Category Archives: Contracts

04.29.24
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Think Big: Ninth Circuit Provides Another Reason to Engage Entities, Not Individuals, in Independent Contractor Agreements

The world’s largest passenger elevator is inside the Jio World Center building in Mumbai, India. It can hold 235 people and is designed to cater to large gatherings, such as weddings or convention attendees.

The elevator has glass windows, offers panoramic views of the gardens below, and features a crystal-studded ceiling. It has two sofas so passengers can relax while ascending the maximum five floors at the slow but deliberate rate of 1 meter per second.

Thinking big doesn’t just work when building elevators. It also works when building independent contractor agreements.

Here’s what I mean.

When lots of contractors are being retained, an important feature to include in independent contractor agreements is the requirement to arbitrate disputes on an individual basis, with a waiver of class claims. Under the Federal Arbitration Act (FAA), arbitration agreements and class action waivers are generally valid and enforceable.

But there’s that pesky transportation exemption in Section 1 of the FAA, which says that the FAA does not apply to transportation workers. The Supreme Court recently issued its decision in Bissonette v. LePage Bakeries, holding that to determine whether the transportation worker exception applies, you need to look at what the worker does, not what industry the worker is in. But this post isn’t about Bissonette. It’s about a Ninth Circuit decision issued a few weeks earlier.

The Ninth Circuit ruled that the transportation exemption applies only to individual workers, not to entities. Why does that matter? Well, is your independent contractor agreement with an individual or an entity?

If it’s with an individual, and the worker is engaged in transportation work related to interstate commerce, the transportation worker exception of the FAA might apply, which means the FAA and all of its protections for mandatory arbitration agreements would not apply.

But, according to the Ninth Circuit, if your arbitration agreement is with a business entity, then the transportation worker exception does not apply, since it is inapplicable to business-to-business disputes. That means the FAA does apply.

Engaging small businesses, even single member LLCs, can offer a number of advantages when trying to protect independent contractor status. This recent Ninth Circuit decision offers another advantage, better protecting the parties’ ability to require arbitration of disputes and waivers of class claims.

So when engaging independent contractors, remember to think bigger than the individual. If you can contract with an entity, even a single member LLC, you might be better off — for lots of reasons, even if none of them come with a sofa or panoramic views.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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03.04.24
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Don’t Horse Around: Here Are Three Agreements You Should Have on Your Shelf

Police in Wejherowo, Poland arrested a 19-year-old man for stealing a horse. The man was caught after neighbors reported that he was trying to lead a horse up the stairs to his third floor apartment.

Why would someone do that? Apparently he was trying to conceal the horse and thought his apartment would make a good hiding place. (After all, who would look in a third-floor walk up for a missing horse?) But getting the horse to the apartment was the man’s undoing.

He didn’t think through his plan. Don’t be like that man. Today’s post is to help you think through your plan in advance, but in the context of retaining non-employee labor, not stealing a horse.

I generally recommend having three types of agreements in your stable of documents. (Heh heh, see what I did there?) Each serves a different purpose and contains different features, even though there is often some overlap.

1. Independent Contractor Agreement. This should be crafted for use with solo independent contractors (1099s), regardless of whether there’s a single member LLC or a sole proprietorship.

The goal here is limit the risk of misclassification, that is, a finding that the worker is really your employee.

The agreement should identify and memorialize the facts that support IC status, such as that the company retains no right to control how the work is done, where it’s done, when it’s done, steps, sequence, etc.

If there are lots of ICs doing the same thing, individual arbitration agreements with class waivers can be highly useful to include too, as they reduce the downside risk of misclassification.

2. Vendor Outsourcing Agreement. This document is for when a function is entirely outsourced, such as in the hospitality industry, where it is common to outsource the housekeeping function.

There are two goals here.

One goal is to memorialize the facts that will help avoid a finding of joint employment. These workers should be managed independently of your company’s employees and should not be directly supervised by your managers.

The second goal is make it difficult for a disgruntled worker of the vendor to allege joint employment, and there are various tools in the toolbox to help accomplish this objective.

3. Staffing Services Agreement. This document is to be used when a third party provides staff augmentation services or other workers who are commingled with your employees or supervised by your managers. In this scenario, there’s a reasonable risk of joint employment.

We want to use the contract to build defenses.

First, we want to lay the groundwork for a claim against the vendor if the vendor fails to pay its employees in accordance with the law.

