Using Independent Contractors Saved This Hospital an Arm and a Leg! (Really, Just a Leg)

leg broken independent contractor vs employee liabilityToday we attempt to answer a medical mystery: If I have to get my leg amputated because a doctor misdiagnosed me at the hospital, can I sue the hospital for malpractice?

Seems like an easy “yes,” right? Not so fast.

Suppose the doctor was an independent contractor, and suppose the hospital is a public institution. Those were the facts presented to the Supreme Court of Wyoming in a recent case (which also serves as a nice reminder that if you are admitted to the hospital with numbness and cramping in the legs and an “inability to walk,” it would be a good idea to get a vascular consult — assuming you want to keep your leg).

The Wyoming Supreme Court had to interpret a state statute that limited the liability of public hospitals to acts by its employees, except if a hospital extended its liability on purpose through an insurance policy. The hospital here had an insurance policy, but the policy did not reference coverage for acts by independent contractors.

The Court ruled that because the negligence (correction: alleged) “alleged” negligence was by a doctor who was seeing hospital patients as an independent contractor, the hospital was immune from liability for any negligence by the doctor.

Our fearless hero, the amputee, would have to sue the doctor instead. He could not sue the hospital. The case does not address how much malpractice insurance the doctor had, but I would bet my unamputated left leg that it was quite a bit less coverage than the hospital had.

The facts in this case are fairly specific, so I wouldn’t draw a lot of generalizations here. The case required the interpretation of a Wyoming statute and a specific insurance contract.

The case does serve as a reminder, though, of one of the many benefits of having work performed by legitimate independent contractors. The hospital would have been subject to liability if the doctor was an employee, but it faced no liability because the doctor was an independent contractor.

The key to victory, of course, is having a legitimate independent contractor relationship. As we have discussed many times in this blog, there are often disputes over whether a so-called independent contractor is properly classified or should really be considered an employee.

Courts will look to the facts of the relationship to determine Who Is My Employee? and will not just rely on what the parties call the relationship or the fact that a 1099 was issued instead of a W-2.

Depending on which law is being applied, the test for Independent Contractor vs. Employee may be a Right to Control Test, an Economic Realities Test, an ABC Test, or some other hybrid or variation. It’s important to understand whether your independent contractor relationships would hold up to scrutiny, and it’s important to conduct that review before you get sued.

Proper classification in this case meant the difference between zero liability and having to pay the going rate for an amputated leg.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Don’t Wear Pajamas to Work: Be Careful Using “Statutory Minimum” Workers Comp Clauses in Subcontractor Agreements

Pajamas - Independent Contractor Agreements and Workers Compensation ClausesHave you ever had the dream where you show up at work or school in your pajamas or underwear? You’re exposed and embarrassed in the dream, and you can’t figure out why you forgot to put on regular clothes, right? (Please don’t tell me I’m the only one who’s had this dream. Please?)

You may be living this dream inadvertently in your vendor or subcontractor agreements. (And this is not what people mean when they say, “I’m living the dream!”)

Here’s the problem:

It’s commonplace in vendor and subcontractor agreements to include a section requiring insurance. You might require $1 million in commercial liability coverage, for example. Insurance clauses usually (and should) require the vendor or subcontractor to carry workers’ compensation coverage too. But sometimes these clauses are written in a way that may leave you exposed. Here’s an example:

“Subcontractor agrees to provide workers’ compensation coverage to its workers in the minimum amount required by law.”

You’re good, right? Depends on the state — and the circumstances.

The “minimum amount required by law” may be none.

First, if the worker retained by your vendor or subcontractor is its independent contractor (and not its employee), then there is probably no coverage required at all. State laws impose standards for determining Independent Contractor vs. Employee, but usually there is no requirement to provide any coverage to a true independent contractor.

Second, even if the worker is your vendor’s employee, the “minimum amount required by law” in the state might be none:

In Texas, for example, workers’ compensation coverage is generally optional. The minimum amount required by law is none.

