When getting into a professional relationship where you exchange time and skills for money, it’s considered good practice to have a signed and dated agreement that outlines what’s to be expected of you and your client.
The main reason for this is to remove surprises, eliminate expectations and instead have explicit commitments both parties are onboard with. This gives the project the best chance at being completed to everyone’s standards.
Whether you call it a service agreement, contract or terms of business it can include details like:
- the price of the project and payment terms
- delivery dates
- the deliverables you’ll provide
- number of revisions
- requirements around client sign-off, assets etc
- who owns the copyright
- the scope of work
- rules around terminating the agreement
So what is breach of contract? If any of these key factors are accidentally broken, like you miss the delivery date and this causes a delay for the client, you’re now in breach of contract and damages can be claimed.
In most cases breaching the contract is innocent and doesn’t undermine the outcome of the project. It can be down to underestimating the scope or external factors causing havoc.
Some clients are understanding and a solution can be reached. Other times—depending on the nature of client, what’s at stake for them and severity of the breach—there can be consequences. In extreme cases this can involve a client trying to recover damages from you.
A quick note on the different types of breach of contract
I don’t want to get too bogged down on the different types of breaches, but throughout this blog post we’ll either be talking about a partial breach or a material breach.
A partial breach is minor and may not impact the outcome of a project negatively since these are small issues that can be rectified. A material breach is serious and means the contract can be terminated. With serious breaches the client usually tries to recover damages from the freelancer because there’s been a failure to perform the contract’s key terms.
Breach of contract examples
We’ve reviewed our claims data over the past 9 years to find recurring themes behind breach of contract. Here are the most common causes.
Breach of contract due to project delays
It’s no surprise that project delays are the number one reason freelancers breach their contract. Project delays can happen for many reasons. Scheduling issues, underestimating the scope, clients failing to provide deliverables on time, scope changes when the project is underway…
Where the project is delayed the client can find themselves:
- hiring additional help to get the project back on track
- losing out on expected income
- missing an important launch date, where they’d invested money on PR or a launch event
If the client believes they’ve lost out on business or have incurred additional expenses because of the delay, they may try to recover these costs from you. Many freelancers mistakenly believe the ‘damage’ is limited to the fees they receive for their work, but that’s not true.
Breach of contract due to the scope not being completed
This is especially common with technical roles like software engineering where projects change as things develop, or working with a non-technical client leads to misunderstandings around scope. However, we’ve seen it happen to marketers and designers, too.
You begin the project with a defined scope, but the client starts asking for work or features that aren’t included in the original document. Large-scale scope changes cause all sorts of friction, but if the client feels you haven’t completed the brief they can accuse you of breach of contract.
Having a clearly defined scope and a contract can help you build a defence. That’s precisely what your insurance is for, but nothing can stop the client from pointing their finger at you in the first instance.
Breach of contract due to ending the project early
There are lots of reasons why a freelancer may wish to end their involvement in a project. Most commonly we find the:
- Relationship with the client has suffered
- Workload has been underestimated
- Freelancer is suffering from burnout
- Scope has significantly changed since first accepting the role
To avoid any conflicts around this, a clearly defined termination clause should be included in your contract or any contract you sign… but we find that this isn’t usually the case. Not enough projects have a blueprint to follow ensuring both parties know what to expect in the event either of you want to stop working together.
Not having a termination clause can cause issues because—if you choose to stop working on the project prematurely—you’re now at risk of breaching the contract.
Breach of contract around intellectual property infringement
If you misuse your client’s intellectual property like target market, suppliers, database rights and customers this can lead to a breach of the terms. Intellectual property covers a broad range of elements including copyright, trademarks, domains and business data.
With technical roles like engineering, intellectual property can extend to the code that’s been written and with creative roles it can extend to the designs. Who owns the IP should be outlined in the contract, but we have seen instances where an argument has arisen around rights.
Breach of contract due to violating the NDA
The last example we’ll use is where the freelancer has accidentally shared sensitive client data, subsequently breaking the non-disclosure agreement they signed. This can be something as simple as including work in their portfolio that was meant to remain private, but it can be more serious where trade secrets have been violated.
