Tag Archives: Mistakes

03.30.17
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Four Ways to Give Up Control and Protect Independent Contractor Status

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Retaining control over how independent contractors do their work can sink an otherwise legitimate independent contractor relationship.

Fortunately, steps can almost always be taken to give up aspects of control that do not hurt the business case for using a contractor instead of an employee. Companies need to be thoughtful and proactive, though, in evaluating and modifying these relationships — before they are challenged in a misclassification claim.

Here are four aspects of control you may be able to relinquish in your relationships with independent contractors: Continue reading →

03.27.17
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Avoid this Common But Disastrous Mistake in Staffing Agency Agreements

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A client once asked me to review the Employment Agreement of a candidate they were considering hiring. The candidate had recently been terminated but his Employment Agreement contained a 12-month non-compete, and my client’s job offer seemed pretty clearly to be for a competing job.

But the terminating employer made once huge mistake. When it meant to terminate employment, instead it terminated the agreement … and with it, the non-compete.  Oops!

I see the same mistake in Staffing Agreements and Professional Services Agreements all the time.

These agreement are usually intended to serve as Master Service Agreements (MSA), with additional work orders to govern the actual services to be provided. These MSAs contain very important clauses that are intended to survive, even after the services have stopped. Examples of clauses intended to survive the termination of services include indemnification, insurance coverage, preservation of confidential information, and right to audit.

The mistake I see over and over, however, is the inclusion of a termination clause that allows for termination of the agreement, not merely termination of services.

Continue reading →

03.23.17
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Today’s Tip: Avoid Blurring Lines Between Independent Contractors and Employees

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This mistake may seem obvious, but companies do it all the time.  When an independent contractor is performing the same work as employees, the contractor is likely to be deemed an employee.

Remember, the determination of whether someone is an independent contractor or an employee is made based on the facts of the relationship, not what the parties call it. If the facts are that a contractor is doing the same work, in the same location, with the same instructions, and under the same supervision as an employee, then the contractor is likely an employee and should be paid as an employee.

I am not suggesting there is any problem using staffing agency workers or temp-to-hire.  Those workers are being paid by the staffing agency as employees. That is, their paychecks show withholdings and deductions, and their pay is reported by the staffing agency on a W-2, not a 1099. These are employees of the staffing agency (and very possibly your joint employees, but that’s a separate issue).

The issue addressed in this post is the use of 1099 independent contractors to perform the same type of work as employees.  If the work performed by an employee is employment, then it is very hard to maintain the position that the same work being performed by a contractor is not employment.

Summary: Avoid assigning contractors to perform the same work as employees.  When individual contractors and employees work side-by-side doing the same thing, the likelihood of misclassification is high.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

03.20.17
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Are You Protecting Confidential Information When Using Independent Contractors? Try These 2 Tips.

confidential information - independent contractors - top-secret-1076813_1920Do your independent contractors have access to confidential information?  Does your independent contractor agreement provide you with sufficient protection?

Tip #1: Be sure your independent contractor agreement includes a Confidential Information section. It should prohibit the contractor from using or disclosing confidential information at any time, including after the retention is completed.

Be sure, however, to consider these carve-outs to allow disclosure under these limited circumstances:

  1. When a subpoena or court order requires, but consider requiring the contractor to provide advance notice so you have the opportunity to contest the potential disclosure.
  2. To a government agency, as part of a complaint or investigation. The SEC and DOL/OSHA have taken the position that it is a violation of federal whistleblower laws to have a Confidential Information clause that is so broad that it prohibits revealing confidential information to a government agency when whistleblowing. Under this whistleblowing scenario, you cannot require the individual to alert you to the disclosure first.
  3. Under circumstances described in the Defend Trade Secrets Act (DTSA), which took effect in 2016. Under DTSA, a company can recover additional damages and attorney fees if an individual improperly discloses the company’s trade secrets if the company provides advance notice to individuals of their DTSA rights.

Here is a sample DTSA disclosure:

You shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made (x) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (y) solely for the purpose of reporting or investigating a suspected violation of law. You shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Furthermore, in the event you file a lawsuit for retaliation by the Company for reporting a suspected violation of law, you may disclose the trade secret to your attorney and use the trade secret information in the court proceeding, if you file any document containing the trade secret under seal and do not disclose the trade secret, except pursuant to court order.