Several states do not require employers to carry coverage unless they have a minimum number of employees. According to this chart from the National Federation of Independent Businesses (NFIB), an advocacy organization for small businesses, the following states require employers to provide workers’ compensation coverage only if they have at least this number of employees:

VA – required if 2 or more
GA, NC, WI – required if 3 or more
RI, SC – required if 4 or more
MS, MO – required if 5 or more

Some states have different requirements for construction and non-construction businesses:

NM – construction: required if 1 or more; non-construction: required if 3 or more
FL – construction: required if 1 or more; non-construction: required if 4 or more
TN – construction: required if 1 or more; non-construction: required if 5 or more

In some states, such as Ohio and New York, workers’ compensation might not be required for sole proprietors who have no employees other than themselves.

So what does all this mean for your agreements?

1. Depending on how your contract is written, you might be wearing pajamas to work. In other words, your agreement might leave you exposed, inadvertently, since the minimum amount of required workers’ compensation coverage for your vendor or subcontractor’s employees might be “none.”

2. Please don’t rely on the thresholds I have listed above. I have not examined the workers’ compensation laws state-by-state and I am merely listing state law summaries from the web. I have not checked these for accuracy. Check the laws in your state and check with legal counsel.

The point here is that the state-minimum required amount of coverage might be “none.” Things can go south for your business in a hurry if your vendor or subcontractor has insufficient coverage. If one of their workers is severely injured, the worker may bring a lawsuit against your business as an alleged joint employer. If the injury is severe enough and there is no workers’ compensation coverage, liability could be in the millions.

Keep this risk in mind when drafting the insurance sections of your vendor and subcontractor agreements. Draft carefully, and be sure you are fully covered.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Court Rules that New Jersey is a Goat (sort of): a Note on Forum Selection Clauses

goat independent contractor misclassification forum selection clause Mary Kay caseThe Monty Hall puzzle is a brain teaser based on the game show, Let’s Make a Deal. The contestant is presented with three doors and must choose one. Choose the correct door and win a car. Choose either of the wrong doors and win a goat. (Note to rural readers: The puzzle is a first-world conundrum and assumes you’d prefer the car.)

Once the contestant chooses, the host opens one of the doors with a goat and asks the contestant whether he wants to stay with his original choice or choose the other unopened door. As explained here, the contestant should always switch doors, since switching provides a 2/3 chance to win. The math here is not intuitive, but read about it and you’ll understand.

The gimmick relies on the fact that the host knows what’s behind each door and will only reveal a door that hides a goat. The host never reveals a car.

When drafting multi-state independent contractor agreements, be the host, not the contestant. You want to know what’s behind each door and choose knowingly — and that leads us to choice-of-law and forum selection clauses.

One of the lessons reiterated throughout this blog is that the tests for Who Is My Employee? (i.e., Independent Contractor vs. Employee) vary substantially among the states. Some state laws are much more favorable for businesses than others. Massachusetts and California, for example, are the goats.

Businesses that use independent contractor agreements across multiple states should consider the advantages of inserting a forum selection clause and choice of law provision. Know what’s behind each possible door and then select, in advance, which state’s law will apply and where any lawsuit between the parties must be brought. If these terms are in an Independent Contractor Agreement, courts will generally (but not always) defer to the parties’ contractual agreement, so long as the selected state has some reasonable connection to the parties’ relationship and is not contrary to the state’s public policy. (Sorry, you can’t pick Hawaii just because you like pineapples.)

A recent case out of New Jersey demonstrates the usefulness of these clauses.

A group of New Jersey independent contractor beauty consultants attempted to sue Mary Kay, alleging independent contractor misclassification and violations of New Jersey wage law. They filed the lawsuit in New Jersey, which the plaintiffs’ bar likens to a shiny new Escalade. Mary Kay, however, sees New Jersey as a goat and knew ahead of time that New Jersey was a goat. On the well-known Car vs. Goat Continuum (ed. note: not actually well known at all), New Jersey employment laws are relatively pro-employee. The company therefore included in its Independent Contractor Agreement the requirements that any litigation be brought in Texas, that Texas law applies, and that any complaint must be recited aloud in court using a voice imitating Ross Perot, circa 1992. (The last part might be unenforceable.)

