IP assignment clause: all rights to the company
• A warranty from the freelancer of the right to transfer rights
• A confidentiality clause (NDA) with a suitable duration
• Payment, invoicing interval and payment deadline
• The number of correction rounds included in the price
• The freelancer's status as self-employed (avoid signals of employment)
• Limitation of liability and any requirement of liability insurance
• A GDPR data processing agreement (if the freelancer processes personal data)
• Non-solicitation of employees at the end of the agreement
• A procedure for disputes (choice of law, venue)

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Frequently asked questions

Can a freelancer claim holiday pay?

No, as a rule not. Holiday pay is tied to an employment relationship. The freelancer is self-employed and handles their own holiday. The risk only arises if the relationship is reclassified as employment.

What does it cost if we do not have a written contract?

You risk lacking proof of the agreements made, about deliverables, IP, payment terms and confidentiality. Oral agreements are in principle valid but very hard to document in a dispute.

Can we use the same contract for all freelancers?

A standard contract is a good starting point, but always adapt the description of deliverables and the terms to the specific assignment. The IP clause and the confidentiality clause can as a rule be reused.

Can we include a non-compete clause in the freelance contract?

Yes, it is possible to impose a non-compete clause on freelancers. As the freelancer is not an employee, the Employment Clauses Act as a rule does not apply; the clause is instead assessed under section 38 of the Contracts Act and must not be unreasonable or extend further than necessary.

What is the difference between a consultancy agreement and a freelance contract?

In reality they are the same, both govern the delivery of work by a self-employed person for payment. "Consultancy agreement" is typically used for B2B relationships with established businesses, while "freelance contract" is used for individual self-employed people. Legally the structure is the same.

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Conclusion

As a business that uses freelancers, you depend on the content of the contract, not just good dialogue. IP assignment, confidentiality, the description of deliverables and tax status are the four areas that most frequently cause problems. Use a proper standard contract as a starting point, adapt it to the assignment, and make sure to sign before the work begins. It is a cheap defence against expensive disputes.

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The content of this article is for guidance only and does not constitute legal advice. Consult a lawyer for advice on your specific situation.