Second, we want to throw obstacles in the way of anyone who might want to bring a joint employment claim. Individual arbitration agreements with class waivers are helpful in that regard.

If you’re working with a staffing agency, the form they provide you is not likely to help limit your legal risks. It’s always better to start with your own form.

Don’t Horse Around

Agreements provided by your vendors are unlikely to provide you with any meaningful protections. Different agreements have different purposes, and these three agreements should each be used in different situations.

It doesn’t work to use a staffing agreement with outsourced employees, and it doesn’t work to use an independent contractor agreement with outsourced labor employed by the vendor. Those workers aren’t independent contractors at all; they’re employees of the vendor. The legal risk you’re trying to address is whether you’re a joint employer. That’s a very different legal question than whether the worker is misclassified.

So be sure to use the right kind of agreement for the right kind of situation.

That means planing ahead and having the right forms on hand, ready to go. As our friend in Wejherowo learned the hard way, you’ve got think all the way through your plan in advance.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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12.18.23
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How to Handle Background Checks for Staffing Agency Workers (and Avoid a Stinky Mess)

After a stolen SUV crashed in Wisconsin and its four occupants fled, one made the unfortunate decision to hide in a golf course port-a-potty. A golfer watched the events unfold and decided to take action, flipping the port-a-potty on its side, door facing down, to trap the car thief inside. (Oh, crap!) Police then arrived on the scene and arrested the now-stink-covered occupant.

Today’s tip is to help you avoid a stinky situation when requiring vendors to background check their workers.

When working with staffing agencies or other vendors supplying labor, you’ll often want to require background checks. But you have a few competing interests, so it matters how you impose this requirement.

First, you probably don’t want to do the background check yourself. For joint employment reasons, you don’t want to play a role in hiring and selection and, for practical reasons, you don’t want to adjudicate background check results on all of the vendor’s candidates. Require them to do the initial screening.

Second, it would be easy to provide the vendor with a list of automatic exclusions, but you don’t want to go there either. Background checks laws generally require an individualized analysis to be done. Avoid creating a “no hire” matrix.

So how can you make sure the vendor conducts an appropriate review of the results and doesn’t send you a worker with a concerning criminal history?

Here’s the strategy I prefer:

1. Require the vendor/staffing agency to perform the background check.

2. Require that they adjudicate the results.

3. But, also require that if they want to place anyone with a prior conviction for theft or violence, they must first notify you and provide a copy of the report and any additional information provided by the candidate.

4. Require that the vendor/staffing agency follow all background check laws.

5. Require that the vendor/staffing agency obtain consent from each candidate to share the results of any background check with your company. They should incorporate that concept into their consent document.

Here’s why I like this process:

First, as a practical matter, a vendor with this arrangement is very unlikely to send you anyone with convictions for theft or violence. They’ll prescreen those out because they know that’s a concern for you.

Second, if the vendor wants to advance someone with one of these convictions, it means one of two things: (a) there may be mitigating factors with this candidate that would support allowing the person to work, or (b) the vendor is being lazy, sending everyone through without running the first level adjudication you’ve required.

If (a), that’s good information. Conduct a second level adjudication. Consider mitigating factors. See how the candidate responds to a pre-adverse action notice. Avoid automatic exclusions and consider whatever facts the candidate provides.

If (b), you need to have a talk with the vendor because they’re not performing the first level adjudication that you’ve required. If you didn’t have this kind of notice process, you might never have known the vendor was being lazy in the adjudication process.

There are several decision points in drafting this kind of clause, but the points listed above are the main items to cover. Variations in drafting may focus on the timing of the convictions, the types of convictions to identify, whether to include drug testing or motor vehicle records checks, and which party performs various tasks related to pre- and post-adverse action notifications.

You’ll also want your contract to make clear that any decision you make that a candidate cannot be placed at your company is not a decision about their overall employment status with the agency. The agency can do what it wants with the person’s employment. All you’re saying is that the agency can’t assign that person to work for you.

By including a process like this in your agreements with staffing agencies and other vendors that supply laborers, you can stay on the right side of the background check law, manage joint employment risks, and still have the opportunity to block candidates who have a criminal history that creates unacceptable risk.

It’s too bad that future background check results for the car thief who got stuck in the port-a-potty won’t include that level of detail. Not that it would make a difference in screening out someone who steals cars, but it would be a fun detail to know. Yuck!

