In Contract Labor Agreements, This Simple Clause Can Be Your Pillow

Joint employment contract clauseFor humans, some things are essential. Like a good pillow. For non-humans, the anti pillow sometimes works too. Not sure how. But the non-human in this picture generally sleeps like this.

For businesses contracting for labor, some things are essential too. One clause you are likely to have in contract with a supplier of labor is the right to remove a bad apple from the project.

The bad apple clause typically reads something like this: “We have the right to remove any individual supplied by contractor from the project for any reason at any time.”

That’s useful, but does it create an argument that your business is taking control over the individual’s employment in a way that could make your business an employer (or joint employer) of an individual you remove?

Here’s a simple fix to improve your contracts and limit the viability of that argument:

“We have the right to remove any individual supplied by contractor from the project for any reason at any time. We do not, however, have any right to control the individual’s employment status with contractor. Contractor retains the sole right to make all decisions regarding the hiring, termination, and other conditions of employment for all individuals assigned to the project or removed from the project.”

Consider the addition of that extra sentence or two to be a fluffy pillow.  It will help you sleep better if faced with a misclassification or joint employment claim.

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© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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The Monster with Three Eyes Can Help You Avoid Claims of Joint Employment

Some monsters are scary. There’s Godzilla, who terrorized Tokyo and whose name in Japanese translates roughly to gorilla-whale. (Thanks, wikipedia!) There’s Frankenstein’s monster, Dracula (also Count Chocula), and the Creature from the Black Lagoon, which was filmed in terrorizingly implausible black and white 3-D.

But on the other hand, some monsters are friendly and educational, like Cookie Monster, E.T., or, dare I say, Elmo. (“Kids look at these crayons… Kids look at these crayons.”)

This post is about a friendly and educational monster: The Monster with Three Eyes.

If you want to help your business avoid claims of joint employment, remember the Monster with Three Eyes when drafting contracts with staffing agencies or other vendors that supply labor.

Confession: The “three eyes” really should be the letter I three times, but when I try to write that out, it looks like “three is,” which is neither memorable nor a suitable name for a monster, even a friendly and educational one. So we go with three eyes. When I say it aloud — making sure first that no one is listening because why would a person say something like that aloud for seemingly no reason? — it sounds the same.

Here are the three main ingredients you’ll want to include in each contract with a vendor that supplies labor:

1. Identify the sole responsibilities of the vendor with respect to its employees. List these responsibilities. List the various obligations of an employer — things like properly recording all hours worked, paying overtime, paying a minimum wage, handling payroll, reimbursing expenses, providing meal and rest breaks, stuff like that. List these responsibilities specifically in the contract. Don’t just say the agency agrees it is the sole employer. Remember, joint employment is a legal doctrine that holds your business responsible if the vendor failed to do something it’s supposed to do. If your found to be legally liable, you want to be able to point to a specific contractual obligation the vendor failed to satisfy.

2. Indemnify. The indemnification provision needs specificity. It should require the vendor to indemnify your business for any claims of joint employment and for any claims arising out of the vendor failing to comply with any of its contractual obligations. That’s why you’re listing the specific contractual obligations of the vendor. When seeking indemnification, you want to be able to point to a specific contractual obligation the vendor failed to meet, which triggers the indemnification requirement.

3. Insure. Insurance requirements are just as important as indemnity. The indemnity clause is of no value if the vendor goes out of business or is liable for more than it can pay. Vendors who supply labor should be able to demonstrate that they have sufficient insurance so that if there is a joint employment claim and your business seeks indemnity, someone (the insurer) has the ability to pay.

Because joint employment is a legal doctrine that can hold your business fully liable for the misdeeds of a vendor, the key to limiting your business’s exposure is a carefully drafted contract. Even if your business is jointly liable under the law, you want to have a contractual claim against the vendor that failed to do what it was supposed to do, along with indemnity and insurance so that your business can be made whole.

