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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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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Court Serves Up Reminder that Contractors Can Be Properly Classified and Misclassified – At The Same Time.

elephant-reminder pennsylvania court joint employment joint empoyer construction workplace misclassification act

A recurring theme in this blog has been that when trying to determine Who Is My Employee?, there are different tests under different laws. Different tests can yield different results.

A recent court decision from Pennsylvania emphasizes this point. In the Keystone State (proud home of Dunder Mifflin and Hershey Park), contruction workers are considered employees for workers compensation purposes unless they (i) have a written contract, (ii) have a place of business separate from their general contractor’s site, and (iii) have liability insurance of at least $50,000. This strict test is courtesy of the Construction Workplace Misclassification Act (CWMA), an Act whose name shows a disappointing lack of creativity.

I might have gone with “Construction Occupation Workers’ Act Regarding Designations In Classifying Employees” (COWARDICE) or “Law About Misclassifying Employees” (LAME) or, if I was hungry for shellfish, then maybe “Construction Law About Misclassification for Builders And Keeping Employees Safe” (CLAMBAKES).

Anyway, what were we talking about? Oh yeah, that whack-a-doodle misclassification test for construction workers. As my loyal readers know, that’s not even close to the tests used for determining Employee vs. Independent Contractor under most other laws. Other more common tests, like Right to Control Tests or Economic Realities Tests, rely on entirely different factors and weigh them, rather than requiring three specific factors to be met.

The court noted that the CWMA test was very different from the common law test and that the result under one test was not necessarily going to lead to the same result under the other test.

So remember, the task of deciding whether a worker is misclassified is hard and no fun. The task of writing names for laws, however, should be embraced with joy and creativity.

© 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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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.

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