The Fractional Executive Contract: What to Include

A well-structured contract protects both the company and the fractional executive, sets clear expectations, and prevents the misunderstandings that can derail an otherwise productive engagement. Whether you're hiring a fractional executive or starting your own fractional practice, understanding the key contract terms is essential.

Essential Contract Sections

1. Scope of Work

The scope defines what the fractional executive will and won't do. This is the most important section of the contract because scope ambiguity is the primary source of engagement friction. Be specific:

• Responsibilities: List the key areas of responsibility — financial strategy, marketing oversight, technology leadership, etc.
• Deliverables: Define specific outputs — monthly board reports, financial models, marketing strategy documents, technology roadmaps
• Time commitment: Specify expected hours per week or month, including any on-site requirements
• Authority level: Clarify what decisions the fractional executive can make independently versus what requires approval
• Out of scope: Explicitly state what's not included to prevent scope creep

2. Compensation and Payment Terms

Structure compensation clearly to avoid billing disputes:

• Rate structure: Monthly retainer, hourly rate, or project fee
• Payment schedule: Monthly in advance (most common for retainers) or net-15/net-30 for hourly
• Expense policy: What expenses are reimbursable (travel, software subscriptions, etc.) and what's included in the fee
• Rate increases: Include provisions for annual rate reviews, especially for long-term engagements
• Overtime/additional work: Define what happens when the work exceeds the agreed scope or hours

3. Confidentiality and Non-Disclosure

Fractional executives have access to sensitive business information. Your NDA provisions should cover:

• Definition of confidential information: Broadly define what's protected — financials, customer data, product roadmaps, employee information, and strategic plans
• Obligations: The executive must protect confidential information with reasonable care and not disclose it to third parties
• Exceptions: Standard exceptions for publicly available information, independently developed knowledge, and legally required disclosures
• Duration: Confidentiality obligations should survive the end of the engagement, typically for 2-3 years
• Multi-client reality: Acknowledge that the executive works with other clients and may encounter similar information elsewhere. The NDA should protect your specific information without preventing them from working in their area of expertise.

4. Intellectual Property

IP ownership is often overlooked but critically important:

• Work product: Deliverables created specifically for your company (financial models, marketing strategies, process documents) should be owned by the company
• Pre-existing IP: Frameworks, templates, and methodologies that the executive developed before the engagement remain their property. The company gets a license to use them.
• Shared IP: Tools and frameworks developed during the engagement that build on the executive's pre-existing methodology need clear ownership terms

The key principle: the company should own the customized outputs, while the executive retains their general frameworks and methodology. This is fair because the executive uses these frameworks across all their clients.

5. Non-Compete and Non-Solicitation

These clauses require careful balance:

• Non-compete: Be very narrow. A fractional executive who can't work with similar companies isn't viable. Typically limited to direct competitors (specifically named) during the engagement period only.
• Non-solicitation: More reasonable — prevent the executive from recruiting your employees for a period (typically 12-24 months) after the engagement ends.
• Client restrictions: Some contracts prevent the executive from directly soliciting the company's clients. This is reasonable if narrowly defined.

6. Termination Provisions

Flexibility in termination is one of the key advantages of fractional engagements. Typical terms include:

• Notice period: 30 days written notice by either party is standard. Some engagements start with a 90-day minimum commitment.
• Immediate termination: Both parties can terminate immediately for cause — breach of contract, unethical behavior, or material failure to perform.
• Transition obligations: The executive should provide reasonable transition support (typically 2-4 weeks) to hand off work, document status, and brief any successor.
• Final payment: Specify when the final invoice is due and whether any retainer balance is refundable.

7. Relationship Classification

This section is legally critical. The contract must clearly establish the fractional executive as an independent contractor, not an employee. Include provisions that:

• State the executive is an independent contractor
• Confirm they are responsible for their own taxes, insurance, and benefits
• Acknowledge they control their own schedule and methods of work
• Confirm they may work with other clients simultaneously

Misclassification of independent contractors has significant legal and tax consequences. Consult an employment attorney to ensure your contract properly establishes the relationship.

8. Indemnification and Liability

Address liability limits and indemnification:

• Liability cap: Typically limited to the total fees paid during the engagement period
• Mutual indemnification: Each party indemnifies the other against claims arising from their own negligence or breach
• Insurance requirement: The executive should carry professional liability (E&O) insurance, typically $1M-$2M in coverage

Common Contract Mistakes to Avoid

1. Vague scope: "Provide CFO services" is too broad. Define specific deliverables and responsibilities.
2. No termination clause: Without clear termination terms, ending an engagement becomes unnecessarily complicated and contentious.
3. Overly broad non-compete: A non-compete that prevents the executive from working in their field effectively kills the engagement — no experienced fractional executive will sign it.
4. Ignoring IP: Failing to address intellectual property ownership creates disputes when the engagement ends.
5. Employee-like terms: Setting specific work hours, requiring exclusive service, or providing benefits can blur the independent contractor classification.

The Bottom Line

A good fractional executive contract is fair, clear, and practical. It protects both parties, sets expectations, and provides the flexibility that makes the fractional model work. Invest in having a qualified attorney draft or review your template — the cost is minimal compared to the disputes that a poorly drafted contract can create. Both companies and fractional executives benefit from starting every engagement with a solid contractual foundation.