How Not to Make Sure Someone Is an Independent Contractor


Earlier, I noted both the serious consequences for treating employees as an independent contractor and gave a rule of thumb for telling the difference. Here is what you should absolutely not do if you are trying to make sure that people are independent contractors:

Never have them sign an independent contractor agreement.

Painters never have to sign independent-contractor agreements. They don’t have to. Everyone knows they are not employees. But why would anyone require that someone doing work for them expressly agree to be an independent contractor and not an employee?

Independent contractor agreements don’t do much legally. They cannot turn an employee into an independent contractor. But they can show that whoever foisted it on the worker was trying to do just that.

Anyone who makes someone agree to be an independent contractor already has some doubt about whether that person really is an independent contractor. If they were sure, they wouldn’t worry about signing the agreement.

An employer that “willfully” treats an employee as an independent contractor is looking at a fine of at least $5,000 up to $15,000 or more. An employer who “willfully” doesn’t immediately pay employees all wages due them when they quit or are terminated can also pay a hefty penalty.

Independent contractor agreements protest too much. They show an employer “willfully” treating an employee as  an independent contractor. They are a subterfuge that will cost the employer thousands.

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Independent contractors are (1) independent and (2) contractors

shutterstock_323901203My last post gave a rule of thumb to tell employees from independent contractors. I said that if you have to ask, they’re employees. Here’s a little more detail.

The technical definitions of independent contractor and employee are not just technical but unhelpful. A law book will say that the employees have no control over the “manner and means of accomplishing the result desired.” Independent contractors, on the other hand, control the means of accomplishing the result, but the person hiring them still gets to control the result.

Anyone thinking that these definitions sound like gobbledygook is in good company. Like many legal rules, they don’t really say anything. They just lead to arguments about where “the result of the work” begins and “the means of accomplishing the result” ends. Logicians call this argument a “semantic dispute.”

Fortunately, courts and lawyers have come up with a much more useful distinction. Independent contractors have their own business. Employees work for the employer.

Here’s an example. Painters I get to paint my office are independent contractors:

  • The painter isn’t doing my work. My clients hire me to represent them in legal disputes, not to paint.
  • Painters have skills I don’t. They can paint my office better and faster than I can.
  • Painters only paint and nothing else. I won’t ask them to fix the plumbing or the roof, much less to make telephone calls or to go to the courthouse for me.
  • Painters have the equipment. I do not have the ladders or the right brushes.
  • Painters work on their own schedule. They paint my office when they can fit me in.
  • I don’t care who else they paint for.
  • Once my office is painted, they do nothing more for me until something else needs painting.

Now look at what makes someone an employee:

  • Employees do the work that customers pay the employer for. Sprig‘s customers pay it to deliver organic meals, so the people delivering the meals are employees.
  • Employees provide no special skills to the employer. Anyone getting on-the-job training is an employee.
  • Even specially skilled workers are employees if others do the same work. Airlines have many mechanics, all employees.
  • Employees may do several things for an employer. Do you meet with customers, create social media, and take out the garbage? You’re an employee.
  • Employees get scheduled by their employers. Employers tell employees to come in at 10:00 or next Tuesday.
  • Anyone who can’t work for a competitor is an employee. Google software employees can’t work for Facebook.
  • Anyone who can’t be expected to hold another real job is an employee. A 30-hours-weekly IT guy is an employee.
  • When employees finish doing one thing, they go on to the next. Employers give employees to-do lists.

In my next post, I will explain the worst mistake a business can make to make sure that someone working for it is an independent contractor.

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Employee or Independent Contractor? A Rule of Thumb


Another lawsuit has hit the sharing economy. Less than two months ago, Sprig, which delivers organic meals on demand in San Francisco, announced that all its drivers would be employees. This week it got sued for, up until then, wrongly considering its drivers (whom it calls “servers”—big mistake) to be independent contractors. The servers will win, of course.

