Tag Archives: Master Services Agreement

03.04.24
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Don’t Horse Around: Here Are Three Agreements You Should Have on Your Shelf

Police in Wejherowo, Poland arrested a 19-year-old man for stealing a horse. The man was caught after neighbors reported that he was trying to lead a horse up the stairs to his third floor apartment.

Why would someone do that? Apparently he was trying to conceal the horse and thought his apartment would make a good hiding place. (After all, who would look in a third-floor walk up for a missing horse?) But getting the horse to the apartment was the man’s undoing.

He didn’t think through his plan. Don’t be like that man. Today’s post is to help you think through your plan in advance, but in the context of retaining non-employee labor, not stealing a horse.

I generally recommend having three types of agreements in your stable of documents. (Heh heh, see what I did there?) Each serves a different purpose and contains different features, even though there is often some overlap.

1. Independent Contractor Agreement. This should be crafted for use with solo independent contractors (1099s), regardless of whether there’s a single member LLC or a sole proprietorship.

The goal here is limit the risk of misclassification, that is, a finding that the worker is really your employee.

The agreement should identify and memorialize the facts that support IC status, such as that the company retains no right to control how the work is done, where it’s done, when it’s done, steps, sequence, etc.

If there are lots of ICs doing the same thing, individual arbitration agreements with class waivers can be highly useful to include too, as they reduce the downside risk of misclassification.

2. Vendor Outsourcing Agreement. This document is for when a function is entirely outsourced, such as in the hospitality industry, where it is common to outsource the housekeeping function.

There are two goals here.

One goal is to memorialize the facts that will help avoid a finding of joint employment. These workers should be managed independently of your company’s employees and should not be directly supervised by your managers.

The second goal is make it difficult for a disgruntled worker of the vendor to allege joint employment, and there are various tools in the toolbox to help accomplish this objective.

3. Staffing Services Agreement. This document is to be used when a third party provides staff augmentation services or other workers who are commingled with your employees or supervised by your managers. In this scenario, there’s a reasonable risk of joint employment.

We want to use the contract to build defenses.

First, we want to lay the groundwork for a claim against the vendor if the vendor fails to pay its employees in accordance with the law.

Second, we want to throw obstacles in the way of anyone who might want to bring a joint employment claim. Individual arbitration agreements with class waivers are helpful in that regard.

If you’re working with a staffing agency, the form they provide you is not likely to help limit your legal risks. It’s always better to start with your own form.

Don’t Horse Around

Agreements provided by your vendors are unlikely to provide you with any meaningful protections. Different agreements have different purposes, and these three agreements should each be used in different situations.

It doesn’t work to use a staffing agreement with outsourced employees, and it doesn’t work to use an independent contractor agreement with outsourced labor employed by the vendor. Those workers aren’t independent contractors at all; they’re employees of the vendor. The legal risk you’re trying to address is whether you’re a joint employer. That’s a very different legal question than whether the worker is misclassified.

So be sure to use the right kind of agreement for the right kind of situation.

That means planing ahead and having the right forms on hand, ready to go. As our friend in Wejherowo learned the hard way, you’ve got think all the way through your plan in advance.

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© 2024 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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12.18.23
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How to Handle Background Checks for Staffing Agency Workers (and Avoid a Stinky Mess)

After a stolen SUV crashed in Wisconsin and its four occupants fled, one made the unfortunate decision to hide in a golf course port-a-potty. A golfer watched the events unfold and decided to take action, flipping the port-a-potty on its side, door facing down, to trap the car thief inside. (Oh, crap!) Police then arrived on the scene and arrested the now-stink-covered occupant.

Today’s tip is to help you avoid a stinky situation when requiring vendors to background check their workers.

When working with staffing agencies or other vendors supplying labor, you’ll often want to require background checks. But you have a few competing interests, so it matters how you impose this requirement.

First, you probably don’t want to do the background check yourself. For joint employment reasons, you don’t want to play a role in hiring and selection and, for practical reasons, you don’t want to adjudicate background check results on all of the vendor’s candidates. Require them to do the initial screening.