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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12.11.23
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The Best of You: When to Use a Master Services Agreement with Independent Contractors

In “Best of You” by Foo Fighters, Dave Grohl repeats the word “best” 40 times. In “Coconut,” Harry Nillson repeats the word “coconut” 28 times. I get it, Harry, she put the lime in the coconut and she got a bellyache. In “I Don’t Care Anymore,” Phil Collins ends the song with 18 mentions of “no more,” which all right I get your point.

Repeating the same thing over and over might be a useful device when performing a song. But it’s annoying in independent contractor agreements. And it’s unnecessary.

Consider using a Master Services Agreement (MSA) instead, which is a particular type of independent contractor agreement.

An MSA is an evergreen contract that describes the terms of the relationship but does not specify the particular project. The MSA will often describe the type of service to be performed — delivery, installation, whatever — but it will not describe the specific delivery or installation (or whatever).

Instead, each specific project will be described in a separate Work Order. For an installation, the Work Order would describe the customer, the location, the product to be installed, any specific customer requirements tied to that order, the installation time or deadline, and the fee to be paid. The MSA and Work Order would both make clear, in pre-printed text, that every Work Order is subject to the MSA.

The advantage of this setup is that it’s simple and convenient. There’s no need to restate the full terms of the relationship in every Work Order, particularly if the contractor is likely to perform multiple projects, all of which are subject to the same general terms and conditions.

The MSA will be a multi-page document containing all of the general terms we would expect to see in an independent contractor agreement, including representations as to IC status, a recitation of facts that support IC status, the obligations of each party, payment and invoicing terms, a general description of services, a list of things the contracting party will not control, indemnity, insurance, duration or termination, survival, and other typical IC contract terms.

The MSA should make clear that the IC can reject or accept specific proposed Work Orders, which is consistent with the IC being allowed to choose when to work. But the MSA should also make clear that once a Work Order is accepted, the IC has a contractual obligation to perform.

The MSA might also specify the manner in which Work Orders are offered and accepted. While it is preferable to have each Work Order signed, that’s not always practical. Consider how Work Orders will be accepted, and describe in the MSA what will constitute acceptance. In some cases, acceptance might be indicated by the contractor’s receipt of a Work Order and the contractor’s failure to decline it within 24 hours. It’s ok to create a presumption of acceptance, but you’ll want to preserve the contractor’s right to decline any particular Work Order without penalty.

And that’s how you can create the best, the best, the best of contracts.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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11.27.23
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New York State Jumps on the Band Wagon with New Freelancer Law

In the 1800s, P.T. Barnum used to promote the arrival of the circus with parades and clowns and band wagons through the town. By the late 1800s, politicians were noticing the excitement generated by the band wagons, and they would ride their own band wagons through town to generate support and excitement for the campaigns. Supporters would climb aboard, and the phrase “jump on the band wagon” was born.

So it seems fair to say, even back then, politicians were imitating clowns.

Over time, the phrase has come to mean rallying around any popular cause, clowns or no clowns.

And with the new statewide Freelance Isn’t Free Act, signed by Gov. Hochul on Nov. 22, the State of New York has done just that. New York’s statewide adoption of this freelancer law follows similar laws enacted in Illinois, New York City, Los Angeles, Minneapolis, Seattle, and Columbus. You can compare the four cities’ laws here and read more about Illinois’ law here.

Here’s what the NY State version will require, any time there is a contract with an individual independent contractor for services valued at $800 or more, either for one project or an aggregation of projects over 120 days:

  • Written contract required, which must include:
    • Name and address of hiring party and contractor
    • Itemization of services
    • Value of services
    • Rate and method of compensation
    • Date payment is due, or how due date will be determined
    • Any deadline by which the contractor must submit a list of services provided so that the hiring party can timely process payment.
  • The hiring party must provide a copy of the contract to the contractor.
  • The hiring party must retain the contract for six years!
  • Payment to the contractor must be made by the deadline specified in the contract or, if no deadline is specified, then within 30 days after the services have been completed.
  • The hiring party cannot require the contractor to accept less than the contracted amount. (The law does not seem to provide any exception for unsatisfactory services.)
  • Retaliation is prohibited against any contractor who seeks to exercise rights under the Act.

If there is a dispute over whether timely payment was made, the burden of proof is on the hiring party.

The law creates a private right of action.

The penalty for failing to provide a written contract is $250, if the contractor requested the written contract. Such a claim must be brought within two years.

The penalty for failing to make payment as required by the law or under the contract is the value of the contract, plus double damages, plus attorneys’ fees, and possibly injunctive relief. The statute of limitations for this type of claim is six years.