The penalties for calling an employee an independent contractor are steep:

  • If employees had worked overtime without getting time and a half, the employer would face one fine ($50 per employee per paycheck) for not paying overtime and another ($100 per employee per paycheck) for not paying the full amount due to the employee in each paycheck.
  • Even if the employer owed no overtime, it would still face one penalty ($100) to the employee and another ($250) to the state for each time it didn’t give a pay stub with a paycheck.
  • If the employer doesn’t pay all overtime wages due before the employee quits or is terminated, the employee may get another 30-days wages.
  • On any day that the employer did not provide a meal break to an employee who was entitled to one, the employee gets an extra hour’s pay.
  • There’s a little penalty, anywhere from $5,000 to $25,000,for each employee treated as an independent contractor.
  • Not buying workers’ comp insurance for those nonindependent contractors could lead to jail time and a fine of at least $10,000.
  • The Internal Revenue Service looks unkindly on employers that don’t withhold taxes from employees.

So, how do you make sure that the people working for you are independent contractors? That’s the wrong question. Don’t even ask it. It’s like asking how I make sure that the knives I throw don’t hurt people. The answer: I don’t throw knives.

The right question is, do you have employees or independent contractors?     Here’s the rule of thumb: if you have to ask, they’re employees.

A business should determine who it needs to accomplish a certain task:

  • Does it need someone there regularly?
  • Does the work have to take place on site?
  • Can the person work for both the business and its competitors?
  • Does the person need supervision or training? Does the person bring skills to the job?
  • Most importantly, is the work to be done the firm’s main line of business?

The answers to these questions will determine whether whoever does the work is an employee or independent contractor. In my next post, I will explain how.

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When someone butt-calls, should you listen?


It’s happened to everyone. We answer the phone only to find no one who wants to talk to us on the other end. Instead, we got called accidentally and are now privy to a conversation to which we were not invited. Should we listen? What if it’s really good?

A federal court decided last week that listening in on the telephone after being pocket dialed did not violate the pocket dialer’s privacy rights. Carol Spaw, the executive assistant to the chief executive of the Cincinnati/Northern Kentucky International Airport, got a call from James Huff, who chaired the airport’s board. She answered the phone only to find herself listening in as Huff and the board’s vice chair discussed illegally terminating Spaw’s boss. Rather than hanging up, Spaw took notes on and even recorded the conversation. For ninety minutes she kept listening as Huff ended that conversation, walked to his hotel room, and told his wife what had happened.

When Huff learned what Spaw had done, he and his wife sued her for violating federal law prohibiting recording private telephone calls. But the Sixth Circuit Court of Appeals held that she had not violated Huff’s privacy: after calling Spaw, even accidentally, Huff could not then complain that she listened in.

The court did not give us carte blanche to listen in on butt-dialed calls. Technically, the court’s decision is only law in Ohio, Kentucky, Tennessee and Michigan, but other federal courts will probably hold the same thing. California has its own Invasion of Privacy Act that prohibits eavesdropping or recording private conversations. Not only do violators of the law face felony charges, but their victims can sue them for penalties starting at $5,000. A California court need not agree that accidentally dialing someone eliminates any privacy in a conversation.

Most importantly, a conversation by its nature involves at least two people, only one of whom butt dials. Even if Spaw did not invade Huff’s privacy, she still invaded his wife’s. And listening in on conversations in the marital bedroom goes beyond creepy.

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“My boss drives me a crazy” is not a disability



A supervisor rides his subordinates hard, criticizing them and picking on them. He gives his team members severe stress, including headaches and upset stomachs. Is this stress a disability that the employer must accommodate? California lawyers have pondered this question.

Under the Americans with Disability Act, “management-induced anxiety disorder” is not a disability. Under that law, a condition counts as a disability only if it “substantially limits one or more major life activities.” If getting a different boss would make the stress go away, then stress caused by the current one does not substantially limit the major life activity.

California law is different. Since 2001, the Fair Employment and Housing Act has required only that the condition limit, not substantially limit, the major life activity. When the Legislature changed California law, it specifically meant to protect employees whom the ADA failed to protect with its “substantially limit” standard. Did it mean to protect employees with mean managers?

