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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Why You Should Limit Workplace Rules That Apply to Contractors (Twisted Sister Edition)

There are so many great songs about defying authority. What’s the best? Hard to say. The best video, though – that’s easy. We’re Not Gonna Take It by Twisted Sister. (Watch here, then thank me later. I could watch the first minute a hundred times. Say it with me: “What do you want to do with your life?”)

Rock may about breaking rules, but business is not. With your employees, there are lots of rules you want them to follow, and you probably list them in painful detail in handbooks, posters, flyers, brochures, catalogs, signposts, compendiums, directories, and mandatory worker inner eyelid tattoos.

What about independent contractors, though? To preserve independent contractor status, you already know you want to try to minimize your exercise of control. But some rules are needed, expecially for contractors who work on your site.

Here are some guidelines to consider:

Rules appropriate for employees, but not well-suited for contractors:

  • Employee Handbooks
  • Policy Manuals
  • FMLA Policy
  • Vacation and leave policies

Applying those employee-specific rules to independent contractors would tend to support an argument that contractors are being treated like employees.

Some rules, though, are more appropriate to ask on-site contractors to follow.

Examples of rules that are generally suitable to apply to contractors:

  • Safety rules, especially those related to ensuring safety at the facility (e.g., must wear hard hat, please do not flick matches at that industrial-size fuel tank, keep your fingers clear of the 4000 ton forging press)
  • Emergency evacuation or exit procedures
  • Anti-Discrimination Policy (if drafted broadly, to cover employees, contractors, visitors, interlopers, outerlopers, sidelopers, etc.)

These types of rules can be applied to contractors because they do not tell the contractor how to do the work. Instead, they are designed to ensure a safe and productive space where no one gets hurt.

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

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NLRB Shifts to Republican Majority; Change in Joint Employment Doctrine Is Likely

NLRB joint employment william emanuelWatching the National Labor Relations Board is like riding a see-saw (a very slow one, and not a very fun one, but stay with me here).

Board members serve five-year terms and, when they expire, the President has the right to appoint a successor, with confirmation by the Senate. Predictably, under Democratic administrations, the Board tips toward union workers’ rights, and under Republican administrations, the Board tips toward protecting businesses.

With the late September confirmation of William Emanuel to the Board’s fifth (and tie-breaking) seat, the see-saw tipped back toward the side of protecting businesses.

Emanuel joins the Board from a defense firm that represents many large companies in labor disputes. Firms that represent companies in labor disputes typically do not also represent employees because doing so would create philosophical conflicts between the firm’s clients. You’d be arguing to interpret the law one way for an employee client, then another way for an employer client. Emanuel’s background therefore, has been pro-business.

As I wrote here, that background caused several Democrats to express concern. It was little surprise, then, that he was confirmed by a partisan vote of 49-47, winning by a safety when the Democratic quarterback was sacked in the end zone late in the fourth quarter.

Emanuel joins Republicans Philip Miscimarra and Marvin Kaplan, giving Republicans a 3-2 majority on the Board for the first time in almost 10 years.

The Board does not decide which cases to bring. The NLRB General Counsel does that. But the Board acts as the main decision-making body for labor law disputes, with its decisions appealable to the U.S. Courts of Appeal.

One of the Board’s most controversial decisions in the past five years was the Browning-Ferris decision in 2015, which drastically lowered the bar for finding joint employment in a relationship. You know those playground monkey bars you used to have to jump to reach? The Board lowered those to knee level. You’d have to limbo to get under them. They are no fun to play on. Under the new standard, a business can be a joint employer even if it exerts only indirect and minimal control. You can read more about that decision here.

The Browning-Ferris case is currently under appeal in the D.C. Circuit Court of Appeals. It might be affirmed, might be reversed. But here’s what you should remember: The NLRB tends not to follow the rulings of the U.S. Courts of Appeals. The NLRB’s decisions cover all 50 states, but each Court of Appeals covers only a handful of states, and so its rulings do not have widespread reach.

