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?

Yikes! Did your company accidentally do a Hirtle?

California law says that if a contract with an individual includes a “work made for hire” clause, that individual is a statutory employee for purposes of California unemployment law, workers compensation law, and aspects of employment law. A company that fails to comply with unemployment, workers comp, and other state employment laws may be subject to penalties, litigation, and other plagues, including but not limited to blood, frogs, lice, insects, pestilence, boils, hail, locusts, darkness, and killing of the first born.

The culprits are California Labor Code section 3351.5(c), and California Unemployment Insurance Code sections 621(d) and 686. Pharaohs not included.

The easiest way to avoid this self-inflicted wound is to impose an automatic assignment (a present assignment) of the author’s copyright to the company. Note that the assignment should be automatic. It’s not enough merely to require that the author/contractor assign the work in the future.

Under copyright law, there are some long-term differences between “works made for hire” and assigned works, relating to rights in the work after a number of years, so the assignment solution is not perfect. But it’s probably better than accidentally causing your independent contractor relationship to revert to employment under California law.

Also, just because you say that something is a “work made for hire” doesn’t mean that it is. The Copyright Act defines “work made for hire” to include works created by employees and a short list of other situations, many of which will not cover whatever you’ve retained the independent contractor to do.

Here’s the definition, from 17 U.S.C. § 101:

A “work made for hire” is—

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Intellectual property clauses should be carefully drafted. Using boilerplate language can cause unexpected pain. Don’t do it like Hirtle — just to see how it feels.

Check your intellectual property clauses.

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

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For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in 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.

Arbitration Agreements & Staffing Company Workers: Can They Take You Anywhere You Want to Go?

1956 chevy bel air Arbitration agreements staffing agency

1956 Chevy Bel Air. The Ides of March’s Vehicle was a ‘55.

I’m your vehicle baby. I can take you anywhere you want to go.

That may be true for Jim Peterik, vocalist and frontman for The Ides of March, who issued this bold proclamation in the band’s 1970 single, “Vehicle.” (It worked. See more below.)

It’s not true for arbitration agreements, though. They can’t take you anywhere you want to go unless you draft them very carefully. A recent decision by the First Circuit Court of Appeals reminds us of this lesson, although the opinion disappointingly fails to quote the Ides of March.

In Hogan v. SPAR Group Inc., we have an independent contractor named Paradise Hogan (which seems like would have been a cool name for a rock band); a staffing company called SBS; and a retail services provider called SPAR.  SPAR contracted with the staffing company to use the services of its independent contractors, including Hogan.

The staffing company and the independent contractor had an arbitration agreement in which they agreed to arbitrate any disputes “between the Parties.”

The contractor filed a lawsuit against both the staffing company and SPAR, alleging that he was misclassified and should have been a joint employee of both the staffing company and SPAR, and that they both failed to comply with various Massachusetts wage laws.

The staffing company and SPAR filed a motion to compel Hogan to arbitrate these claims. The district court (and then the Court of Appeals) ruled that the arbitration agreement required Hogan to arbitrate his claims against the staffing company but not against SPAR.

Why? Because (1) the arbitration agreement was only between the staffing company and Hogan, and (2) the agreement required arbitration only for disputes “between the Parties.”  SPAR was a customer of the staffing company but was not a party to the arbitration agreement with the contractor.

Suggestions for Improving the Arbitration Agreement

The arbitration agreement worked for the staffing company, but it didn’t take SPAR anywhere it wanted to go. A better constructed vehicle would have been needed before the court could compel Hogan to arbitrate his dispute with SPAR.

First, the section in the arbitration agreement describing the types of disputes subject to arbitration could have been written more broadly. It could have been written to cover all disputes not only “between the Parties,” but also all disputes related to the services being provided and all disputes with any customer of the staffing company.

Second, the agreement could have included a section declaring that all staffing agency customers are “intended third party beneficiaries” who can enforce the agreement.

Those steps might still not have been enough, since SPAR was not a party to the arbitration agreement, but those steps would have given SPAR a much better argument that Hogan would need to arbitrate his claims against SPAR. The Court of Appeals focused on each of these deficiencies when denying SPAR’s motion to compel arbitration.

What to Remember

Companies using staffing agency workers often have arbitration agreements with their staffing agencies, and staffing agencies often have arbitration agreemenst with their workers; but none of that means the worker must arbitrate claims against the company that retains the staffing agency.

If you retain a staffing agency and want to be sure its workers must arbitrate any claims against your company, be sure the arbitration agreement is written broadly enough to cover such claims.

Peterik wrote the song about a girl named Karen. He had a crush on Karen and she often asked him for rides. Peterik was hoping to spark a relationship, but nothing came of it. He thought of himself as her vehicle and later wrote a song about it. After the song became a hit, Karen reached out to Peterik. They reconnected and, as of a 2016 Wall Street Journal article, had been married 43 years. In the end, he took her where he wanted to go.

But that’s music for you. A hit song really can take you anywhere you want to go.

If you’re careful and maybe a little bit lucky, a well-drafted arbitration agreement might also take you anywhere you want to go — at least from a legal perspective. It still probably won’t get you a date.