Second, it would be easy to provide the vendor with a list of automatic exclusions, but you don’t want to go there either. Background checks laws generally require an individualized analysis to be done. Avoid creating a “no hire” matrix.

So how can you make sure the vendor conducts an appropriate review of the results and doesn’t send you a worker with a concerning criminal history?

Here’s the strategy I prefer:

1. Require the vendor/staffing agency to perform the background check.

2. Require that they adjudicate the results.

3. But, also require that if they want to place anyone with a prior conviction for theft or violence, they must first notify you and provide a copy of the report and any additional information provided by the candidate.

4. Require that the vendor/staffing agency follow all background check laws.

5. Require that the vendor/staffing agency obtain consent from each candidate to share the results of any background check with your company. They should incorporate that concept into their consent document.

Here’s why I like this process:

First, as a practical matter, a vendor with this arrangement is very unlikely to send you anyone with convictions for theft or violence. They’ll prescreen those out because they know that’s a concern for you.

Second, if the vendor wants to advance someone with one of these convictions, it means one of two things: (a) there may be mitigating factors with this candidate that would support allowing the person to work, or (b) the vendor is being lazy, sending everyone through without running the first level adjudication you’ve required.

If (a), that’s good information. Conduct a second level adjudication. Consider mitigating factors. See how the candidate responds to a pre-adverse action notice. Avoid automatic exclusions and consider whatever facts the candidate provides.

If (b), you need to have a talk with the vendor because they’re not performing the first level adjudication that you’ve required. If you didn’t have this kind of notice process, you might never have known the vendor was being lazy in the adjudication process.

There are several decision points in drafting this kind of clause, but the points listed above are the main items to cover. Variations in drafting may focus on the timing of the convictions, the types of convictions to identify, whether to include drug testing or motor vehicle records checks, and which party performs various tasks related to pre- and post-adverse action notifications.

You’ll also want your contract to make clear that any decision you make that a candidate cannot be placed at your company is not a decision about their overall employment status with the agency. The agency can do what it wants with the person’s employment. All you’re saying is that the agency can’t assign that person to work for you.

By including a process like this in your agreements with staffing agencies and other vendors that supply laborers, you can stay on the right side of the background check law, manage joint employment risks, and still have the opportunity to block candidates who have a criminal history that creates unacceptable risk.

It’s too bad that future background check results for the car thief who got stuck in the port-a-potty won’t include that level of detail. Not that it would make a difference in screening out someone who steals cars, but it would be a fun detail to know. Yuck!

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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12.11.23
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The Best of You: When to Use a Master Services Agreement with Independent Contractors

In “Best of You” by Foo Fighters, Dave Grohl repeats the word “best” 40 times. In “Coconut,” Harry Nillson repeats the word “coconut” 28 times. I get it, Harry, she put the lime in the coconut and she got a bellyache. In “I Don’t Care Anymore,” Phil Collins ends the song with 18 mentions of “no more,” which all right I get your point.

Repeating the same thing over and over might be a useful device when performing a song. But it’s annoying in independent contractor agreements. And it’s unnecessary.

Consider using a Master Services Agreement (MSA) instead, which is a particular type of independent contractor agreement.

An MSA is an evergreen contract that describes the terms of the relationship but does not specify the particular project. The MSA will often describe the type of service to be performed — delivery, installation, whatever — but it will not describe the specific delivery or installation (or whatever).

Instead, each specific project will be described in a separate Work Order. For an installation, the Work Order would describe the customer, the location, the product to be installed, any specific customer requirements tied to that order, the installation time or deadline, and the fee to be paid. The MSA and Work Order would both make clear, in pre-printed text, that every Work Order is subject to the MSA.

The advantage of this setup is that it’s simple and convenient. There’s no need to restate the full terms of the relationship in every Work Order, particularly if the contractor is likely to perform multiple projects, all of which are subject to the same general terms and conditions.