We’ve also seen accusations of breach of contract where a freelancer has started working with another party that would be classed as as competitor and now the freelancer is being accused of breaking the NDA.
Remedying breach of contract
Let’s be clear. Even if you do everything right and feel there has been no violation, there is nothing to stop the client from placing blame with you and sometimes their accusations are baseless. This is why insurance is so important (we’ll come to that later).
Here are some best practices to follow to minimise breaches.
Where possible, have clients enter into your contract. You are clear on what your terms are so there is less chance of you unintentionally breaking the contract. If the client is adamant you must enter into their contract, consider having a professional review the terms to highlight any red flags. If this isn’t feasible, set aside time to read the client’s terms with particular focus on key details like termination guidelines, ownership and rights.
Project management is an art. This is the root of so many problems so get processes in place to ensure you don’t underestimate the scope or deliver work overdue. This course on project management from SuperHi is a worthy investment.
Encourage sign-off at every stage. It means we can combat “I’m not happy with this, it’s not what we asked for” by highlighting the client signed off on it. Put the onus on the client. It also means we can get on top of any dissatisfaction before it develops into something bigger.
Some breaches are minor and may not result in a loss for the client, but where there’s a material breach that’s had a serious impact on the project the client could pursue damages.
When an infringement happens, depending on the nature and severity you may want to:
- notify the client a breach has occurred with steps to resolve it. Don’t admit liability or invite any action against yourself because this can invalidate your insurance. The intention should be to flag the issue but reassure the client it has now been resolved or steps are being taken to fix it
- seek legal advice from the legal advice helpline. It’s useful speaking to an impartial third-party and understand if you’re handling something the right way, plus they can assist with the correct terminology to minimise liability. You can get access to this kind of help through your legal expenses insurance or your IPSE membership
- notify your insurers. If it’s a serious breach it’s a good idea to notify your professional indemnity insurer even if the client hasn’t indicated they’ll be taking any action. Insurers like to be notified at the first inkling of a mistake
How insurance can help remedy breach of contract
Most professional indemnity policies include cover for breach of contract, but the keyword is unintentional. The cover hinges on you accidentally breaking the terms.
Here’s an example that wouldn’t be covered. You have a deadline to hit in 2 weeks but decide to book a last-minute holiday and switch off from work. The deadline comes and goes without your final deliverables, which has serious consequences for the client.
Since you’ve made a choice to step away from work knowing there’s a commitment to deliver work, it would be impossible to build a defence for you. In this case it wouldn’t be covered since it doesn’t meet the definition of unintentional.
For any valid claims where the breach is accompanied with the client trying to recover damages, your insurer will:
- review communication between your client and you, specifically where the client has alluded to the breach
- seek to understand what elements of the contract have been violated, if any
- understand the loss for the client (the loss the client is claiming and the actual loss can be very different. Legal teams are good at picking up on these discrepancies)
- negotiate with the client around what damages they’re owed
- pay the agreed fee to the client, less your policy excess which you would be responsible for
The final figure for damages will depend on how good a defence the insurer has been able to build for you. This comes back to whether the breach has actually happened, if it’s a minor or material breach and what the consequences have been for the client.
Every situation is different but the bottom line is, if the breach has been unintentional and you have professional indemnity insurance then you’re in good hands.
What we’ve learned
We’ve learned that failing to perform the terms of the contract results in a breach, but that there are partial breaches (minor issues that can be rectified) and material breaches (the contract can be terminated and damages brought against you).
Infringing your contract is most commonly down to project delays or scope issues.
You can minimise risk by having clients enter into your contract, sign-off at every milestone and become a master of project management.
When a breach occurs you’ll want to notify the client with steps you’re taking to resolve things. However, don’t admit liability or invite a claim against yourself. You may also wish to speak to your insurer to obtain legal advice and notify them of a circumstance that may give rise to a claim.
If there’s a valid claim your insurance can help you defend it and settle any compensation.