So no matter what the Court of Appeals does in Browning-Ferris, the NLRB is likely to continue to apply the standard it wants to apply. Under the Obama Board, that standard was to lower the monkey bars to your knees. Under the new Board, the standard for finding joint employment is expected to be raised back up to the point where you can swing freely from bar to bar without your feet ever touching the mulch below. The new Board is likely to re-establish the old joint employment standard, in which more direct control over workers is required for a finding of joint employment under federal labor law.

This change won’t happen right away. It may be a while before the right case gets to the new Board and the new Board has the opportunity to change course. But it is expected to happen.

Employers concerned about being tagged as joint employers for labor law purposes should remain cautious and continue to follow developments. Even if the labor law standard changes, though, there are still different tests for joint employment under different laws, so a change will have limited effect. For now, the indirect Browning-Ferris standard remains in place, but probably not for too much longer.

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

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Independent Contractor vs. Employee: An Ode to Tom Petty

With an unmistakable voice and powerful lyrics, Tom Petty will long be remembered as a musical giant. As I tuned into the SiriusXM Tom Petty channel on my drive home from work last night, I decided to honor his memory the only way I know how – by linking a bunch of his song titles to completely irrelevant points about independent contractor misclassification.

So, here it is, the subject of Independent Contractor vs. Employee, as told through the song titles of Tom Petty.

You Got Lucky. Businesses sometimes tell me that their independent contractors must not be misclassified because it’s always been done this way. The business has never been audited or sued. Ignorance, however, should never be mistaken for bliss. Just because your classification of workers as contractors has never been challenged does not mean it is correct. To all those businesses who may be misclassifying their independent contractors but have never been challenged, I would say, You Got Lucky.

Don’t Do Me Like That. This song reminds me of the common scenario where an independent contractor has been blissfully working for a business for many years. Everyone is happy with the arrangement – until they are not. The business cuts ties with the independent contractor, then the contractor files a complaint. The agency or judge, evaluating the facts of the relationship, concludes that the contractor was really an employee all along, and the business now owes back assessments or back taxes for several years of misclassification. To every independent contractor who has filed a claim, what the business really wants tell you is, Don’t Do Me Like That.

I Won’t Back Down. When your independent contractor files for unemployment, try not to think of this clam the same way you would think of an unemployment claim filed by an employee. When a former employee files for unemployment, you probably don’t care a whole lot. The consequences to your business are minuscule and, besides, the person lost a job and is seeking a government benefit that is meant for when people lose a job. On the other hand, if your independent contractor files for unemployment, there can be serious consequences if that worker is deemed to have been an employee and therefore eligible for unemployment insurance. The consequences are that your business did not pay into the unemployment system for that worker — and for every other similarly situated independent contractor, for as far back as the statute of limitations extends. The economic consequences can be significant. You probably want to fight that claim. If your contractor files for unemployment, your Tom Petty song ought to be, I Won’t Back Down.

Yer So Bad. The consequences of independent contractor misclassification can be substantial. You know all those employment, tax, and benefit laws that you thought didn’t apply? Well, now they apply. Fines, penalties, back taxes, assessments, and good old fashioned lawsuits await, along with all sorts of fun flavors of damages like back wages (yummy!), punitive damages (scrumptious!), and having to pay the attorneys’ fees of the plaintiff who just sued you (what??? icky!). All of these negative consequences are the courts’ and agencies’ way of saying, Yer So Bad.

Time to Move On. Businesses that use independent contractors should take proactive steps to evaluate those relationships. Sometimes, after an honest assessment, the best strategy is to reclassify those workers as employees. Time to Move On.

Jammin’ Me. This ‘80s beauty featured lines like, “Take back your Iranian torture” and “Quit jammin me.” Those are lines you might want to say to the government agency that conducts a 1099 audit and alleges that you’ve misclassified some contractors. You might want to say it. But you probably shouldn’t. Not professional.

