Michael Jackson Says: Be Sure Your Subcontractor Agreements Require Adequate Insurance

Insuracne subcointractor agreement independent contractor clauses agreements IMG_1096The Michael Jackson song, “Don’t Stop Til You Get Enough” has all kinds of lyrics I can’t understand. No matter how many times I listen to that song, most of it sounds unclear to me, like nonsense syllables.

The one part of the song that is clear, though, is the title. That one phrase is repeated over and over. Leaving aside (for now) the unintelligible parts of the song, the King of Pop unwittingly provided a good lesson on insurance clauses for subcontractor agreements.

(Note to readers: I looked up the real lyrics, and they have nothing to do with subcontractor agreements or insurance clauses, but they might as well since I still can’t understand them.)

Subcontractor agreements typically include an indemnification requirement and an insurance requirement. The subcontractor is required to indemnify your business against certain types of claims and must require sufficient insurance to cover those claims.

But how much insurance is enough?

That varies, of course, depending on the scope of the engagement and the responsibilities undertaken by the subcontractor. But don’t leave the amount and types of coverage to the subcontractor’s discretion.

Types of required insurance often include general commercial liability, automobile, and workers compensation coverage. Minimum amounts, though, should be specified. It does you no good to have a contractual agreement for indemnification if the subcontractor lacks the financial backing to pay up. You may end up with a bankrupt contractor and a worthless indemnification agreement.

I often see $1 million or $2 million per occurrence for general commercial liability. Workers compensation clauses often refer to “statutory limits,” but some states, like Texas, do not have statutory coverage requirements, so the term “statutory limits” in Texas might be meaningless.

Provide some specific requirements for coverage amounts and don’t stop til you get enough.

Now about the song, did you know these are actual lyrics?

  • Keep on with the force, don’t stop.
  • I was wondering, you know, if you could keep on, because the force it’s got a lot of power.
  • I’m melting (I’m melting) like hot candle wax.

Sounds like a tribute to the Star Wars exhibit at Madame Tussaud’s.

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

Enter your email address to follow this blog and receive notifications of new posts by email.

Are Non-Compete Agreements for Independent Contractors Enforceable?

binding-contract-independent contractor non-compete agreement noncompetition - 948442_1920If you could ask me one question about independent contractors and non-compete agreements, what would it be?

  • Are they enforceable?
  • Are they a good idea?
  • A bad idea?

Hey buddy, that’s three questions, not one.

As for enforceability, that will vary state by state. A recent federal decision involving an independent sales contractor found his non-compete agreement to be unenforceable. The court found that (1) it was not reasonably necessary to protect the company’s business, and (2) the burden on the sales contractor was out of proportion to the benefit to the business. The decision applied Iowa law, though, so unless you have contractors in the Hawkeye State, you might not really care.

Each state applies a somewhat different test for determining whether non-competes are enforceable. Some states, like California, will not enforce them at all (at least with respect to employees). Other states are much more likely to allow them.

Perhaps the better question, for those keeping score on Quality of Questions, is whether non-competes with contractors are a good idea.

In many cases, they are not. Non-competes may increase the risk of a misclassification finding. Remember, independent contractors are in business for themselves. In the Independent Contractor vs. Employee analysis, a persuasive factor in favor of contractor status is the freedom to work for others, including for competitors.

In other words, demanding a loyalty pledge from your contractor may backfire. The clause might not only be unenforceable, but it might cause the contractor to be deemed an employee.

There may be situations where a non-compete seems necessary. Perhaps the contractor is given access to confidential and proprietary information. If that’s the case, be sure your contractor signs an NDA. If an NDA is not going to provide enough protection and you need a non-compete clause, then the non-compete provision should be drafted as narrowly as possible. Consider allowing the contractor to work for competitors generally, perhaps prohibiting only certain limited types of competing behavior.

Also consider whether your relationship with the contractor — in which the contractor gains access to confidential information, cannot share it, cannot use it elsewhere, and cannot work for competitors — is properly classified as a contractor relationship at all. If protecting and controlling what the contractor does is so important to your business, the contractor may be more appropriately classified as an employee.

Non-competition agreements with contractors are not necessarily unenforceable, and they are not necessarily a nail in the coffin of misclassification. But any time you are thinking of using a non-compete agreement with an independent contractor, think carefully.

