"Almost Lost the Company Due to One Line in the Contract"
IT startup company A faced a hefty insurance bill as the retroactive application of four major insurance premiums was triggered by specifying work hours in their freelance developer service contract.
Due to the specification of office hours, the freelancer was deemed an employee, leading to a back pay burden for two years of insurance premiums.
Design agency B included an exclusivity clause in their freelance designer contract and had to pay a severance payment of 20 million won. This became a case where the designer was legally recognized as an employee, leading to additional liabilities for severance pay and annual leave allowances.
Beauty company C omitted a copyright clause in their contract with a freelance designer, leaving the freelancer owning all design outcomes, and the company unable to utilize the work.
The freelancer asserted copyright and filed a lawsuit to prohibit the use of the results, forcing the company to overhaul its entire brand identity, causing substantial losses.
To avoid such situations, it is crucial to scrutinize freelance contracts as thoroughly as regular employment contracts.
A single line in a contract can determine the fate of a company.
This article provides detailed insights into the know-how and methods for avoiding legal risks in drafting freelance contracts that small business owners and practitioners must be aware of. Templates for recommended clauses and self-assessment checklists are provided.
📃 Must You Write a Freelance Contract?
Why Verbal Agreements Are Never Enough
Many companies hire freelancers with verbal agreements due to the simplicity of tasks or acquaintanceship. Often, they ask the freelancer to draft the contract and merely sign it without thorough review.
However, this practice is highly risky. If the contract is sloppy, you will be defenseless if a dispute arises.
When a freelancer claims, "I effectively worked as a staff member," and demands insurance coverage and severance pay, there is insufficient evidence to refute. In fact, many times the Labor Office recognizes employee status with merely verbal agreements.
Three Protections Provided by a Proper Contract
To minimize risks, consider the following three aspects when drafting a freelance contract:
Prevention of Employee Status Recognition: Demonstrate that there is no employment relationship through clear scope of work and contract terms
Prevention of Intellectual Property Disputes: Clearly define the ownership and usage scope of the deliverables
Protection of Trade Secrets: Secure legal grounds to respond to confidential information leaks
😮💨 The Hefty Burden Companies Face if Freelancers Are Recognized as Employees
Additional Costs Incurred Upon Recognition of Employee Status
If a freelancer is determined to be an employee, the company must bear the following retrospective costs:
Retroactive Application of Four Major Insurance Premiums
National Pension: 4.5% of monthly salary (employer’s share)
Health Insurance: 3.43% of monthly salary (employer’s share)
Employment Insurance: 0.65~0.85% of monthly salary (varies by industry)
Industrial Accident Insurance: 0.3~3.4% of monthly salary (varies by industry)
Severance Pay and Various Allowances
Severance Pay: If employed for more than 30 days, average salary × days worked ÷ 365 × 30 days
Annual Leave Allowance: Monetary compensation for unused annual leave
Weekly Holiday Allowance: Average daily salary if worked over 15 hours per week
Overtime Allowance: 50% surcharge for overtime beyond legal working hours
💸 How Much Is the Actual Burden?
If a freelancer earning 3 million won per month is recognized as an employee after working for two years:
Retrospective insurance premiums: Approximately 5.2 million won
Severance Pay: Approximately 6 million won
Annual leave allowance and others: Approximately 2 million won
Total Additional Burden: Approximately 13.2 million won
Plus, delay interest and fines during litigation could exceed 20 million won.
Criteria for Employee Status Recognition According to Supreme Court Precedent
The Supreme Court judges employee status based on the following four criteria:
Degree of direction and supervision during performance of work
Constraints on work hours and locations
Nature of compensation (in return for service)
Whether integrated into the employer’s business
If any of these are met, there is a high chance of being recognized as an employee.
Clauses to Avoid When Drafting Freelance Contracts
TOP 5 Risk Clauses for Employee Status Recognition + How to Amend Them
1. Specification of Commute Hours
❌ Risky expression: "Commence work by 9 AM and finish by 6 PM daily."