So remember the Monster with Three Eyes when drafting or reviewing your next contract with a vendor that is providing laborers. If the vendor fails to meet its legal obligations, a contract drafted with these lessons in mind will be the gorilla-whale you need to get out of paying for the vendor’s mistakes.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Don’t be a Hirtle: Here’s Why You Should Avoid “Works Made for Hire” Clauses in Independent Contractor Agreements

independent contractor works made for hireDon’t shoot yourself in the foot, Adam Hirtle of Colorado Springs. It’s an expression, not a thing to do with a real firearm. According to this article, Hirtle did it because he wanted to see how it felt. Presumably: Bad.

Shooting yourself in the foot is something many companies may be doing when trying to protect their intellectual property in independent contractor agreements. Generally, there are two ways to protect copyright: “works made for hire” and assignment.

Many independent contractor agreements use both. Intellectual property clauses often say that anything created by the independent contractor is a “work made for hire,” which would mean that the company — not the individual — owns the copyright. These clauses will also typically say that anything not deemed a “work made for hire” is assigned to the company. This is supposed to be a belt-and-suspenders way to ensure that the company owns the intellectual property created by the independent contractor.

Did you know that clause can turn the contractor into an employee?

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Can You Be at Fault if Your Subcontractor Performs Shoddy Installation Work? Ask a North Dakotan.

Interstate 94 in North Dakota near Gladstone

Interstate 94 in North Dakota, near Gladstone, demonstrating why ND is the least visited of the 50 states. Photo from Wikipedia.

According to the official tourism website for North Dakota, the Peace Garden State “leads the nation in production of spring wheat, durum wheat, dry edible peas, dry edible beans, honey, flaxseed and canola.” North Dakota is also the #1 producer of honey in the U.S., a fact you can learn more about by clicking on this official North Dakota State Bee Map, on which you can locate the most active apriaries, which is a place where bees are kept and which is a word that I did not know was a word, so you see, we have all learned something today.

In addition to giving us more dry edible beans than any one of us could safely consume, North Dakota also gives us a recent case that reminds us of an important principle: If your company contracts to perform a service and subcontracts the service, your company is probably still liable under contract law to ensure that the service is properly performed.

In Bakke v. Magi-Touch Carpet, the Supreme Court of North Dakota examined a case where Magi-Touch subcontracted the installation of a shower door, which later “imploded,” according to the narrative in the opinion. I envision something less dramatic than the implosion of the Georgia Dome (cool video), but nonetheless if it were my shower door, I’d be unhappy with that sort of installation job.

The subcontractor apparently stunk it up (too many dry edible beans?), and the homeowner sued Magi-Touch for negligence, fraud, breach of contract, and bunch of other stuff that its creative attorney could come up with. The Court ruled that this was a basic breach of contract case, not a tort case and not a negligence case. Magi-Touch had an obligation to ensure the proper installation of the door, since that what it had contracted to do. Retaining a subcontractor did not relieve Magi-Touch of its contractual obligation to install the door, and Magi-Touch could be held liable under a breach of contract theory for failing to complete the installation in a workmanlike manner.

On the bright side for Magi-Touch, it could not be held liable for negligence or other tort claims. Any damages were limited to the type of damages available for a breach of contract — namely, what it could take to repair and properly install the door.

While this may seem like an obscure shower door case from a state you’ll never visit, the principles of law discussed in the case apply fairly universally. The N.D. Supreme Court decided this case based on common law principles, which generally apply no matter where in the U.S. you are located.

The important thing to remember is that subcontracting a service that your company has contractually agreed to perform does not relieve your company of the contractual obligation to perform the service. Subcontract at your own risk, and take steps to ensure the work is properly performed before paying the subcontractor.

Be sure your contracts are clear as to whose obligations are whose — both in your contracts with customers and in your contracts with subcontractors.

And if you ever find yourself planning a trip to North Dakota, aim for September in Grand Forks and prepare to witness greatness. According to the N.D. Tourism site, “The world’s largest french fry feed is held every year in Grand Forks, during Potato Bowl USA. A new record was set on September 10, 2015, when 5,220 pounds of french fries were served.” Sounds healthy but delicious.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Philadelphia on Feb. 26 or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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After Supreme Court Ruling, Be Sure Your Arbitration Agreements Contain These Two Essential Clauses!