Tip #2: One other point to remember — and this is a common mistake: Make sure that when the agreement expires, the obligation not to disclose confidential information remains in effect. I have seen too many termination clauses where the agreement terminates, not just the relationship. If the entire agreement terminates, you may accidentally be terminating the contractor’s obligation to preserve confidential information after the engagement ends.

When you end an engagement, you probably want to terminate the engagement, not the entire agreement.

Have fun out there!

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

03.16.17
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Contractors Gone Wild! Are You Covered?

independent contractor vs. employee thieves-2012538_1280When an employee embezzles money, a company may look for insurance coverage under a crime policy, for employee theft. When an independent contractor steals money, a general commercial liability may cover the loss. But when an independent contractor acts like an employee, performs services typical of an employee, then steals money — neither coverage may apply.

That’s the harsh lesson recently learned by an Indiana company. Telamon Corporation retained an independent contractor to provide services through a series of consulting agreements. Eventually, the company made her a Vice President (please don’t name your independent contractors “Vice Presidents,” then claim they are not employees!) and put her in charge of recovering old telecommunications equipment to sell it to salvagers. She had other ideas, however. She recovered the equipment and sold it to salvagers, but she kept the money for herself. $5.2 million of it.

That eventually landed her in prison, where she won free use of an orange jumpsuit for five years. I know, she could have afforded a blinged-out $5 million jumpsuit, but she took the free one from the state.

Telamon, meanwhile, tapped its insurers to try to recover the cash.

Continue reading →

02.28.17
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Tip of the Day: Beware of the Million Dollar Unemployment Claim

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If your former contractor files for unemployment, pay attention!

When a former employee files for unemployment, it hardly matters to the business whether the individual gets unemployment coverage. Unless the individual had voluntarily quit, benefits are usually allowed. No big deal.

When an independent contractor files for unemployment, however, beware. Unemployment insurance coverage is available only to employees, not to independent contractors. For a contractor to obtain coverage, the state must first determine that the contractor was an employee.

This determination can have far-reaching economic consequences to the business, extending well beyond the individual contractor.

First, if your contractor was misclassified and is deemed an employee, you were not paying into the state unemployment insurance pool for that contractor — or for all contractors who are similarly situated. The state wants your money and may issue back assessments (and penalties and interest) for having failed to pay into the system — not just for that individual but for all other individual contractors who performed the same type of work.

Back assessments can stretch back years and can add up quickly, particularly for businesses that retain a large number of individual contractors.

Second, the impact of a misclassification finding can quickly snowball beyond the land of unemployment insurance.

Continue reading →

02.23.17
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Sticks & Stones: What Not to Call Your Independent Contractors

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“Sticks and stones can break my bones, but names will never hurt me.” Au contraire. That old adage may have rang true on the playground — or more likely, it probably got you beat up if you actually said it on the playground — but it does not ring true when speaking  about your independent contractors. Words matter. A lot.

Remember, any court or agency evaluating whether your independent contractor relationship is properly classified (and is not employment) will look to the facts. The facts include whether the parties refer to the relationship in ways that resemble employment. Avoid using terms that sound like employment.

Here are 14 things not to say about your independent contractors: Continue reading →

02.13.17
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Why Your Standard Agreements with Staffing Agencies Are Risky Business (Starring Tom Cruise)

broken-glass-joint-employment-agreementIt’s Valentine’s Day. You and your sweetie want to get away for the weekend. Your high school offspring will stay home. They seem responsible, promise not to break the law, and promise if they break anything they will pay for it. So you’re good, right?

Come on, wake up. Have you seen Risky Business? American Pie? House Party (very underrated movie, by the way)? Continue reading →

02.09.17
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Tip: Avoid Rebranding Former Employees as Independent Contractors

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It has become fairly common to take an outgoing employee and rebrand the employee as a consultant / independent contractor — either as part of a severance plan or to phase the employee into a retirement status. Continue reading →

01.30.17
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Four FMLA Traps When Using Temp Workers — and How to Avoid Them

The FMLA is full of traps for companies who use staffing agency workers, both for staff augmentation and temp-to-hire. Here are a few of the most common mistakes and how to avoid them:

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photo credit: ransomtech Chimney Bluffs State Park via photopin (license)

1. Mistake: Not counting staffing agency time as service time, when determining whether the worker has worked for 12 months.

Tip: Staffing agency time counts. Add staffing agency time plus regular employee time to determine whether the worker has 12 months of service time. Accumulate all time worked during the past seven years. Continue reading →