In response to the lawsuit, Mary Kay pointed to the contract and asked the court to move the case to the Lone Star State. Despite the plaintiff’s protests, the court honored the contract and sent the case southward. The plaintiff appealed that decision but lost. The Court of Appeals ruled that it was proper, under the circumstances, to honor the choice of law and forum selection clauses and to move the case to Texas.

Businesses using independent contractors across multiple states should strongly consider inserting choice of law and forum selection clauses into their contracts. (Arbitration agreements can be an even better option, but that’s for another post.)

Avoid the goats. They’ll eat anything, including your cash.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Why I Can’t Give You a Template Independent Contractor Agreement

Independent contractor vs employee template independent contractor agreement - generic independent contractor agreement - IMG_1112I am often asked for a sample Independent Contractor Agreement. I do a lot of work in this area, so I should have plenty, right? Well, sure, I have drafted dozens, but they won’t do you much good.

A generic Independent Contractor Agreement that includes a few boilerplate recitals is of little value. A generic agreement probably says something like, “We all agree that you’re an independent contractor and not an employee. We won’t pay employment taxes for you. We’re not paying into your Social Security account or providing you workers’ comp or unemployment coverage. We’re not giving you benefits. You’re lucky if we let you breathe the air in our building. No, you know what, bring your own oxygen tank. You can’t use our air. You agree to all of this and you’ll like it. And Thank you sir, may I have another?

As discussed here, applying the wisdom of a Dave Mason song, merely agreeing to be classified as an independent contractor doesn’t mean the worker is one. The determination of Independent Contractor vs. Employee is based on the facts, not what the parties agree. Remember: You can’t just agree to not to follow tax law, employment law, and employee benefit law. If the facts say the worker is an employee, then the worker is an employee — no matter what the agreement says.

So why even have an Independent Contractor Agreement?

Lots of reasons — if it’s customized to fit the facts of the relationship. Use the contract to highlight the facts that support independent contractor status. When drafting a meaningful Independent Contractor Agreement, consider the tests that might be applied to determine if the worker is really an employee or an independent contractor. These include Right to Control Tests, Economic Realities Tests, and ABC Tests, among others.

If the worker determines when and where to do the work, what days to do the work, whether to hire helpers, what equipment to use, etc., those are all facts that support independent contractor status. Put that in the agreement!

Or better yet, if you do not intend to exercise control over those decisions, don’t just write in the Agreement that the contractor gets to decide these things. Write that the business has no right to control these things. It’s a “Right to Control” Test you need to be concerned about. There is no “Exercise of Control” Test.

Independent Contractor Agreements can be helpful in memorializing a legitimate independent contractor relationship and can be valuable evidence in a hearing or trial if the worker’s status as an independent contractor is challenged. But they are helpful only if they are customized to fit the facts of the relationship.

Generic recitations of independent contractor status are of little value. They’re the Canadian pennies of the contract world. Make your Independent Contractor Agreement work for you.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Irma, Harvey and Force Majeure Clauses: What Does It All Mean?

What is Force majeure hurricane legal law irma harvey contracts IMG_1108Your contracts with staffing agencies and consultants probably include a bunch of legalese boilerplate mumbo jumbo at the end, which no one ever reads. One of those standard clauses is a “force majeure” clause. That’s French for “Skim over this clause.”

Companies affected by Irma and Harvey, however, may have good reason to check their contracts for these clauses. “Force majeure” means, literally, superior force.

These clauses typically say that So-and-so is excused from performing under the contract in the event of uncontrollable circumstances, such as war, terrorism, hurricanes, voodoo curses, other Acts of God, or anything caused by Pedro Cerrano and Joboo’s Cult (Major League) [Ed. Note: “Hats for Bats!”].

These clauses excuse non-performance that would otherwise be a breach, if the breach is caused by these types of conditions. Suppose you have a hotel in Tampa. You kept the hotel open during Irma because your building is sturdy and can provide respite to residents in evacuation areas. South Floridians who drove north fill your hotel, and it’s sold out. Your housekeeping and restaurant services are outsourced and provided by a separate services company. The services company is required to supply labor sufficient to staff the hotel’s housekeeping and restaurant functions. The day before the hurricane, however, no one shows up to work.

