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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Why You Should Limit Workplace Rules That Apply to Contractors (Twisted Sister Edition)

There are so many great songs about defying authority. What’s the best? Hard to say. The best video, though – that’s easy. We’re Not Gonna Take It by Twisted Sister. (Watch here, then thank me later. I could watch the first minute a hundred times. Say it with me: “What do you want to do with your life?”)

Rock may about breaking rules, but business is not. With your employees, there are lots of rules you want them to follow, and you probably list them in painful detail in handbooks, posters, flyers, brochures, catalogs, signposts, compendiums, directories, and mandatory worker inner eyelid tattoos.

What about independent contractors, though? To preserve independent contractor status, you already know you want to try to minimize your exercise of control. But some rules are needed, expecially for contractors who work on your site.

Here are some guidelines to consider:

Rules appropriate for employees, but not well-suited for contractors:

  • Employee Handbooks
  • Policy Manuals
  • FMLA Policy
  • Vacation and leave policies

Applying those employee-specific rules to independent contractors would tend to support an argument that contractors are being treated like employees.

Some rules, though, are more appropriate to ask on-site contractors to follow.

Examples of rules that are generally suitable to apply to contractors:

  • Safety rules, especially those related to ensuring safety at the facility (e.g., must wear hard hat, please do not flick matches at that industrial-size fuel tank, keep your fingers clear of the 4000 ton forging press)
  • Emergency evacuation or exit procedures
  • Anti-Discrimination Policy (if drafted broadly, to cover employees, contractors, visitors, interlopers, outerlopers, sidelopers, etc.)

These types of rules can be applied to contractors because they do not tell the contractor how to do the work. Instead, they are designed to ensure a safe and productive space where no one gets hurt.

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

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Drivers Rack Up Misclassification Settlements, While GrubHub Fights Back

In 1984, the Cars released a sad-sounding song called Drive. I assume it was about a guy longing for a girl, but it’s too depressing to listen to the whole thing. Throughout the song, Ric Ocasek asks “Who’s gonna drive you home tonight?” (Why the long face, Ric? Kidding.)

If you use a ride hailing service, chances are it’s an independent contractor driver who’s gonna drive you home. But in several high profile lawsuits, drivers have challenged their independent contractor status. While these suits have been in the news for years, there have been a recent flurry of high dollar settlements. Earlier this year, Lyft agreed to pay $27 million to a class of 95,000 drivers in California and Door Dash agreed to pay $5 million. Just last week, Postmates agreed to pay $8.75 million.

Notably, none of these settlements resolved the issue of whether drivers for these companies are employees or independent contractors. The settlements involved payouts and agreed-upon changes in company policies, but none of the drivers were reclassified as employees.

GrubHub, on the other hand, has taken a misclassification case to trial. The case being tried is not a class action, and only about $600 is at issue. But the case may have significant ramifications for the status of independent contractor driviers, both at GrubHub and potentially elsewhere, and the case is being watched closely. (You can read more here and here.) As of this morning (9/18/17), the case is still in trial and there has been no verdict.

The point to remember is that companies who use an independent contractor model face a substantial risk of being sued. Plaintiffs’ lawyers are aggressive in recruiting contractors to file lawsuits that challenge their status as independent contractors, arguing that they should be paid as employees instead.

Companies using a contractor model should be proactive. Take steps to evaluate these relationships now. Adjust the facts and contract language to best position your business to defend against a misclassification challenge.

Independent contractor misclassification litigation is active and should be watched closely — unlike the Cars, who broke up in 1988 (for the most part, anyway; you can read more here in the unlikely event you care about the current status of the Cars).

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

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Irma, Harvey and Force Majeure Clauses: What Does It All Mean?

What is Force majeure hurricane legal law irma harvey contracts IMG_1108Your contracts with staffing agencies and consultants probably include a bunch of legalese boilerplate mumbo jumbo at the end, which no one ever reads. One of those standard clauses is a “force majeure” clause. That’s French for “Skim over this clause.”

Companies affected by Irma and Harvey, however, may have good reason to check their contracts for these clauses. “Force majeure” means, literally, superior force.

These clauses typically say that So-and-so is excused from performing under the contract in the event of uncontrollable circumstances, such as war, terrorism, hurricanes, voodoo curses, other Acts of God, or anything caused by Pedro Cerrano and Joboo’s Cult (Major League) [Ed. Note: “Hats for Bats!”].