It’ll All Work Out. This is the part of the blog post where you lean back and take a deep breath. In a true independent contractor relationship, you care about the result but do not exert control over how the work is done. The more you control how the work is done, the more likely the contractor is misclassified and is really an employee. The best philosophy with independent contractors is not to micromanage. Chill, man. It’ll All Work Out.  (Or, if we were doing a Breaking Bad post, “Saul Good, Man”)

It’s Good to Be King. This is the feeling you should have if you’ve been proactive, evaluated your 1099 contractor relationships, made sure the facts support independent contractor status under all of the various Right to Control Tests, Economic Realities Tests, ABC Tests, and whatever other tests any state or local government throws at you. When it’s all said and done and you can say with confidence that your contractors are properly classified, you’ll know It’s Good to Be King.

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

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Can Independent Contractor Misclassification Automatically Violate Federal Labor Law? (Hint: Yes)

The past two weekends, we have seen NFL players link arms in solidarity. They protest mistreatment and injustice in society, not mistreatment and injustice by their employers. In fact, there have been several instances where owners and coaches have joined in.

Had the players been protesting actions by their employers — their teams — their actions likely would be considered “protected concerted activity” under the National Labor Relations Act (NLRA). The NLRA grants employees the right to act collectively to protest terms or conditions of their employment. Employees have these rights even if there is no union.

NLRA rights apply only to employees, not to independent contractors. Independent contractors have no right under the NLRA to engage in collective behavior. In fact, antitrust laws can sometimes prohibit independent contractors from acting collectively — such as in price fixing.

So let’s get to the issue that is the focus of this blog — the issue of Independent Contractor vs. Employee.

Here’s the question of the day:

If independent contractors have no rights under the NLRA but employees do, can the mere act of misclassifying independent contractors be considered a denial of NLRA rights? 

Yes, said an Administrative Law Judge in a recent case involving couriers.

Here’s the judge’s reasoning: Employees have NLRA rights, allowing them to act collectively. An employer violates the NLRA by denying an employee the right to act collectively. Protected concerted activity can include discussing wages with co-workers, discussing discipline, speaking out against a supervisor, criticizing work conditions, and a broad range of other activities (many of which you probably never thought were protected).

Independent contractors do not have these rights because the NLRA applies only to employees. By misclassifying a worker as a contractor, the judge ruled, a business is essentially telling the worker — who is actually an employee — that he has none of these rights.

Telling an employee that he has no right to engage in protected concerted activity is pretty clearly a violation of the NLRA.

And there you go.

So what does that mean for businesses that use independent contractors? In other posts, we have discussed many of the negative consequences of independent contractor misclassification. A business that has misclassified workers as independent contractors (when they should really be deemed employees) can be liable for failure to pay employment taxes, failure to provide workers’ compensation and unemployment coverage, failure to follow hiring and paycheck laws, failure to provide employee benefits, and more.

Now add to that list a possible automatic violation of the National Labor Relations Act — at least according to this judge.

You can’t see me, but I am kneeling in protest.

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

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For the Greater Good: When Do You Have to Pay Volunteers?

One of my favorite movies is Hot Fuzz, the story of an overzealous London policeman (Simon Pegg), who transfers to a small town where things are not as they seem. Throughout the movie, various characters declare that something is being done “for the greater good.” Watch the movie. I won’t play spoiler. After you watch, go to imdb.com and read more about all the subtleties you may have missed. Trust me on this one.

Anyway, this is the part of the blog post where I segue from a totally unrelated pop culture reference to something related to employment.

Today we’ll talk about volunteers — you know, those who perform work “for the greater good” (nailed it!).

Where is the line between volunteers and employees, and when must volunteers be paid?

The Department of Labor (DOL) is pretty tough when it comes to determining Who Is My Employee?  As explained here, a worker not in business for himself/herself is usually presumed to be an employee under the Economic Realities Test.

The DOL, however, recognizes an exception for work that is truly volunteer work — so long as it’s not wink wink nod nod really employment.