Did the services company breach the contract? Under normal circumstances, probably yes. With a hurricane bearing down on the area, however, the force majeure clause may excuse the failure to perform. A failure that might otherwise constitute a breach may be excused under a force majeure clause.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Tip for Master Services Agreements: Protect Your Business Opportunities

Master servbice agreement protect business opportunities non-circumvention clause staffing agency agreement IMG_1095If you google “Quotes about Opportunity,” you’ll find 1273 quotes on Goodreads.com. Everyone’s interested in opportunities. But when it comes to business relationships, don’t let others take yours.

When servicing a customer, businesses often call upon use subcontractors for help. That can be a win-win, so long as the subcontractor does not try to poach the relationship once that deal is done.

Consider protecting the opportunities you present to subcontractors with a non-circumvention clause. The concept here is that when your business has introduced a subcontractor to a customer to work on a project, the subcontractor should not be allowed to circumvent your business and provide the same service directly to that customer, effectively cutting you out.

Non-circumvention clauses should be drafted carefully and narrowly. The prohibition should be limited in scope to (a) services your business can provide directly and (b) services that the subcontracor provided through your arrangement, as a result of your introduction. Don’t overreach. The prohibition should be limited in time, as well.

Protect the opportunities you create. Or the 1274th quote might be about opportunities lost. (Goodreads.com also has 903 quotes about regret.)

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Consultants Can Take Steps to Avoid Joint Employer Liability

Joint employer ;liability management companiy consultant IMG_1097Companies in distress sometimes retain management consultants to try to turn them around. Sometimes the plan works, sometimes not. When the turnaround effort fails and the company shuts down, can the management company be held liable as a joint employer?

This issue arose recently in a WARN Act case. The federal WARN Act requires an employer, before ordering a plant shutdown or mass layoff, to provide 60 days’ notice and pay to its employees.

Here’s what happened. A nursing home with multiple Medicare and Medicaid violations retained a consulting firm to try to solve its many problems. The consulting firm resolved most of the issues, but one sticky wicket remained, and the nursing home abruptly decided to shut down. The home did not provide the 60 days of notice required under the WARN Act, and its employees filed suit, seeking 60 days of pay.

Because the nursing home was bankrupt, however, the employee also sued the management company, arguing that it was a joint employer and therefore shared responsibility under the WARN Act to ensure that employees received 60 days’ notice and pay before the shutdown.

Can a management company be liable when its client orders a plant shutdown without providing sufficient WARN Act notice? In theory, yes. In this case, no.

The answer in this case turned on an analysis of five factors, which seek to determine whether two companies are either a single common employer or joint employers. Either conclusion would have made the management company jointly liable for the WARN Act violation.

The five factors that would suggest joint liability are:

  • common ownership
  • common directors and/or officers
  • de facto exercise of control
  • unity of personnel policies emanating from a common source
  • the dependency of operation

Other factors may be considered too, and the test is a balancing test. There is no set number of factors that must be satisfied. These factors are listed in the WARN Act regulations. Notably, these are different factors than those used in joint employment tests under various other statutes.

The court ruled that the management company was not jointly liable because (a) it was sufficiently distinct from the nursing home, and (b) it did not exercise enough control over the nursing home’s employees and policies. The court also noted that the management company did not “order” the closing of the nursing home and, under the language of the WARN Act, that was another factor weighing against joint liability.

The lesson here for management companies or consultants is to remember the potential for joint employment liability.

Tip: Management companies wishing to limit their exposure to joint employment claims should try to avoid exercising direct control over its clients’ employees and policies. Instead, make recommendations and have the client/employer adopt and implement those recommendations.

Contract language can also be used to protect the management company. A contract can clarify that the management company can only make recommendations relating to the client’s policies, practices, and employees; but ultimately, all decisions are to be made by the client/employer.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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