✅ Safe expression: "Schedules can be adjusted through negotiation as necessary for work performance."
2. Exclusivity Clause
❌ Risky expression: "Cannot contract with other companies during the contract period."
✅ Safe expression: "Discuss in advance any tasks that may conflict with this project."
3. Detailed Method of Job Instruction
❌ Risky expression: "Submit daily work reports and obtain manager’s approval."
✅ Safe expression: "Periodically share project progress."
4. Regulations on Leave and Annual Days
❌ Risky expression: "Leave must be used with prior approval."
✅ Safe expression: "Adjust rest days within the scope that does not disrupt project schedules."
5. Performance Evaluation and Personnel Assessment
❌ Risky expression: "Conduct quarterly performance evaluations to decide on contract extensions."
✅ Safe expression: "Examine the quality of deliverables upon project completion."
👉 Are You Concerned Whether Our Company’s Contracts Are Safe? Check Risks with AI
💡 Prevent Copyright and Intellectual Property Disputes This Way
"Are You Taking All the Deliverables?" Actual Dispute Cases
Case 1: Logo Copyright Dispute Restaurant franchise company D commissioned an external designer to create a brand logo. Due to the absence of copyright transfer clauses in the contract, six months later the designer demanded a monthly logo usage fee, causing D to replace all signboards and packaging, incurring a loss of 35 million won.
Case 2: Source Code Leak Incident Fintech startup E outsourced app development. After completion, the developer moved to a competitor and leaked the core code. The absence of intellectual property clauses made legal action difficult, necessitating redevelopment from scratch.
How to Specify Copyright Clauses
1. Clarification of Ownership of Deliverables All creations (designs, texts, images, source codes, etc.) produced under this contract will have their copyrights and intellectual property rights transferred to party A (the client company) upon project completion.
2. Defining Portfolio Usage Scope Party B (the service provider) may use project deliverables only for portfolio purposes and cannot reuse them for commercial purposes or sell them to third parties.
3. Rights to Create Secondary Works and Distribution Party A has exclusive rights to create, modify, and distribute secondary works based on the contractual outcomes.
4. Detailed Clauses by Industry
Design Sector
Provide original file (AI, PSD, etc.) and font information of the final draft
Offer high-resolution files for printing and low-resolution files for web use
Cooperate with future design modification requests
Development Sector
Transfer all source codes and database schemas
Provide development documents and API specifications
Commit to technical support and bug fixes for six months
Content Creation Sector - Transfer copyrights for all written texts
Provide license information of images and videos used
Include metadata for search engine optimization
🔒 Protect Confidential Information with Trade Secret Protection Clauses
"Sold Client Lists to Competitors" Real Case of Confidentiality Breach
Beauty Company F: Leaked and Sold Customer DB to Competitors
Cosmetics distributor F granted marketing freelancer access to customer database. After contract termination, the freelancer sold the client lists to competitors, resulting in a loss of 30% of key clients and annual revenue reduction surpassing 800 million won. F sued the freelancer, but the company was on the decline amid ongoing litigation.
📍 Perfect Confidentiality Clause [Template]
1. Specific Definition of Confidential Information Scope
Confidential information includes but is not limited to:
Customer lists, contact information, purchase history, etc., regarding customers
Product prices, costs, profit rates, and other sales-related information
Technical documents, design plans, process diagrams and other technical information
Business plans, marketing strategies, and other management-related information
Any other information classified as proprietary
2. Obligation of Protection and Usage Limitation
Party B is mandated to protect confidential information as follows:
Prohibit use for purposes outside the scope of this contract
Prohibit disclosure, reveal, or transmission to third parties
Ensure immediate return or disposal upon contract termination
Prohibit storage or copying onto personal devices
3. Compensation Clauses for Breach
In case of leakage, Party B is liable for compensation as follows:
Direct damages: revenue loss, replacement costs, etc.
Indirect damages: reputation drop, opportunity losses, etc.
Legal expenses: lawsuit costs, attorney fees, etc.