The MSA will be a multi-page document containing all of the general terms we would expect to see in an independent contractor agreement, including representations as to IC status, a recitation of facts that support IC status, the obligations of each party, payment and invoicing terms, a general description of services, a list of things the contracting party will not control, indemnity, insurance, duration or termination, survival, and other typical IC contract terms.

The MSA should make clear that the IC can reject or accept specific proposed Work Orders, which is consistent with the IC being allowed to choose when to work. But the MSA should also make clear that once a Work Order is accepted, the IC has a contractual obligation to perform.

The MSA might also specify the manner in which Work Orders are offered and accepted. While it is preferable to have each Work Order signed, that’s not always practical. Consider how Work Orders will be accepted, and describe in the MSA what will constitute acceptance. In some cases, acceptance might be indicated by the contractor’s receipt of a Work Order and the contractor’s failure to decline it within 24 hours. It’s ok to create a presumption of acceptance, but you’ll want to preserve the contractor’s right to decline any particular Work Order without penalty.

And that’s how you can create the best, the best, the best of contracts.

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© 2023 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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02.07.22
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Iguanas with Jackets: Here’s One Exhibit to Include with Every Staffing Agency Agreement

I met this little guy in Costa Rica, 2017

It happens every year.

When the temperature in Florida drops into the 30s, the iguanas freeze. Unable to regulate their body temperature, they drop out of trees, landing on sidewalks and in yards like solid rubber toy animals.

The freeze doesn’t kill them though. It just stuns them for a while, then they eventually warm up, reanimate, and go about their daily iguana business.

Getting stunned like this can’t be avoided for the iguanas. Amazon is not yet selling iguana jackets, and online delivery to lizards is notoriously complicated. (Note to self: Business opportunity?)

But unlike iguanas, businesses can reduce their chances at getting stunned — at least when it comes to avoiding lawsuits from staffing agency workers.

When staffing agency workers file wage and hour lawsuits, they often sue both the staffing agency and the business where they worked. The workers allege that both are joint employers, often bringing class claims or a collective action.

Businesses that carefully draft their staffing agency agreements will have some natural defenses against these claims. I’ve written about that here. I call this strategy The Monster with Three Eyes.

But there’s a fourth strategy too. Force individual staffing agency workers to arbitrate these claims instead of pursuing them in court, and include class action waivers with the agreement to arbitrate.

There are two ways to introduce arbitration agreements with class waivers in your staffing agency agreements.

First, you can mandate that staffing agencies sign arbitration agreements with their own employees. Some courts have found that arbitration agreements between a staffing agency and its employee protect the third party business too, even if the third party hasn’t signed the agreement.

But that approach carries risk. The agency’s arbitration agreement might be poorly written, or it might include terms that make it unenforceable. Your protection is only as good as whatever form agreement the agency presents to their workers.

There’s a second approach I like better. It goes like this:

  • Draft your own individual arbitration agreement (with class waiver) for staffing agency workers to sign, requiring them to arbitrate any claims against you. Make it mutual, of course.
  • Append it to the staffing agency agreement as an exhibit.
  • Include a clause in the staffing agency agreement requiring the agency not to assign anyone to your business unless they’ve first signed this agreement.

The agreement will be short. No more than two pages. It can also include an agreement by the agency worker to protect your confidential information and assign inventions.

If the document is properly characterized as an offer by your business, accepted by the worker, you have offer plus acceptance equals contract — even if your business doesn’t sign it. There is specific language you can include that can make that work.

So if you use staffing agency workers, don’t assume you won’t get sued as a joint employer. You particularly want to avoid class and collective actions, and this type of arbitration agreement will do the trick.

Plan for bad weather in advance. Include this layer of protection with your staffing agency agreements. Consider it your own little iguana jacket.

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© 2022 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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08.26.19
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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.

Need training on avoiding independent contractor misclassification claims? Hey, I do that!  

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08.28.17
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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 Continue reading →

08.21.17
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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.)

Continue reading →