Today a California court of appeal said that this state’s law does not go that far. Stress from oversight of an employee’s work performance is not a disability. Although the court did not really explain how it reached its conclusion, it implicitly re-enforced something courts have said over and over.

Bad management and unlawful conduct are not the same.

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$180,000 warning against employee-poaching suits.

Silicon Valley is competitive, and employees feel the brunt, Any company hiring a competitor’s employees will more often than not find itself on the wrong end of a lawsuit, facing allegations by hiring the employees it was really trying to steal the competitor’s trade secrets. The high possibility of facing these difficult and extensive cases will deter employers from hiring away each others’ employees

Cypress Networks learned the hard way that a trade-secrets suit could be the wrong response to  a competitor hiring away its employees. Cypress and Maxim Integrated Networks compete in touchscreen technology. Maxim hired a headhunter who sent emails to nine Cypress employees asking if they would be interested in working for Maxim. Cypress sued Maxim, claiming that Maxim was trying to steal its trade secrets. Less than six months after filing suit, Cypress dropped the case, and Maxim demanded its attorney’s fees.

The superior court awarded Maxim over $180,000 in fees because Cypress had sued in bad faith. Cypress never had any evidence that Maxim did anything more than solicit its employees, which Maxim had every right to do. (Cypress argued that even which employees worked on touchscreen technology was a trade secret; the headhunter pointed out that he easily learned the information on LinkedIn.)

Last month a California Court of Appeal affirmed. It made very clear that anyone suing a competitor for stealing trade secrets had better make sure that the competitor did more than hire away employees.

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A reason for lawyers to love mediation . . .

. . . and for clients to be wary. A California court has held that an attorney cannot be liable to a client whom he gave bad advice during a mediation. John Amis, along with the corporation of which he was an officer and minority shareholder, got sued for breach of contract. During mediation, his attorney advised him to accept a settlement in which the corporation agreed to pay $2.4 million. He agreed to guarantee the corporation’s debt: anything the corporation could not pay, he would.
The whole point of a corporation is limited liability—its debts are not its owners’. But when this corporation could not pay anything, Amis found himself under a $2.4 millon  judgment. He sued his attorney who advised him to agree to the settlement, to which the court responded, “Nope.”
California law has a “privilege” for communications in mediation. Nothing said in one is admissible in court. The idea is that encouraging frank discussion of a case’s merits and difficulties will more likely produce a settlement. But the court said that the privilege covers not just what the parties say to each other or to the mediator but what they say to their own lawyers. So the attorney can tell the client anything at all without fear of getting sued for it.
In the court’s defense. it did not think this attorney’s mediation immunity was a good idea. In fact, it found the result unjust. But it had no choice given the statute and precedent.

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Getting paid for sleeping at work



California workers who spend the night as part of their job won a big victory last week. According to our state supreme court, an employer that makes its employees spend the night on the job must pay them for sleeping.

That’s not what happens under federal law. Employees who work a 24-hour shift may “agree” that their employer does not have to pay them for time they spend sleeping, even though they may have to work at a moment’s notice. And employees who have to reside on the employees’ property for more than a few days may “agree” that they are not working the whole time that they are on duty, even though they can’t leave. They can still, the argument goes, sleep, eat, watch TV, and do all the other things people do at home (except go to a neighbor’s, drink a couple beers, or have friends over). Some California courts said that employees here can agree not to get paid, too.

CPS Security Solutions, Inc. learned that California workers actually can’t. CPS provides guards for construction sites, deterring theft and vandalism when the contractors have stopped work. Weekdays, its guards spend eight hours in uniform and another eight on call, and then get eight hours off. Weekends, they spent sixteen hours in uniform and eight on call. When on call, they stay on-site in house trailers.

CPS said it didn’t have to pay its guards for the time they spent sleeping while on call, but the California Supreme Court put its foot down. CPS makes them stay on the property so that they can be ready if anyone comes around who shouldn’t. CPS’s  customers, in turn, pay it to have guards on site constantly. It has to pay the guards for doing what CPS gets paid for making them do.

