5 Contract Clauses That Cost Freelancers Thousands (And How to Spot Them)
I've signed hundreds of contracts over 15 years as a freelancer, contractor, and startup founder. Some were fine. Some cost me thousands of dollars and months of headaches.
The worst part? I didn't know which was which until it was too late.
Here are the five most expensive contract clauses I've encountered—either personally or from conversations with other freelancers. If you see these in your contracts, stop and read carefully before you sign.
1. The "All Work Product" IP Clause
What it looks like:
Contractor assigns to Client all rights, title, and interest in all work product, materials, and intellectual property created during the term of this agreement.
Why it's dangerous:
Notice the word "during" instead of "for." This clause doesn't just cover the deliverables you create for the client—it can claim ownership of everything you make while under contract.
Real example:
A designer friend signed a 6-month contract with this language. During that time, she updated her personal portfolio site and created templates she planned to sell. The client later claimed they owned those assets because they were created "during the term."
Legal fees to resolve this: $8,000. She settled by giving the client the templates for free.
What to look for instead:
Contractor assigns to Client all rights in work product created specifically for and at the direction of Client under this agreement.
The key words are "specifically for" and "at the direction of." Your side projects stay yours.
🚩 Lexray flags this as: "IP Ownership Overreach - High Risk"
2. The Hidden Auto-Renewal
What it looks like:
This agreement shall automatically renew for successive one-year terms unless either party provides written notice of non-renewal at least 90 days prior to the end of the then-current term.
Why it's dangerous:
You need to remember to cancel 90 days before the contract ends, not at the end. Miss that window by even one day, and you're locked in for another full year—often at the same rate, even if market rates have increased.
Real example:
A developer signed a contract in March 2023 for ongoing maintenance work at $5,000/month. By December 2023, his rates had increased to $7,500/month for new clients. He meant to renegotiate in early 2024, but the 90-day notice requirement meant he needed to cancel by January 1st.
He remembered on January 3rd. He was contractually obligated to work at the old rate through March 2025—a $30,000 opportunity cost.
What to look for instead:
This agreement shall terminate at the end of the initial term unless both parties agree in writing to extend.
This makes renewal opt-in, not opt-out. You control the decision.
🚩 Lexray flags this as: "Auto-Renewal - Medium Risk"
3. Net-90 Payment Terms (Buried on Page 15)
What it looks like:
Client shall pay Contractor within ninety (90) days of receipt of invoice.
Why it's dangerous:
You deliver the work today. You get paid in three months. For freelancers without deep cash reserves, this is a killer.
It's especially problematic when the clause is on page 15 of a 17-page agreement and the client verbally told you "we pay Net-30." Always verify in writing.
Real example:
A copywriter completed a $15,000 project in November, expecting payment by Christmas based on verbal assurances of "fast payment." The contract said Net-90. She invoiced November 15th.
Payment arrived February 13th—after she'd already paid two months of rent and living expenses on credit cards. Interest charges: $800.
What to look for instead:
Client shall pay Contractor within thirty (30) days of receipt of invoice, or upon delivery of work, whichever comes first.
Even better: negotiate milestone payments. 50% upfront, 50% on delivery.
🚩 Lexray flags this as: "Payment Terms - Medium Risk"
4. The Unlimited Indemnity Clause
What it looks like:
Contractor shall indemnify, defend, and hold harmless Client from any and all claims, damages, losses, and expenses arising out of Contractor's performance under this agreement.
Why it's dangerous:
This makes you liable for anything that goes wrong, with no dollar limit. If the client gets sued and blames you—even if you did nothing wrong—you're on the hook for their legal fees.
Real example:
A consultant provided marketing advice to a startup. The startup launched a campaign that unknowingly used a competitor's trademarked phrase. The competitor sued the startup for $500,000.
The startup's lawyers pointed to the indemnity clause and demanded the consultant cover their legal defense costs. The consultant's business insurance capped at $100,000. She paid $40,000 out of pocket before settling.
Her actual fault? Zero. The startup's legal team had approved the campaign. Didn't matter.
What to look for instead:
Each party shall indemnify the other for losses directly caused by such party's gross negligence or willful misconduct, up to the total fees paid under this agreement.
This caps your exposure and requires actual wrongdoing, not just bad luck.
🚩 Lexray flags this as: "Unlimited Indemnity - High Risk"
5. The Non-Compete That Kills Your Career
What it looks like:
During the term and for twelve (12) months thereafter, Contractor shall not provide services to any person or entity that competes with Client or operates in Client's industry.
Why it's dangerous:
"Client's industry" can be interpreted incredibly broadly. If you design websites for a SaaS company, does that mean you can't design for any SaaS company for a year? In some courts, yes.
Real example:
A freelance developer built a mobile app for a food delivery startup. The contract included the clause above. Six months after the project ended, he signed a deal to build an app for a meal-kit company.
The original client sent a cease-and-desist, arguing meal-kits compete with food delivery. Both operate in "the meal industry."
Legal consultation to assess his risk: $5,000. He walked away from the $25,000 meal-kit project rather than risk litigation.
What to look for instead:
During the term, Contractor shall not provide substantially similar services to a direct competitor of Client, defined as [specific company names or narrow market definition].
Narrow the scope to direct competitors with clear definitions. And limit it to the contract term only—no post-termination restrictions.
🚩 Lexray flags this as: "Non-Compete - High Risk"
How to Protect Yourself
Reading a 20-page contract line-by-line is exhausting. Hiring a lawyer for every $10,000 project doesn't pencil out. But signing blindly is how freelancers lose thousands.
Here's what I do now:
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Scan the contract with AI first. I built Lexray to solve this problem for myself—it flags these exact issues in 60 seconds.
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Mark concerning clauses. Even if you don't fully understand them, highlight anything flagged as high-risk.
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Ask the client directly. "Section 7.3 seems to claim ownership of all my work during the contract term, not just deliverables for you. Can we clarify this?"
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Know when to escalate. If the contract has unlimited indemnity, broad IP assignment, or a harsh non-compete, spend the money on a lawyer. That $500 consult can save you $50,000 later.
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Negotiate or walk away. If the client won't budge on unreasonable terms and you can't afford a lawyer, consider whether this project is worth the risk.
The Contracts That Cost Me
I've personally encountered three of these five clauses:
- Net-90 payment terms on a contract I thought was Net-30 (verbal agreement). Cost: 90 days of cash flow stress.
- Auto-renewal clause I missed. Cost: 6 extra months at below-market rates.
- Broad IP assignment that nearly claimed a side project. Cost: Legal consultation fees and months of negotiation.
I built Lexray because I was tired of getting burned. You upload a PDF, and it tells you—in plain English—what's risky and why.
It's free right now while I'm refining it. If you freelance or contract, give it a try.
What's the Worst Clause You've Seen?
I'd love to hear your contract horror stories. Reply on LinkedIn or email me at tomek@47chapters.com.
And if you're about to sign a contract and something feels off—trust your gut. That's usually your subconscious noticing a problem your conscious mind hasn't processed yet.
Read carefully. Ask questions. And know when to push back.
About the Author: Tomasz Janczuk spent 20+ years building developer tools at Microsoft and Auth0 before founding multiple startups. He's signed hundreds of contracts—some good, some terrible—and built Lexray to help other freelancers avoid the mistakes he made.