Waivers of any right under this Act are void as against public policy.

The law takes effect on May 20, 2024, and it will apply to contracts entered into after that date. In December 2022, Gov. Hochul vetoed an earlier version of this law, finding that it imposed too great a burden on the NYSDOL. Those concerns have been resolved in the new version of the Act.

The law does not apply to contracts with independent sales representatives, lawyers, medical professionals, or construction contractors.

The law applies not only to businesses, but to anyone in New York State who retains an independent contractor. As we discussed here when the New York City version of the law was enacted in 2017, the Act applies even to babysitters and dog walkers, if the minimum compensation amount is met.

Businesses and individuals who retain individual independent contractors in New York State, Illinois, Los Angeles, Minneapolis, Seattle, and Columbus need to know their obligations under these laws and act accordingly.

The Freelance Isn’t Free laws do not weigh in on whether the contractor is properly classified as an independent contractor.

There is a clear trend toward passing these types of laws, and we can expect more cities and states to jump on the band wagon.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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08.28.23
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Who Pays for Reasonable Accommodations to Staffing Agency Workers? Ask Shorty.

Limb lengthening reasoable accommodation

[This was college move-in week, so I’m a bit behind on writing a new post for this week. Instead I’m re-posting a favorite from 2020. I like this tip for staffing agency agreements!]

Suppose you’ve got a staffing agency worker (we’ll call him Shorty) who’s a bit vertically challenged and is self-conscious about it. He tells you he’s gonna need some time off because he found this:

A limb-lengthening clinic in Las Vegas claims it can make you a few inches taller through minimally invasivce surgery. According to this article on OddityCentral.com, here’s how it works:

“We cut the leg bones – either femur (upper leg bone) or tibia (lower leg bone) – and insert a device that slowly stretches them out which makes you taller permanently.”

“I insert a device that responds to an external remote control that the patient will control at home. Once the device is set, I place screws at the top and bottom of the device to lock into position. This is done on each leg.”

The doc says you then just press a button at home and you’ll stretch by 1 mm a day. Just like nature intended.

So, back to Shorty. Suppose he has this surgery one weekend and comes back to work a bit achy from all the stretching. He wants some extra breaks to get him off his feet. Or he wants you to provide him a stool so he can rest more often from his station on the assembly line. Do you have a reasonable accommodation obligation?

If you’re in HR, you know that weird stuff happens, so maybe you hadn’t considered limb-lengthening, but let’s use this as an excuse to think about relationships with staffing agency workers and what your obligations might be for medical issues.

This is unlikely to be a disability situation, unless Shorty’s stature is due to a medical condition. But you’ll undoubtedly have staffing agency workers who do have disabilities and who do need reasonable accommodations.

That brings us to today’s Tip of the Day:

Consider adding to your staffing agency contracts a clause requiring the agency to pay the expenses for any reasonable accommodations provided to qualified staffing agency employees to allow them to perform their job functions.

Accomodations can sometimes be expensive, and it’s not unforeseeable that staffing agency workers will need accommodations at some point. Plan ahead, and build this contingency into the contract.

A clause like that may lengthen your contract a bit, but this lengthening can be done in a sentence or two — with no surgical intervention, no cuts in your femur or tibia, and no insertion of a stretch button in your leg. That’s the kind of lengthening I’d be much more inclined to try. I’ll leave my limbs just the way they are.

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© 2020 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

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07.17.23
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Free Lancers? Fourth Major US City Now Requires Written Contracts for Freelance Workers

In ancient and medieval warfare, cavalrymen who fought battles with lances were known as lancers. Actually, they were probably known as whatever Assyrians or Normans or Persians called lancers in their languages, but that’s not important right now.

I should share that my junior high, Palmetto, was also known as the Lancers when I attended in the 1980s. I don’t know if they are still the Lancers, but I do know that they are no longer Palmetto Junior High. Instead, the school is now known as Palmetto Middle School, which is unfortunate and a bit cruel to the teenage cheerleaders who must wear the school’s initials across their chests.

Medieval lancers might have been paid, or might not. Don’t know, don’t care. I know that PMS Lancers are not paid. But this post is not about free lancers. It’s about freelancers. And that space makes a lot of difference.

Los Angeles is the latest major city to pass an ordinance that imposes several strict requirements when retaining freelancers. The Freelance Worker Protection Ordinance took effect July 1, and L.A. now joins NYC, Seattle, and Minneapolis as cities that require a written contract when retaining a solo independent contractor.

