A Guide to Human Resources Consulting Agreements
In a business, "human resources" (HR) refer to the people who work for and provide services to that business. A human resources consulting agreement is a contract between a business and a person or company to provide HR services to the business. Depending on the business, these services may include:
By outsourcing these services to a consultant, the business can delegate HR tasks that can be time-consuming or require specific training or expertise that are not available at the business.
Not all companies choose to enact a consulting agreement with a highly developed scope of performance for all human resource functions. For example, some may choose to limit the consulting agreement to the review and evaluation of their current HR programs and policies . Generally speaking, such agreements usually offer the same limited services, which may include:
Because human resources functions have such expansive breadth and depth, depending on the size and needs of the business, any consulting agreement should include clear scope clauses defining in detail the obligations of the parties under the agreement.
The parties involved in a human resources consulting agreement are the Company and the Consultant, or two companies. When these parties do not have diverse interests, it may make sense for them to instead enter into a human resources services agreement. Like any other services agreement, the human resources services agreement will provide a more general statement of work without the need for an exhaustive and comprehensive scope definition clause or document.
Essentials in a Human Resources Consulting Agreement
Before signing any HR consulting agreement, both parties should understand its critical components. First and foremost is the scope of work, which outlines the exact services the consultant is going to provide. The specifics will differ from case to case, but a comprehensive list should include each service itemized by timeframe. Longer-term projects might include milestones along the way so the client knows when a certain stage in the work has been achieved. The length of the contract is another key component. If the project does not have an end date, the agreement should clearly state how either party can terminate it. Without termination terms that are agreeable to all, a consultant might find him- or herself locked into an unhappy client relationship, or vice versa. In addition, the contract should contain payment terms including payment frequency and the method of payment, such as invoiced and payable within a certain amount of days. Payment terms should also address reasonable expenses or reimbursement costs the consultant might incur in the course of doing business. If the consultant will be working remotely, travel reimbursement, such as mileage or train fare, is a common provision. The agreement should also contain a clear confidentiality clause, unless all confidential information will be immediately available to the public for some reason. This clause should explain what consists of confidential information, the length of time the information will remain confidential, and guidelines for how the consultant must keep this information secure.
Legal Implications of an HR Consulting Agreement
In the rapidly evolving world of human resources, a well-crafted HR consulting agreement can provide companies with the agility they need to adjust their human capital strategies. However, these agreements must be carefully constructed to offer protection and clarity to both parties, particularly on crucial legal matters.
One important legal consideration is compliance with federal and state regulations. An HR consulting agreement should stipulate that the consultant will comply with all relevant labor laws, equal employment opportunity regulations, wage and hour laws, and antidiscrimination statutes. Compliance clauses can protect your organization in the event of a legal challenge and ensure that the consultant understands the legal framework within which they must operate.
Liability issues are another critical concern in HR consulting agreements. Many times, HR consultants are not employees of the companies they serve, so the agreement should establish liability limitations that cover wrongful and negligent acts committed by the consultant. This provision can help protect your company from lawsuits stemming from the consultant’s actions, while also ensuring that the consultant is responsible for their own misconduct.
Dispute resolution clauses are equally important for HR consulting agreements. In the event of a disagreement between the consulting firm and your business, it’s always a better situation when you’ve agreed to an effective means of addressing disputes. One of the more commonly used means of dispute resolution is mediation, which costs less than litigation or arbitration and resolves arguments efficiently. However, your business should evaluate the potential pros and cons of the different methods – including litigation, in case you have to address a potential legal challenge from a third-party – and select the one that best suits your particular needs.
Benefits of a HR Consulting Agreement
While a verbal or handshake agreement is often sufficient to kick-start a working relationship between a business and a human resources consultant, entering into a formal contract will help ensure that the terms and scope of the relationship are well-defined. A well-drafted consulting agreement serves as a framework for the relationship between the parties, and can help clarify any ambiguities related to the role (if multiple consultants are being retained or if the same consultant is working with more than one business), as well as any expectations either party may have during the working relationship, including scope of services, deliverables, time frame, compensation and confidentiality obligations.
From a risk-management perspective, having a written agreement in place that is executed by both the business and the consultant offers concrete protection on how a dispute will be resolved (e.g., through arbitration or other alternative forms of dispute resolution) and which district court will have jurisdiction in the event efforts to resolve the dispute through other means fail. Because human resources consulting services frequently involve sensitive information, such as employee records and employment-related documentation or indicating the possible termination of an employee who has instigated a harassment complaint, it is essential that confidentiality provisions address these concerns.
Finally, a written agreement outlining standard terms, such as indemnification obligations and liability limitations, lessens the prospect of costly litigation and the stress of litigation. It can also help reassure the business that the consultant will be held accountable should anything go awry and provide the consultant with some peace of mind by protecting him or her against claims that fall outside the scope of the services being provided.