The clause might be unenforceable, which is bad enough, but the existence of the clause itself — whether enforceable or not — could also be considered evidence that the contractor is really an employee.

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

Enter your email address to follow this blog and receive notifications of new posts by email.

Can Independent Contractors Form Unions? Seattle Wants to Allow It.

space-needle-independent contrcator drivers seattle uber lyft seattle law ordinanceA legal battle in Seattle (“The Battle of Seattle!”) may soon determine whether independent contractor drivers can form unions. In 2015, the city passed a law allowing Uber and Lyft drivers to organize. The mayor allowed the law to go into effect but didn’t sign it because he was concerned it would spawn expensive litigation. He was right.

This month, a federal judge handed the City a victory, dismissing a lawsuit by the U.S. Chamber of Commerce which had argued that the ordinance was illegal. The decision is certainly not the last word on the subject, since the Chamber will appeal and there is a companion lawsuit still pending anyway.

The issues go beyond the basic question of whether independent contractors can form unions.

Generally, they cannot. Independent contractors are separate businesses. Antitrust law generally forbids businesses from banding together and collectively fixing prices and other conditions. You know the drill: Collusion bad, free market good.

The judge ruled that the circumstances here, however, are different than usual. First, it’s worth noting that the “unions” aren’t really unions (despite being overseen by the Teamsters), since unions are for employees and these are representation associations. That seems like word play to me, but everyone’s being careful not to call these things “unions.”

Second, the situation here is not merely that independent contractors are banding together to fix prices. Rather, a local law has established a procedure for ride hailing drivers to collectively share information in a particular format and setting, then negotiate collectively in a government-approved manner. The law enables the activity, not the drivers.

Ok, but what about the National Labor Relations Act (NLRA)? Only employees can unionize, right? Well, sort of. The NLRA definitely does not apply to independent contractors.  But, then again, the NLRA definitely does not apply to independent contractors.

So what does that mean? Does the NLRA preempt laws that would allow non-employees to unionize (as the U.S. Chamber of Commerce argued)? Or does the NLRA’s inapplicability to contractors mean that Congress was indifferent (and silent) as to whether independent contractors could organize? The judge went with Door #2, deciding that the NLRA did not pre-empt the City of Seattle from enacting this ordinance.

The judge dismissed the lawsuit, finding that the Seattle ordinance did not violate any federal or state laws.

This is a case to watch. If Seattle ultimately succeeds in setting up a way for independent contractors to band together and collectively bargain, the gig economy could be changed fundamentally. Other cities would be sure to follow suit and pass similar laws.

A lot still needs to be sorted out, and this is a case that could eventually be heard by the U.S. Supreme Court. An ordinance like this poses a challenge to the scope of federal authority over labor law and antitrust law, both of which are areas where a uniform national policy has generally been considered important to maintain.

Keep an eye on this one. We’ll see if Seattle can hold onto the ball this time, or if the city again throws an errant pass to a wide-eyed Malcolm Butler hiding in the end zone. [Seahawks fans are advised not to click on this link.]

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

Enter your email address to follow this blog and receive notifications of new posts by email.

Stop the Leaks! What if White House Staffers Were Independent Contractors?

Sessions stop the leaks independent contractorsTrump and Sessions wants to prosecute the leakers. As we’ve seen before, stopping leaks can become a Presidential obsession. In Nixon’s White House, the Plumbers were tasked with stopping leaks of classified information, such as the Pentagon Papers. Through the Committee to Re-Elect the President (fittingly, CREEP), members of the Plumbers broke into the office of the psychiatrist of Daniel Ellsberg, who had released the Pentagon Papers to The New York Times. Some of you may have heard about what happened next.

Presidential aides and White House staffers routinely have access to information that is intended to remain confidential. Businesses face the same issue. A company’s employees often have access to confidential or trade secret information that would be harmful in the hands of competitors, or that could damage the business if released to the general public.

It’s commonplace to require employees in such positions to sign Nondisclosure Agreements (NDAs).  NDAs typically define the scope of confidential information and require employees to refrain from using or disclosing any of it outside of work.

But what about independent contractors? Non-employees like specialists or consultants are often retained to work on sensitive company projects. In the course of that work, they are often granted access to confidential information.

Should independent contractors sign NDAs too? You bet! If they will be granted access to confidential or trade secret information, NDAs are important.