These clauses excuse non-performance that would otherwise be a breach, if the breach is caused by these types of conditions. Suppose you have a hotel in Tampa. You kept the hotel open during Irma because your building is sturdy and can provide respite to residents in evacuation areas. South Floridians who drove north fill your hotel, and it’s sold out. Your housekeeping and restaurant services are outsourced and provided by a separate services company. The services company is required to supply labor sufficient to staff the hotel’s housekeeping and restaurant functions. The day before the hurricane, however, no one shows up to work.

Did the services company breach the contract? Under normal circumstances, probably yes. With a hurricane bearing down on the area, however, the force majeure clause may excuse the failure to perform. A failure that might otherwise constitute a breach may be excused under a force majeure clause.

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

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When to Embrace Joint Employment, and When to Run Like Hell (Pink Floyd, 1979)

Joint employment risks dangers choices joint employer IMG_1101Life is full of serious questions. For example, Should I stay or should I go? (The Clash, 1982). Or, Will you love me forever? (practically every song ever, but for now, we’ll go with Meatloaf in Paradise by the Dashboard Lights, 1977).

When engaging non-employee workers, businesses must also confront a serious question: Embrace joint employment, or try to avoid it? (Frank Zappa confronted a different kind of serious question in Why Does It Hurt When I Pee?, 1979, but that’s beyond the scope of this blog.)

Many of my posts have been geared toward strategies for trying to avoid joint employment. There is another way, though. Sometimes, it may be better to embrace joint employment. But know the pros and cons.

Here are some things to consider:

Pros:

So, you’re thinking of embracing joint employment? That’s certainly an option. If you go in this direction, you can exert all the control you want over your non-employee workers. Tell them how to do the work, supervise them, discipline them, make them follow all your rules. Let them have a company email address and fancy name badge. If the workers are going to be joint employees anyway, there’s no reason to hold back.

You still have the benefit of having another company handling the administrative burdens like payroll and onboarding. You avoid adding to employee headcount, and you probably maintain some extra flexibility in setting staffing levels if your business is experiencing ebbs and flows.

Cons:

The biggest downside to joint employment is the risk of joint liability for errors you didn’t make. Did the staffing agency underpay overtime? Or miscalculate hours worked? Or fail to pay for time worked off the clock? Or hire illegal aliens? Or fail to file proper tax forms?

You get the picture. If you are a joint employer, your business is equally responsible for the consequences of any of these errors, even though you had nothing to do with them.

Yes, you can include an indemnity provision in your contract, but that should provide only limited comfort. Is the staffing agency adequately insured? Will they stand behind their promise? Do you want the hassle of defending an audit or lawsuit, then trying to rely on a contract to recover your losses? (Read more on the dangers of joint employment here.)

Joint employment can still be full of nasty little surprises, even when you go into it with your eyes open to the risks.

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

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Tip of the Day: Set Up a Gatekeeper

door-gate-entrance-gateway

What you don’t know can hurt you.

Claims of independent contractor misclassification can sneak up on companies that don’t even know they have a problem.

Businesses usually treat the retention of contractors as an expenditure, not an increase in headcount. Since no new employees are being hired, Human Resources Departments and Legal Departments often have no idea when operations managers have retained contractors–sometimes at distant locations.

Operations managers usually don’t know the risks of independent contractor misclassification. Why would they? They don’t know what to look for in contracts or what words to avoid. They need a job to be done, and they find someone to do it. End of story, right? No! It feels great if you can trust your operations managers to solve their own problems, but if this is what happens at your company, you may have hidden misclassification risks.

One way to prevent these unforeseen risks is to create an internal gatekeeping process. Require approval by a point person before any manager can retain an independent contractor. The same rules would  apply for outsourcing any work to a consultant or an agency. This gatekeeper would be trained to spot potential misclassification risks.

The gatekeeper could approve or disapprove requests to retain contractors and could guide managers on best practices for overseeing contractors’ work without exerting too much control.

Summary:  Large organizations can benefit from designating a gatekeeper who must approve all requests to retain independent contractors. The gatekeeper process can help to ensure that misclassification risks are evaluated and controlled proactively.

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

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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 allowed to circumvent your business and provide the same service directly to that customer, effectively cutting you out.

Non-circumvention clauses should be drafted carefully and narrowly. The prohibition should be limited in scope to (a) services your business can provide directly and (b) services that the subcontracor provided through your arrangement, as a result of your introduction. Don’t overreach. The prohibition should be limited in time, as well.

Protect the opportunities you create. Or the 1274th quote might be about opportunities lost. (Goodreads.com also has 903 quotes about regret.)

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

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