Mistakes to Avoid with HR Consulting Agreements
A variety of errors can occur when attempting to draft a Human Resources Consulting Agreement. The following are among the most common mistakes we see:
• Ignoring State, Federal and Local Laws – Business owners often think of employment law as a State concern and that all laws are the same for every State. However, the laws that are applicable to any particular engagement can vary quite a bit from State to State and even within a State. It’s important to ensure you not only get a draft from your attorney but also have those clauses specifically reviewed once the agreement is revised after negotiating with the consultant. Furthermore, local laws must also be reviewed and considered carefully, especially in Cities and Counties with mandatory, conflict-of-law protections.
• Exclusivity – Don’t forget to also confirm exclusivity, if that is what you are requiring. Don’t get too hung up on the specific language but ensure that all clauses are clear and that there is no room to misinterpret the obligation of the consultant.
• Prior Agreements – You may think that you are simply executing a new agreement with a consultant or recruit but this is an important opportunity to ensure that all prior agreements are understood and that the most up-to-date Memorandum of Understanding and similar agreements are being entered by the Parties. Do not let the relationship proceed under an assumption that all prior agreements remain in effect until all prior agreements are expressly modified or terminated in the new agreement.
• Non-Compete Agreements – These are popular , but often cause more trouble than they are worth. If the agreement contains an overbroad non-compete, and you don’t want to follow through, then it must be modified immediately and on an ongoing basis with the help of legal counsel until the agreement is memorialized and becomes effective. If a more challenged agreement becomes effective, then it will be hard to change it without a risk of estoppel and major liability.
• Contract Terms – Are you really looking for a three (3) year term, or a thirty (30) day term? It’s easy to get carried away and want to force your consultant into a three (3) year term that they never intended. When a particular consultant is handpicked by a business, there should be no concern over a short-term term of agreement.
• Confidentiality Clauses – How well do you know your consultant? They may have no intent to misuse your goods and services, but sometimes that isn’t good enough. Instead, an agreement should require a preemptive limit on their ability to share trusted information. This probably goes without saying, but if something can be misused, it will be.
• Non-Duplication Clauses – If you already have experience and quality controls in place, don’t insist on the new company duplicating your systems and protocols. Work together with the consultant to find a way to implement what they already do and scale to your needs.
Drafting a HR Consulting Agreement
When drafting HR consulting agreements, there are numerous important considerations. Employers should educate themselves about the basic elements of these agreements, so that they do not overlook something unexpected or unanticipated.
Generally, a consulting agreement will include some variation of the following terms: scope of services, compensation, term and termination, ownership of deliverables, indemnification and limitations on liability, confidentiality, non-compete, return of property, dispute resolution and governing law. In addition to those topics, a valid HR consulting agreement will also have an effective liability limitation clause which protects the consultant from excessive exposure beyond a mere breach of contract. Consideration should also be given to including a provision that waives the jury trial right for any disputes under the agreement.
In light of the considerable amount of information an effective HR consulting agreement may contain, it is important to customize the agreement based on the situation at hand. A consulting agreement should include any special terms or conditions specific to the nature of the consulting project. For example, if the consultant will be working with sensitive data, additional provisions regarding data security should be added. If the consultant is a retired or former employee, the agreement should address whether the consultant will have access to the key staff, customers or information that the consultant previously worked with while an employee.
The employer’s legal department or outside counsel should review any draft HR consulting agreement before it is signed.
The Role of a Legal Professional in a HR Consulting Agreement
Legal professionals play a critical role in drafting Human Resource consulting agreements. Many organizations attempt to navigate these agreements without benefit of legal help. This is a mistaken choice as legal professionals are in the best position to identify the issues, avoid pitfalls, and protect the interests of their clients. In the absence of sound legal guidance, client companies and consultants frequently end up having disputes over triggers, allegations of breaches, and post-service harm and mitigation obligations.
The ability to review and assess a client company’s standard consulting agreement is a first step in identifying issues likely to arise in practice. Often the standard consulting agreement is based on similar agreements across the company and fails to cover the unique aspects of the subject engagement. The first consultation with a client company often reveals failure to address scope of work, integration of non-HR content, intellectual property ownership , and other issues unique to the subject engagement.
In the event that a dispute arises over an HR consulting agreement, proper negotiation can often avoid litigation, but licensed and experienced legal counsel should graciously decline to represent the client in any litigation with a consultant. If it is determined by the parties that litigation is appropriate over an HR consulting agreement, the use of legal professionals ensures that all aspects of the litigation will be handled competently, thoroughly, vigorously, and ethically. Sometimes the appeal of litigation lingers even when a dispute can be resolved through negotiation, because the elements of the case simply have not fully crystallized through negotiation. For this reason, matters of threshold jurisdiction, preclusion, discovery, disclosure, arbitral ethics, and appeals can be "interesting," difficult, and morally complex.
The field of HR consulting law is an ever-evolving area of practice that encompasses a wide variety of topics, including labor and employment, contract law, intellectual property rights, and governance.