They can be used in a stand-alone agreement or as part of a broader independent contractor agreement containing other terms.

It is arguably even more important to have a contractor sign an NDA than it is for an employee to be required to sign one. Why?

Employees, by their nature, are agents of the company and are presumed to be acting to further the employer’s interests. NDAs are a useful reminder to employees of their obligations to the employer, and NDAs can expand — by contract — the scope of protection offered by trade secret laws.

Independent contractors, in contrast, are in business for themselves. They are generally not agents of the business, and any obligation they have to preserve confidential information will stem mainly from contractual obligations, rather than from trade secret law.

In fact, trade secret laws generally require a company to prove that it takes steps to safeguard the privacy of trade secret information — that is, steps to prevent other people from accessing it. By sharing trade secrets with a non-employee contractor, the company may — through that act alone — risk losing trade secret protection for their confidential business information.  They’ve shared it outside the company.

That is where NDAs come in. If a contractor is required to sign an NDA as a condition of the retention, then the employer can much more confidently share confidential and trade secret information with the contractor.

The NDA not only creates a contractual obligation on the contractor to preserve the secrecy of the information, but it also bolsters the company’s ability to show that it takes active steps to protect its confidential information. In other words, the NDA helps the business show that it does not tell an outsider its trade secrets without first obtaining a signed NDA.

The lesson here is simple. If your independent contractor will be granted access to confidential information — even incidentally or accidentally — NDAs can provide important protections to the business.

If the contractor leaks the information anyway, you can always find some goons to break into the office of the contractor’s psychiatrist to get some dirt on him.  (That was a joke. Don’t do that!) Legal remedies are available. Don’t break into anyone’s office. Please.

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

Enter your email address to follow this blog and receive notifications of new posts by email.

What are “1099 Employees”?

chupacabra news independent contractor 1099 employee

The chupacabra is a heavy creature, reportedly the size of a small bear, with a row of spines reaching from the neck to the base of the tail. Its name means “goat-sucker,” which comes from its habit of attacking livestock, especially goats, and sucking their blood. [Editor’s note: Please, folks, protect your goats.]

Why am I leading this post with information about the chupacabra?

[SPOILER ALERT:] Because it’s not real. Not a thing. Doesn’t exist.

Same with “1099 employees.” Businesses using this term almost certainly are trying to classify these individuals as independent contractors. As we know, independent contractors (if properly classified) are not employees at all. Business must report the compensation of employees on a Form W-2, not Form 1099.

When businesses describe independent contractors using terms like “1099 employee,” they are raising red flags, suggesting possible independent contractor misclassification — almost begging for an audit!

As we discussed here, what you call your contractors can make a big difference in determining whether they are truly independent contractors or should instead be classified as employees under the law.

Remember, the determination of Who Is My Employee? — that is, employee vs. independent contractor — is made based on legal standards, not how the parties decide to classify their relationship. You can call your pet three-toed sloth “Usain Bolt,” but that doesn’t mean he’s fast. (I’m sure he’s cute, but he’s not fast.)

So please don’t call your independent contractors “1099 employees.” Or we’ll send the chupacabras after you and your goats.

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

Enter your email address to follow this blog and receive notifications of new posts by email.

NYC Freelancer Law & New Rules Now In Effect, But New Rules Could Violate Federal Law

new york city freelancer law new rulesIf you retain freelancers in New York City, pay attention.

As we wrote here, NYC’s Freelance Isn’t Free Act requires a written agreement when retaining an individual independent contractor, if the value of services is $800 or more. The law covers any individual non-employee, including nannies and babysitters. (Loyal readers, please read this earlier post for details.)

The law took effect May 15, 2017, but new rules — effective July 24, 2017 — create additional burdens.

The NYC Department of Consumer Affairs has published final rules implementing the Act. While the purpose of the rules is (supposedly) to clarify the Act, the Rules go much further and create new requirements — some of which may be contrary to federal law.

For example, the Rules prohibit class action waivers and prohibit arbitration agreements. That’s not in the original law. It also may be against federal law. As the Supreme Court recently ruled, state laws that prohibit arbitration of certain types of claims are in violation of the Federal Arbitration Act. (The Supreme Court will soon decide whether class action waivers in employee arbitration agreements are impermissible under the National Labor Relations Act, but that’s an entirely different issue, which requires the court to reconcile two federal laws — as opposed to conflicting federal and state/local laws. Read more here.)