Hyena supreme court henry schein arbitration

I never thought hyenas essential
They’re crude and unspeakably plain
But maybe they’ve a glimmer of potential
If allied to my vision and brain

– “Be Prepared,” The Lion King

The song goes on to warn that “you can’t be caught unawares.” Be prepared. The song neglects to remind companies to check their arbitration agreements for two essential clauses, but that’s why you have me.

The Supreme Court delivered its first Kavanaugh-authored opinion late last week. It was a short, punchy, and unanimous decision with no mention of cartoon hyenas or warthogs, but it clarifies an important point under federal arbitration law: If an agreement calls for disputes to be resolved by an arbitrator, a court cannot override that contractual agreement — even to decide a threshold question like whether the dispute is subject to arbitration.

This is a case of Who decides who decides.

Many arbitration agreements contain carve-outs, saying that certain types of disputes are not subject to arbitration. A common carve-out allows parties to go to court to get an injunction to prevent imminent harm.

The issue here was whether a carve-out like that could be presumed by the court (since it was not explicitly in the agreement), or whether the arbitrator had to decide what was subject to arbitration. The court ruled:

When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.

How does this apply to you?  Two important points:

First, carve-outs: Your arbitration agreements should be drafted to include carve-outs that allow parties to go to court to seek injunctive relief to prevent imminent harm. Specific types of disputes should not be subject to arbitration. If your employee or contractor is about to reveal a trade secret, you need the ability to run to court and get immediate relief. Arbitration is too slow to prevent that danger.

Second, arbitrability: If you fear that a court might invalidate the arbitration agreement or attempt to override it, include a provision like this: “Any disputes regarding whether an issue is subject to arbitration shall be resolved by the arbitrator.”

This case was decided under the Federal Arbitration Act, which is the federal law that favors enforcement of agreements to arbitrate disputes, subject to a few limited exceptions. One of those exceptions is also now before the Supreme Court in New Prime v. Olivieri, a case we discussed here. It relates to independent contractors in the transportation industry and whether the Federal Arbitration Agreement applies. A decision in New Prime will be issued sometime this term.

Arbitration agreements are an important tool that should be in your toolbox, especially if your company is concerned about class action claims, either from employees or independent contractors.

Be prepared.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in Orlando on Jan. 24, Philadelphia on Feb. 26, or Chicago on Mar. 21 for the 2019 BakerHostetler Master Class on Labor Relations and Employment Law: Meeting Today’s Challenges. Advance registration is required. Please email me if you plan to attend, tlebowitz@bakerlaw.com. If you list my name in your RSVP, I will have your registration fee waived.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Notification by Telex? Time to update your forms!

937EFF23-96B2-458B-B0DC-AA833A825379

Thank you Wikipedia, You know everything, making me feel so inadequate.

I recently edited a form agreement that allowed for notification “by facsimile or telex.” I deleted “telex” because, well, does telex even exist anymore? I then sent my edits back to the lawyer on the other side.

The other lawyer put it back in!

I then suggested he provide his client’s telex exchange and I asked if we could borrow his 50 baud modem and telex equipment to facilitate communications, because, um, our local antique store was fresh out of telex equipment. (I considered pushing back and insisting that all communications be in morse code but resisted. I admit to feeling pangs of regret that I didn’t push harder for the dashes and dots.)

People, update your forms!

If your independent contractor agreements and staffing agency agreements have not been reviewed since the widespread adoption of horseless carriages, it’s time for a fresh look. The risks of joint employment and independent contractor misclassification are real, and old forms almost definitely do not contain the types of clauses your business needs to protect itself.

For contracts with suppliers of labor, is your vendor accepting sole responsibility to do all of the things that employers must do, including hiring, firing, supervising, withholding taxes, tracking hours, and about a dozen other important tasks? Under many laws, you’re jointly liable if they fail, so you need robust contractual representations to shift liability.

Does your contract include sufficient insurance requirements and specific enough indemnity provisions to protect against a joint employment or misclassification claim?