Penalty: three times the contract amount or 100 million won, whichever is greater
4. Duration of Effectiveness
This confidentiality clause remains valid for five years post contract termination, with no time limit for information requiring permanent protection per industry conventions.
✍️ In-line AI – AI Assistant for Creating Risk-Free Contracts
In-line AI learns from extensive precedents and contract templates to automatically complete freelance contracts in standard formats to minimize risks from the employer’s standpoint.
It can also detect harmful clauses in existing contracts and create tailor-made formats to suit your company’s needs.
Complete a Safe Contract in 5 Steps with In-line AI
Step 1: Diagnose Existing Contract Risks
Upload the currently used contract
AI automatically detects clauses posing employee status recognition risks
Instant comprehension with danger level color coding
Step 2: Select an Industry-Specific Customized Template
Specialization by industry such as design, development, marketing, content, etc.
Ensure safety based on standard forms by the Ministry of Employment and Labor
Adjust details per company size and project nature
Step 3: Auto-generate Key Clauses
Copyright transfer clauses: Industry-specific tailored wording
Confidentiality clauses: Protection scope considering work characteristics
Compensation clauses: Set appropriate penalty levels
Step 4: Real-time Risk Checks
Immediate warning for risky phrases during drafting
Automatic alternative phrase suggestion
Provide legal grounds and case information
Step 5: Final Review and Completion
Check missing essential clauses
Confirm content for mutually contradictory issues
Output in Hangul, Word, PDF formats
Actual User Reviews
Kim ○○ CEO (Design Agency) "Visiting lawyers for each freelance contract was too cumbersome, now resolved in 10 minutes with In-line AI. Especially reassuring automatic generation of copyright clauses by industry!"
Park ○○ Practitioner (IT Startup)
"I was shocked by AI diagnostics on existing contracts, so risky! Found seven clauses posing employee status recognition risks. Now we check each time using AI!"
✅ Freelance Contract – Risk Minimization Self-Diagnosis Checklist [Free Download]
Employee Status Prevention Checkpoints
☐ Prohibition on specifying commute hours
☐ Remove exclusivity clauses
☐ Avoid detailed job instruction methods
☐ Prohibit inclusion of leave/annual day regulations
☐ Remove performance evaluation items
☐ Prohibit providing fixed workspaces in the company
☐ Prohibit exclusive use of company equipment
Copyright and Intellectual Property Protection Checkpoints
☐ Clear transfer clause for deliverable ownership
☐ Specify portfolio usage scope and conditions
☐ Secure rights to create secondary works
☐ Clause for transferring original files and source codes
☐ Set obligations for technical support and maintenance
☐ Obligation to provide license information
Confidentiality Protection Checkpoints
☐ Clear definition of confidential information scope
☐ Restrictions on usage purpose and scope
☐ Clause prohibiting third-party disclosure
☐ Obligation to return/dispose after contract termination
☐ Set scope for compensation in case of breach
☐ Specify duration of effectiveness
☐ Clause prohibiting storage on personal devices
Other Essential Checkpoints
☐ Contract term and extension conditions
☐ Specification of work scope and deliverables
☐ Terms and timing for payment
☐ Conditions and procedures for early termination
☐ Methods of dispute resolution (competent court, etc.)
☐ Basis for contract interpretation
☐ Special provisions and appendices
Do Not Stress Over Freelance Contract Disputes Any Longer
A single freelance contract can determine the fate of your company. But now, there’s no need to worry.
With In-line AI:
⚡ Complete a safe contract in 10 minutes
🛡️ Zero risk for employee status recognition
📋 Auto-generate custom clauses suited to the industry, company
💰 Save over 90% on attorney fees
🔒 Protect confidential information with perfect security
No longer fret over sleepless nights due to a contract, bear exorbitant attorney fees, or tremble with legal risks.
Utilize In-line AI now to create the perfect freelance contract for your company.
Time, cost, and labor risks can be significantly reduced.
👉 Create a Freelance Contract in 3 Minutes with In-line AI
✅ Start for free
✅ Guaranteed expert-quality reports
✅ Available 24/7