What’s the difference?

The key components of true volunteer work are:

  • Voluntary service
  • Offered freely, without pressure or coercion, direct or implied, from an employer
  • When so motivated
  • For civic, charitable, or humanitarian reasons
  • Without promise, expectation, or receipt of compensation
  • Service is not provided to a for-profit private entity

When these factors are met, the work is being performed for the greater good. It’s most likely volunteer work, not employment, and therefore not compensable.

If all of these factors are not met, be careful. The work might be compensable employment.

It’s never a bad idea to have volunteers sign a Volunteer Agreement in which they agree to all of these items, especially that they have no expectation of compensation for what they are doing.

Now go and watch the movie.

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

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Update: Uber’s Misclassification Cases, Arbitration, and the Supreme Court

Independent contractor vs employee Uber misclassification lawsuit arbitration agreements IMG_1111Remember the children’s game called Red Light, Green Light? One ambitious youngster is selected as the traffic cop, who randomly shouts “red light” or “green light,” requiring all the children to run and stop and start in short bursts that would cause an adult human to tear an ACL.

That’s essentially what’s happening in the big Uber misclassification case that has been pending in California since 2014. The case is called O’Connor v. Uber Technologies and is being overseen by traffic cop / federal judge Edward Chen in San Francisco. If anyone ever gets to the finish line, it will eventually be determined whether Uber drivers are properly classified as independent contractors, rather than employees.

There are lots of Uber cases, but this one is the biggie for now, with potentially a billion dollars at issue. For those keeping score at home, that’s 1,000 times more than Dr. Evil demanded for the return of the Kreplachistan warhead.

In December 2015, the judge approved a class of 240,000 drivers, and allowed the case to proceed toward a trial. Green light! Notably, many of the drivers in the class had signed arbitration agreements preventing them from participating in a class action. The judge, however, ruled that the arbitration agreements were unenforceable. He said that the agreement prevented the drivers from engaging in “protected concerted activity” (participating in a class action lawsuit), a right protected under the National Labor Relations Act (NLRA).

Now wait a minute. We have a chicken and egg problem here. The NLRA only applies to employees. If the drivers are truly independent contractors, the NLRA does not apply, and the validity of the arbitration agreements should not be an issue. Uber filed an immediate appeal, claiming that the agreements are valid and that judge should not have allowed the case to proceed as a class action. (Red light?)

In April 2016, the Ninth Circuit Court of Appeals agreed to hear Uber’s appeal.

Meanwhile, Judge Chen allowed the case to proceed toward trial, despite the appeal. Green light! But both sides flinched (Red light!), and the case settled for $100 million.

But wait. A judge must approve a class settlement. This judge ruled the settlement was unfair to drivers since the actual recovery in trial could be much greater. (Hey, isn’t that the point of a settlement? The drivers also might have taken home nothing!) Anyway, Green light!

Meanwhile, back at the Ninth Circuit, the appeals court issued an order last week that said, “Hey, everybody wait.” Red light!

The Court of Appeals noted that the U.S. Supreme Court is about to decide whether employee arbitration agreements that waive the right to participate in a class action are permissible, or whether they violate the NLRA. That’s the same issue that led Judge Chen to call “Green light!” in 2015 and certify the class of Uber drivers. The Supreme Court’s decision will likely govern whether the Uber drivers’ arbitration agreements are valid.

On October 2, the Supreme Court will hear oral arguments on this issue, and a decision is expected in the first half of 2018. The Supreme Court’s decision will have far reaching consequences for all businesses who ask their workers to sign arbitration agreements waiving the right to trial and waiving the right to participate in a class action.  So far, courts around the country have split on this important issue, reaching different conclusions about whether these agreements are allowed. The Supreme Court decision will settle this issue for everybody.

The Supreme Court case, called NLRB v. Murphy Oil USA, will be one of the more significant employment law decisions from the Supreme Court in a long time. You can read more here from SCOTUSblog or here from Baker Hostetler blogs.

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

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