This L.A. law is not a TV drama where “office politics and romance often distract the legal staffers from matters in the courtroom.” No, this L.A. law is more boring. This law applies when retaining a solo contractor who will earn $600 or more in a calendar year. If that’s the case (see what I did there?), then these rules now apply:

  • Must have a written contract that includes:
    • name, mailing address, phone, email of both hiring party and freelance worker,
    • itemization of services to be provided,
    • rate and method of compensation, and
    • date by which payment is due, or manner for determining due date.
  • Payment must be made by the due date or, if none is specified, within 30 days after services are rendered.
  • Both the hiring party and freelancer must retain records for 4 years.
  • Any waiver of these requirements is unenforceable.

The NYC, Seattle, and Minneapolis ordinances also require written contracts with similar contents when retaining solo independent contractors who will earn about the same amount. The NYC law applies to work worth $800 in one project or in the aggregate over 120 days. The Minneapolis law applies to work valued at $600 in a calendar year or $200 in a single week. The Seattle law applies to work valued at $600 in a calendar year.

Businesses and individuals who retain solo independent contractors in these cities need to be aware of these laws, which apply even if the hiring party is located elsewhere.

Hiring parties who fail to comply may be liable for double damages, fines for not providing a written contract, penalties for late payments, and attorneys’ fees. The most egregious violators may also be subjected to cavalry charges and lance attacks. Maybe.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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11.21.22
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Don’t Be Like These Sheep: Check Your Contract Recitals to Avoid This Misclassification Mistake

In Inner Mongolia, these sheep have been walking in a circle for about two weeks, with a few sheep occasionally standing in the middle. Here’s video.

Various theories have been circulating to try to explain the odd behavior, including that it may be some sort of bacteria-induced delirium.

But I think I know the real reason. (And a hearty Mazel Tov! to the wooly couple!)

When drafting independent contractor agreements, it’s never a good idea to be unsure of why you’re doing something. Too often, businesses use generic agreements and don’t understand the impact or purpose of what they’ve written.

One common place I see mistakes is in the very beginning of contracts – the contractual recitals.

Recitals are often used to provide context for the reader. Recitals are also used for six-year old piano players to play chopsticks for grandma, but that’s for another day. For example, an off-the-shelf independent contractor agreement might start with something like this: We’re in the business of doing X, and we are retaining Contractor to do this part of X. Therefore, the parties agree to the following terms.

The problem with that innocent sounding recital is that it may be evidence the contractor is misclassified.

Under a Strict ABC Test, if the work being performed by the contractor is within the hiring party’s usual course of business, the contractor is automatically considered an employee. That fact fails prong B of a strict ABC Test.

Under an Economic Realities Test or a Right to Control Test, one of the factors often considered is often whether the work being performed is “an integral part” of the business, or some variation on that theme. Unlike ABC Tests, these tests are balancing tests and so one factor will not necessarily determine a worker’s classification, but there’s no reason to give the factor away, especially in a contract recital.

In a misclassification challenge, every fact and contract term will be subject to scrutiny.

If you’re unsure whether the term is needed, then question whether to include it. Recitals generally aren’t needed at all, and I often omit them from my independent contractor agreements. Don’t include off-the-shelf terms if you don’t understand their effect.

Unexplainable behavior makes for good blog posts and tweets, but not good contracts.

Which is why I never ask unfamiliar sheep to help me draft contracts.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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06.06.22
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Get Aligned on Commissions: Ten Tips For Using Independent Sales Reps

Zippy incorrectly chooses portrait instead of landscape

Getting properly aligned is important. That’s true not only when using a dog bed, but also when using independent sales reps.

Sales reps generally receive commissions. When commissions systems are unclear, disputes arise. We don’t want disputes. You may think your commission system is clear, whether by tradition or otherwise. But it’s probably not as clear as you think. Unclear commission plans lead to lawsuits, especially after the relationship with a sales rep ends.

Here are ten tips for avoiding commission disputes. These tips are helpful whether your sales rep is an independent contractor or an employee.

1. Put the commission plan in writing, and get the rep to sign it. Many states require written, signed commission plans for employees. (California, I’m looking at you!) But even when not required by law, a clearly drafted and accepted plan is the best way to avoid disputes.

