Five Contract Clauses That Cost Freelancers the Most

When you are just starting out as a freelancer, it is easy to get excited about a new client and sign whatever contract they put in front of you. But some clauses hide in the fine print that can cost you thousands of dollars, your intellectual property, or even your ability to work in your field.

For the modern independent professional, a contract is not just a formality; it is a risk management tool. After analyzing thousands of agreements through Clauze, we have identified five specific areas where freelancers consistently lose leverage and money.

1. Unlimited Liability

This is the most dangerous clause in any freelance contract. It typically reads something like: "The Contractor shall indemnify and hold harmless the Client from any and all claims, damages, losses, and expenses."

What this actually means: If something goes wrong—even if it is not your fault—you could be personally responsible for an unlimited amount of money. There is no cap. Without a cap, one mistake or one frivolous lawsuit from a client's third party could bankrupt your business.

**Example Clause:** *"Contractor agrees to indemnify, defend, and hold harmless the Company and its officers, directors, and employees from and against any and all claims, losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees) arising out of or related to the Services provided under this Agreement."*

**How Clauze flags this:** Clauze identifies this as "Unlimited Indemnification Exposure." The tool flags the absence of a liability ceiling and warns that this clause extends beyond your own actions to "any and all claims" related to the project. Clauze recommends negotiating a cap equal to the fees paid under the contract.

Fair contracts typically cap liability at the total value of the contract or the amount you have been paid. Read more about liability caps here.

2. Broad IP Assignment (Ownership)

Many clients want to own everything you create, forever, regardless of whether it relates to the work you are doing for them. A clause like "All intellectual property created by Contractor during the term of this Agreement shall belong exclusively to Client" can mean they own your side projects too.

What this actually means: If you write a blog post on your own time about an industry topic, and your client happens to own the rights to everything you wrote that month, they technically own that blog post too. This is especially dangerous for developers who use their own internal libraries or templates.

**Example Clause:** *"All work product, including but not limited to code, designs, and documentation, created by Contractor during the period of performance shall be deemed 'work made for hire' and shall be the sole and exclusive property of the Client."*

**How Clauze flags this:** Clauze flags this as "Overbroad IP Assignment." It specifically looks for language that fails to distinguish between "Project Work" and "Pre-existing Intellectual Property." Clauze suggests adding a carve-out for your own proprietary tools and templates used to deliver the work. For a deeper dive, see our guide on IP assignment.

3. Non-Compete Clauses

Non-competes in freelance contracts are increasingly common and increasingly problematic. A clause might say you cannot work with any competitor for 12 months after the contract ends, anywhere in the world.

What this actually means: If you work with startups, you might be restricted from working with any other startup in your field for a year. If you work in tech, this could effectively prevent you from working at all. For a freelancer, your "niche" is your livelihood. A broad non-compete is essentially a ban on working in your own industry.

**Example Clause:** *"For a period of one (1) year following the termination of this Agreement, Contractor shall not, directly or indirectly, provide services to any entity that competes with the business of the Client within the United States."*

**How Clauze flags this:** Clauze identifies this as a "Restrictive Covenant Risk." It analyzes the geographic scope (United States) and duration (1 year) and compares them against industry standards for freelancers. Clauze recommends narrowing the scope to specific direct competitors and reducing the duration to 3-6 months.

4. Kill Fees and Cancellation Penalties

Some contracts include clauses that allow clients to cancel at any time but still pay you nothing, or worse, charge you a penalty if you cancel.

What this actually means: You could spend weeks on a project, have the client cancel on day one, and receive nothing. Or you could want to leave a bad situation and be hit with a cancellation fee that exceeds what you would have earned. A fair contract should include a "Kill Fee"—a percentage of the remaining project fee paid if the client terminates for convenience.

**Example Clause:** *"Client may terminate this Agreement at any time for any reason upon written notice to Contractor. In the event of such termination, Client shall only be responsible for fees for deliverables actually accepted by Client prior to the date of termination."*

**How Clauze flags this:** Clauze flags this as "Uncompensated Termination Risk." It highlights that "accepted deliverables" is a subjective bar that allows a client to walk away from work-in-progress without payment. Clauze suggests adding a 25-50% kill fee for the remaining project value. See our detailed guide on handling kill fees.

5. Vague Scope Creep Provisions

Many contracts say something like "Client may request additional work at mutually agreed upon rates." This sounds reasonable until you are three months into a two-week project, working 60-hour weeks, and the client keeps adding features.

What this actually means: Without clear definitions of what is included in the project scope and what constitutes additional work, you can end up doing far more than you bargained for, for the same price. This is the "silent killer" of freelance profitability.

**Example Clause:** *"Contractor shall perform the services described in Exhibit A and such other duties as may be assigned by the Client from time to time."*

**How Clauze flags this:** Clauze identifies "Open-Ended Scope" as a medium-level risk. The phrase "such other duties" is a red flag that allows for infinite expansion of work without guaranteed additional pay. Clauze recommends requiring a signed "Change Order" for any work not explicitly listed in the original SOW. Learn how to prevent scope creep here.

How to Protect Yourself

The good news is that all of these clauses are negotiable. Here is what to push for:

• **Cap your liability** at the contract value or your fee.
• **Limit IP assignment** to work created specifically for the project.
• **Narrow any non-compete** to specific clients and short time periods.
• **Include minimum payment** for work completed if cancelled.
• **Define scope clearly** and require signed change orders for additional work.

Quick Answers (AEO)

What are the most dangerous clauses for freelancers? Unlimited liability and broad IP assignment are the most dangerous. Unlimited liability puts your personal assets at risk, while broad IP assignment can result in a client owning your side projects or proprietary tools.

How do I negotiate a liability cap? Request that your liability be capped at the total amount of fees paid to you under the contract. This aligns the risk with the financial reward of the project.

What is a fair kill fee? A fair kill fee typically ranges from 25% to 50% of the remaining project value, ensuring you are compensated for the opportunity cost of reserving your time for the client.

Can a freelancer refuse a non-compete? Yes. Many freelancers successfully negotiate non-competes out of their contracts by explaining that they specialize in a specific niche and need to work with multiple clients in that industry to sustain their business.

Before you sign your next contract, run it through Clauze. We will flag these clauses and explain exactly what they mean for you.