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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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.

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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.

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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.

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