2. Define what constitutes a sale. Is a sale complete when the customer pays for the good? When the good is delivered? When it’s accepted? When some period for returns has expired? Whatever you decide, state it clearly.

3. Define when a commission is earned. Usually there are several things that have to happen before a commission is earned. List them all, and make clear that a commission is not earned until all of these things have occurred.

4. Specify the timing of when commission payments are due. For employee sales reps, you might have less flexibility than with contractors, since state laws often require that employees are paid at certain intervals. But you can also create some space for yourself in your definition of when a commission is considered “earned.”

5. Clarify whether the sales rep must still be employed (or still under contract) to earn a commission. This term will be viewed in tandem with your explanation of when a commission is considered “earned.” Some states (hey there, California!) require that the commission has been paid if the employee has basically done everything needed to earn the commission, even if employment has ended. Calling the rep a contractor won’t necessarily get around that, since as we know, California does not grant a lot of deference to classifying workers as contractors instead of employees.

6. Explain how the commission amount is calculated. The formula might be A times B times C. Whatever it is, write it out.

7. Clarify the relevant time period. If the commission plan is for 2022 only, say so. If the commission plan overrides all prior year plans, say that too.

8. What about charge backs? Are there circumstances when a commission might be paid but you’d have to recoup some of the payment through a charge back? Describe when chargebacks are permitted, if at all.

9. Don’t assume. Spell everything out. Just because there haven’t been commission disputes in the past doesn’t mean they won’t happen in the future. A recently departed sales rep is going to be more aggressive about a commission dispute than one who is still happily engaged, especially if the rep just closed a big deal was separated before the company received payment from the customer. Without a clearly drafted plan, that’s a lawsuit waiting to happen.

10. Write for the jury. A stranger reading your commission plan should be able to tell whether a commission is earned or not, how much the commission should be, and when the commission is due. It needs to be that clear. If there’s ambiguity, expect that the disputed term will be interpreted in favor of the sales rep. After all, you wrote the plan, not the rep.

Bonus 11th Tip: Don’t forget state law. State law may contain requirements for commission plans. Know where your salespeople are working and where they are selling. If multiple states are involved, consider adding a choice of law clause.

Getting aligned on commissions before there’s a dispute can go a long way toward preventing a dispute. Getting misaligned on a dog bed may lead to back pain or a funny picture, but getting misaligned on commissions can lead to expensive litigation.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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05.16.22
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Here’s a Bizarre Lawsuit, Plus Tips for Avoiding Misappropriation Trade Secrets

A couple in Uttarakhan, India, has sued their 35-year old son for $650,000 on the grounds that he failed to provide them a grandchild. The monetary claim reflects the amount they supposedly invested in him over the years, apparently viewing him as some sort of horse stud when they paid for his education and wedding.

Their petition explains, “We killed our dreams to raise him” and “despite all our efforts, my son and his wife have caused mental torture by not giving us a grandchild.”

In the business world it seems more reasonable to demand a return on your investment in someone. But that has limits too.

Last week in Virginia, a jury awarded $2 billion to a software company for misappropriation of trade secrets, finding that a rival had paid a disloyal employee of the victim company to steal trade secrets and pass them along. Investing in someone to steal trade secrets is not kosher. Unlike the “no grandbabies” case, that seems like solid ground for a lawsuit.

While the theft of trade secrets appeared intentional here, it’s possible to acquire a rival’s confidential information unintentionally too. The risk may be especially high when you’re retaining an independent contractor who has expertise in an industry and who has likely worked for various competitors in the same space.

When retaining independent contractors, businesses should take steps to ensure they are not going to be acquiring confidential or trade secret information from the contractor.

Here’s an easy tip to help protect your company from inadvertently acquiring confidential or trade secret information from a competitor: Include in your independent contractor agreement a clause that prohibits the contractor from using any confidential or trade secret information from any past client or employer. Prohibit the contractor from incorporating any such information into any work that the contractor creates for your business.

The same type of clause can be inserted into your employment agreements.

While intentionally stealing a rival’s trade secrets is obviously a no-no, an accidental taking or an accidental incorporation of such information into your software or other systems can also create liability. Taking a clear stand that you prohibit that sort of thing will help avoid a problem later. And, if something bad does occur (assuming you didn’t solicit the improper disclosure), you’ll be in a much better place to defend against a misappropriation claim.

As for the Uttarakhan man and his wife, I don’t know what the best defense is to that sort of claim. But I do know the next family get-together is likely to be a bit uncomfortable.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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