Service Agreement

What is a Service Agreement?

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.

What is the difference between a Service Agreement and an Employment Agreement?

An Employment Agreement is another way that workers may be hired in Australia. An Employment Agreement is used when workers are hired as employees whereas a Service Agreement is used for hiring workers as contractors.

The difference between an employee and a contractor is based on many factors, and no single factor is determinative. Simply using a 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:

• whether the worker can subcontract/delegate the work
• whether the worker provides their own tools and equipment
• whether the worker is paid for the time worked, or based on a quote for the result achieved (eg a quote for the painting of a room)
• the amount of control that the worker has - whether the worker can choose their own hours or location of work, and what sort of control the business has over how the work is performed
• who is responsible for mistakes in the work - whether the worker has to rectify mistakes at the worker's own cost, or whether the business is responsible for any mistakes in the work

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. We also have a legal guide called What's the Difference Between an Employee and an Independent Contractor? which also addressed this matter in more detail. Please also see the "Applicable Law" section below, and consider getting legal advice if further information is required.

What is the difference between a Service Agreement and a Freelance Agreement?

A Freelance Agreement and a Service Agreement are quite similar, although they are each suited to slightly different situations.

A Service Agreement is a broad contract used between a client and a service provider, detailing the services to be provided, terms of service, payment details, and other conditions related to the delivery of services. It's commonly used in various industries and can involve both ongoing and one-time services. The service provider can be an individual person, but it is often a company (such as a landscaping company or a plumbing company).

On the other hand, a Freelance Agreement is more specific, typically used for individual professionals (such as freelance writers, computer programmers, graphic designers or consultants) who offer their skills on a project basis. This type of contract outlines the scope of a single project or series of projects, delivery deadlines, payment for work completed, and the independent status of the freelancer, emphasising the temporary or project-based nature of the relationship without implying employment.

Is it mandatory to have a Service Agreement?

No, it is not mandatory to have a written Service Agreement, but it is highly advisable to have one. Having a written Service Agreement helps ensure that the parties are in agreement about the services that are being provided and the terms under which they will be provided. It also helps protect the interests of the service provider and the customer and helps them to enforce their rights if an issue arises.

Who may enter into a Service Agreement?

Companies or individual people can enter a Service Agreement.

To enter into a Service Agreement, a person should be aged 18 or older and should have the mental capacity to understand what they are doing.

What is the duration of a Service Agreement?

A Service Agreement can be for:

• A fixed timeframe: for example, two months of work.
• A one-off project: for example, painting a house, estimated to take 3 weeks, but the service provider will keep going until the project is finished.
• Indefinite: for example, a bookkeeper could provide their services to a company every month.

What has to be done once a Service Agreement is ready?

Once the Service Agreement has been completed it should be signed by both the service provider and the client, and 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.

Which documents should be attached to a Service Agreement?

Once a Service Agreement has been prepared, the parties may add any relevant attachments to it. It is not mandatory to attach anything in particular but in some cases it can be helpful to attach relevant documents such as quotes, job proposals, photographs, sketches or other similar documents that add further information about the services.

Is it necessary to have witnesses for a Service Agreement?

No, witnesses are not mandatory for a Service Agreement, but they are useful for evidentiary purposes. If there is ever a dispute over the Service Agreement, witnesses can help to prove that each party's signature is valid.

Witnesses should be independent adults (aged over 18), who have the mental capacity to understand what they are doing. They should not be related to one of the parties.

How does Australian Competition Law affect Service Agreements?

If the parties are dealing with any intellectual property, then they may need to consider whether their agreement is going to be affected by Australian competition law. If the parties are not dealing with any intellectual property, then this might not be relevant to them.

Starting on 13 September 2019, some amendments to the Competition and Consumer Act 2010 (Cth) ("CCA") may impact many intellectual property arrangements in Australia. In particular, the CCA prohibits some conduct which is considered "anti competitive" or "cartel conduct". Prior to 13 September 2019, section 51(3) of the CCA provided an exemption for some matters involving licensing or assignment of intellectual property. This meant, for example, that conduct involving licensing or assignment of intellectual property, which might otherwise be considered "anti competitive", might have been permitted.

However, starting on 13 September 2019, with the repeal of section 51(3), those matters involving licensing or assignment of intellectual property may no longer be permitted. The legislation places significant obligations on the parties, and its implications may be quite broad. There is also potential for this legislation to affect some conditions which may be common in many traditional intellectual property arrangements. The penalties for breach of these laws are also very high.

Therefore, if the parties have any concerns at all about whether or not they are going to be affected by these laws, they should strongly consider obtaining legal advice. Further information about the changes is available on the website of the Australian Competition and Consumer Commission.

What must a Service Agreement contain?

A Service Agreement should include the following information:

• Parties: The full legal name of the service provider and the client.
• Services: A clear description of the services to be performed.
• Payment terms: A clear description of how much the service provider will be paid as well as how and when they will be paid.
• Termination: Details of how the agreement may be terminated by either party.
• Dispute resolution: Information about what the parties should do in the case of disagreement.

Which laws are applicable to a Service Agreement?

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.

How to modify the template?

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.