For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in 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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“So Tired of Being Alone”? Blogger Managers at SB Nation Claim Independent Contractor Misclassification

Bloggers independent contractor misclassificationThe good reverend and crooner Al Green was “so tired of being alone,” but he sang it in a way that made me want to keep listening. Stay solo, Rev. Al. On a more somber note, The Motels’ song, Only the Lonely is depressing. Why can only the lonely play? Everyone should be able to play.

Blogging can be a lonely endeavor. Bloggers write and push out content, hoping people will read. Fortunately for me it’s just a side gig, but for many it’s a way of life.

A lawsuit involving bloggers at SB Nation serves as a reminder that bloggers’ status as independent contractors is subject to challenge. In this case, three blogger/site managers allege that, despite their independent contractor agreements (Blogger Agreements), they were really employees entitled to overtime pay. According to the plaintiffs, site managers are required to watch games and report on breaking news on their assigned teams.

In a recent decision, the federal district court granted conditional certification to the proposed class of all site managers and managing editors. In proposed class actions, conditional certification is often easily granted. The bar to conditional certification is low. That means companies who classify their bloggers as independent contractors can be subjected to the hassle and expense of written discovery, depositions, and litigation — just to determine whether a class can proceed. And that’s before litigation on the merits of a misclassification claim.

Litigation involving alleged independent contractor misclassification can be a long and expensive slog. Depositions, deposition prep, and document discovery involve lots of people’s time and attention, none of whom will be lonely. Everyone at the company who was involved in classification, oversight, and pay decisions may have to play — all of which means The Motels were wrong. So there. Next time write a more upbeat song.

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

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For more information on joint employment, gig economy issues, and other labor and employment developments to watch in 2019, join me in 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.

Which States Are Trying to Kill “Independent Contractors” to Death? (Hint: One Rhymes with Schmalifornia)

Man Killed to Death - independent contractor misclassification

Only 4:34 am and already it’s gonna be a long day in the newsroom.

The tests for Independent Contractor vs. Employee vary state-by-state, law-by-law.

In some states, it’s particularly hard to show that an independent contractor relationship is real. These states want to call everyone an employee, even if the parties have agreed to classify the relationship as an independent contractor relationship. When it comes to independent contractor classification, these are the states that are killing it to death.

Like the poor guy who was the subject of this local news story. Getting killed to death — that’s gotta be one of the worst ways to die.

The Top Three Hardest States to Be Independent Contractors, from my vantage point, are:

  • California (obviously)
  • Massachusetts (also obviously), and
  • New Jersey (there’s a new Jersey?)

That’s because each of these states applies an ABC Test when determining whether someone is an independent contractor or an employee under state wage and hour laws. California and Massachusetts use a stricter ABC Test. New Jersey’s ABC Test is not quite as demanding, but close.

If I have piqued your interest (or if you feel obligated), these posts provide more information about ABC Tests in general and more about California’s ABC Test.

This post discusses other states that use ABC Tests but for other types of laws, like workers compensation and unemployment.

And if you want to click on just one more thing, this post describes what happened when police officers in Minnesota were called to investigate a man standing motionless in the freezing cold, holding a pillow.

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

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Has Ontario Gone Loony? Court Rejects Independent Contractor Arbitration Agreement

Common loon Ontario

Our northern neighbor, the common loon. Photo from Cornell Lab of Ornithology.

According to OntarioTravel.net, Ontario’s official bird is the Common Loon. The loon is a water bird, regarded as an agile swimmer and a connosseur of the fine fish that populate Ontario’s lakes.

Loon has a second, seemingly unrelated definition too, though. According to dictionary.com, synonyms for “loony” include screwball, wacky, kooky, nutty, crazed, batty, lunatic, cuckoo, nuts, silly, psycho, berserk, ape, barmy, bonkers, cracked, daffy, daft, delirious, and demented.

For fans of arbitration agreements, a recent decision by the Ontario Court of Appeals might be regarded as a bit loony (using the non-water-bird definition). Ontario has generally been considered a province friendly to arbitration agreements. In Heller v. Uber Technologies, Inc., the court found Uber’s stock arbitration agreement to be invalid Continue reading

“Flooding” Tactic Creates New Risk for Using Mandatory Arbitration Agreements with Independent Contractors

flood arbitration independent contractorsIn the Biblical story of Noah’s Ark, a world-engulfing flood destroys everyone except Noah, his family, and his mini zoo. A similar story appears in the Quran, and a much earlier world-engulfing flood was described in the Epic of Gilgamesh, a Babylonian poem dating back to the 19th Century BC, featuring Utnapishtim as our hero, a fellow who was awarded with immortality but whose name (unfortunately, IMHO) appears much less frequently on the Social Security Administration’s list of most popular baby names than our more recent pal, Noah.

A more recent trend in flooding comes from our friends in the plaintiffs’ bar. A popular tactic by companies wishing to avoid class action misclassification lawsuits has been to require independent contractors to sign arbitration agreements with class action waivers. These agreements force misclassification clams into arbitration on an individual basis, where each individual single claim has little value. By forcing claims into individual arbitration, there’s much less incentive for plaintiffs’ lawyers to take these cases since each case is worth very little. It’s only in the class action arena that these claims are worth big money.

But according to a recent article in Bloomberg Law, some of the larger, more organized plaintiffs’ firms are fighting back by flooding companies with mass arbitration filings. Continue reading

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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