The Rules also provide an absurdly expansive definition of retaliation, including creating an automatic violation for “any person who denies a work opportunity to a freelance worker who exercises or attempts to exercise any right guaranteed under the Freelance Isn’t Free Act ….” Note what’s missing here:  the word “because.”

Unless this is a drafting error (which is very possible), the Rules say it’s retaliation if you stop working with a freelancer after the freelancer complains or exercises certain rights — even if the decision to stop using the freelancer had nothing to do with the protected activity. I suspect the Rule will be interpreted as if there is a causation requirement, but Rules really should be drafted more carefully. The whole point of writing Rules that interpret laws is to add clarity, not add confusion!

The Rules also say:

  • The Act applies regardless of the worker’s immigration status;
  • Retaliation, which is prohibited, can include perceived threats to the worker’s immigration status or work authorization;
  • Anyone who retains a nanny or babysitter for at least three years must provide the freelancer with free tickets to Hamilton.

Ok, I made up that last bullet point.

The rest of this is true, though; so if you are using individual freelancers in New York City, pay attention. These requirements apply to businesses retaining freelancers and to individuals retaining freelancers.

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

Enter your email address to follow this blog and receive notifications of new posts by email.

NLRB Nominees Hate Puppies & Rainbows, Dems Claim

dog nlrb independent contractor -1674115_1920

Ok, not really, but it seemed that way.

Last week, NLRB nominees William Emanuel and Marvin Kaplan were alternatively tossed softballs and stink bombs in “questions” from Senators on the Health Education Labor and Pensions Committee (known in Congressional circles as the HELP Me Rhonda, HELP HELP Me Rhonda Committee).

I use the word “questions” in quotes because, as both Americans who have ever watched C-SPAN would know, these events are typically staged to allow Senators who have already made up their minds to hear themselves talk, rather than ask questions. Here’s an example:

Question by Sen. Elizabeth Warren:  “Your entire career has been to discourage union membership and I just don’t understand how we can rely on you to defend workers after a long career of making it harder for them to join unions.  But let me push to another point… [changing the topic].”

Or this:

Question by Sen. Warren: “You have made it clear that you have pre-judged. … I think the American people deserve better.”

I don’t think she has pre-judged the nominees though. Just sayin’.

Or this:

Question by Sen. Al Franken (whose recent book I liked, by the way): “It seems likely that big business will probably push you to change the NLRB’s modernized election rule. If you’re concerned, I just wanted to point that out. … What I’m saying is that the unions should be able to vote sooner than 35 days. [then on to another subject]”

Sen. Patty Murray accused the nominees of “anti-worker, anti-union, even anti-NLRB measures” and characterized them as having “careers of fighting against workers’ rights.”  At least she did not dress up her remarks as a question, though. These were in a pre-published statement.

Sen. Maggie Hassan, a former corporate lawyer, was one of the few Senators to ask questions relating to independent contractor misclassification and joint employment. I should note too that her questions were legitimate questions, both topically and in the sense that they included actual question marks at the end.

Sen. Hassan asked Mr. Emanuel, “If you are confirmed, what steps will you take as a Board member to curb this epidemic of misclassification?”

Ok, “epidemic” is a bit loaded, but the bar is low here. Think pre-school obstacle course low.

Anyway, Mr. Emanuel did not take the bait. He responded, “I’m not sure I would agree with the characterization that it’s an epidemic. It does occur. … It’s like any other issue that comes before the NLRB. I would consider the facts of the case.” Jab, uppercut, duck, jab.

She then asked Mr. Kaplan if he thought the recent Browning-Ferris joint employment case was wrongly decided.  In keeping with the great tradition of non-answer answers (the perfect counterpart to non-question questions!), he declined to answer, instead acknowledging that it is up to the Board to determine the proper standard for joint employment under the NLRA.

And that’s about as exciting as it got, folks!

For those without C-SPAN access, StubHub may still have seats available to future hearings.  The secondary market for labor committee hearing tickets is white hot this time of year, especially with all the tourists in D.C.  The committees overcharge for popcorn, though.  Or so I’m told.

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

Enter your email address to follow this blog and receive notifications of new posts by email.