Does your independent contractor agreement have specific descriptions of the types of control your business can and cannot exert? If you are not disclaiming the right to control a list of items, you’re missing a prime opportunity to turn the contract into strong evidence in your favor, in the event of a misclassification challenge.

For those of you, like me, who wouldn’t have the first clue how to telex someone, here’s what I learned on Wikipedia:

The telex network was a public switched network of teleprinters similar to a telephone network, for the purposes of sending text-based messages. Telex was a major method of sending written messages electronically between businesses in the post World War II period. Its usage went into decline as the fax machine grew in popularity in the 1980s.

The “telex” term refers to the network, not the teleprinters; point-to-point teleprinter systems had been in use long before telex exchanges were built in the 1930s. Teleprinters evolved from telegraph systems, and, like the telegraph, they used binary signals, which means that symbols were represented by the presence or absence of a pre-defined level of electric current. This is significantly different from the analog telephone system, which used varying voltages to encode frequency information. For this reason, telex exchanges were entirely separate from the telephone system, with their own signalling standards, exchanges and system of “telex numbers” (the counterpart of telephone numbers).

Telex provided the first common medium for international record communications using standard signalling techniques and operating criteria as specified by the International Telecommunication Union. Customers on any telex exchange could deliver messages to any other, around the world. To lower line usage, telex messages were normally first encoded onto paper tape and then read into the line as quickly as possible. The system normally delivered information at 50 baud or approximately 66 words per minute, encoded using the International Telegraph Alphabet No. 2. In the last days of the telex networks, end-user equipment was often replaced by modems and phone lines, reducing the telex network to what was effectively a directory service running on the phone network.

Keep your telex handy, my friends. You never know when you might need one — by contract.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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Beware of Classwide Arbitration: Instacart Case Might Allow It

Instacart arbitration decision allowing class actions

Did that photo make you want to eat a pumpkin right now? (Probably not.)

🍿🍩🍰🍦🍨 Do these emojis make you hungry?

Does this one 🍺 make you wish the workday was over?

Fortunately for those who like instant gratification, driving services like Instacart promise to connect you with contractors who will go grocery shopping for you and will deliver the bounty to your house. This is not an ad for Instacart, though. This is a post about arbitration.

You see, like many other delivery app companies, Instacart’s drivers are independent contractors. Also like many other delivery app companies, Instacart gets sued for independent contractor misclassification. Wisely, Instacart has all contractors sign arbitration agreements.

One of the most significant benefits of arbitration agreements for companies is the opportunity to insert a clause that waives the right to bring any class/collective action claims. All claims must be brought individually — but only if that waiver language is clearly stated in the contract.

Instacart may have had an Oops!

In a pending case alleging independent contractor misclassification, the arbitrator has ruled (preliminarily) that the driver bringing the claim may bring a class/collective action. Instacart said, Whahhh?, and asked a California court to intervene and to rule that the arbitrator was overstepping his authority.

Arbitrators, though, are pretty well insulated from court review. That’s usually a plus, but it can also be a minus. For Instacart, it’s a minus here.

The California court ruled that it has no jurisdiction to intervene. It cannot review that preliminary decision by an arbitrator. Rather, a court can only review an arbitrator’s decision under very limited circumstances, mainly only after there has been an “award.” Instacart appealed but fared no better. The California Court of Appeals agreed.

The Court of Appeals, like the court below, ruled that the arbitrator’s decision to allow class arbitration is not an “award,” and the court cannot intervene. The arbitration must continue under the jurisdiction of the arbitrator. Only when the case is done will the court take a look.

This decision should serve as a reminder of two important points:

  1. In arbitration agreements with independent contractors, it is important to include a carefully drafted clause that waives the right to file or participate in a class or collective action. The clause should also state that the arbitrator has no jurisdiction to consider a class or collective action. These clauses need to be unambiguous.
  2. When parties agree to arbitrate, the arbitrator has a lot of power, and the preliminary rulings of an arbitrator are generally not subject to court review (except in limited circumstances). When you choose arbitration, you’re all in.

The case is in its very early stages, so we’ll see what happens. But there are some early lessons to be learned here. Congratulations. You made it to the end of the post. Now you can go eat.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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