Even in California, not all employees have to get paid for sleep time. The Industrial Wage Commission, which is the California agency that sets wage-and-hour rules, specifically says that ambulance drivers and attendants don’t have to get paid for sleeping at work. Nor do healthcare workers who spend the night in an employer’s or client’s home. And if you just work swing or graveyard, sleeping on the job will still get you canned.

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Do this site’s terms and conditions mean anything?

When you buy something online, do you read the site’s terms and conditions? Of course not, but why not? The answer to the second question makes a difference whether the site owner can hold you to them as a contract.

One of the big issues in internet law is when a website operator can enforce terms and conditions that no one really reads. Twice recently the Ninth Circuit Court of Appeals has refused to enforce particular ones. In the first case, Donovan Lee bought a background report from Intelius. A year later, he learned that he had unintentionally also subscribed to a “Family Safety Report” that, for $19.95 a month, would tell him if sex offenders moved into his neighborhood. (Washington, where Lee lived, like California, has a website where he could get the same information free). He also learned that not Intelius but Adaptive Marketing, a completely separate company, was charging his credit card every month. Lee responded with a class-action suit against both.

Adaptive Marketing claimed that Lee could not sue it because the terms and conditions on Intelius’s site said that he had to arbitrate.  But to get to the terms and conditions, Lee first would have to read the gray print next to the button he clicked, which would direct him to two long paragraphs, written in gray on a beige background. At the end of those paragraphs, he would find a link to a different page with the terms and conditions. Paragraph 10 of the terms and conditions had the part about arbitration. Nowhere did the website even mention Adaptive Marketing, only Intelius.

The court held that Adaptive Marketing was just not a party to the contract, so it could not enforce the arbitration agreement. What’s more, the entire website was so confusing that Lee could hardly have known he was agreeing to buy a Family Safety Report, much less that he was agreeing to arbitrate any dispute. As a result, the terms and conditions were not a contract.

Yesterday, in a second case, the court held that Barnes & Noble’s browsewrap agreement was not a contract. Kevin Nguyen ordered two HP TouchPads advertised at fire-sale prices from B&N. B&N confirmed the sale but, citing unexpected demand, canceled it the next day. Like Lee, Nguyen brought a class action suit, saying that he lost the opportunity to buy the tablets elsewhere. B&N, like Adaptive Marketing, said that its site’s terms and conditions prevented Nguyen from suing.

Wait a minute, you should say, how can Barnes & Noble cancel Nguyen’s purchase but still stick him with the contract? Because its terms of use say that they apply to anyone visiting its website, even to browse. The court disagreed. People browsing websites do not look at the terms of use without some reason to think that they are supposed to.

In both cases, the court suggested that the terms might be enforceable under other circumstances. It only lightly touched on the real problem with them. The whole point of a contract is to allow people signing it to know what to expect. If you don’t read it, it’s your fault if there’s something in it you don’t like. But no one can be expected put the time and energy into reading a website’s terms and conditions before making a small purchase.

A report from Intelius costs between $4.00 and $50.00. Its terms and conditions come to three pages, single spaced, in twelve-point type. No one would pay $4.00 to buy a pen or an ice cream cone from their local store if they first had to read and sign a three-page contract. The only reason that ecommerce companies can require these contracts is because they know their customers will ignore them.

Even more egregious are Barnes & Noble’s terms of use. (Warning: who knows what you’ve agreed to by clicking.) Again, printed in twelve-point type, it comes to over eleven pages. Add on the copyright and privacy policies, and it’s fourteen. Who would go into a store to browse if they first had to read and sign a fourteen-page agreement? A writing that one party cannot reasonably expect the other to read just should not be a contract.

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BYO? No, no.

According to a California court yesterday, employers may not require employees to use their own cell phones for work. Or at least not without paying them. That paying-them part may prove hard.

The California Labor Code requires an employer to reimburse its employees for any thing that they spend discharging their duties or following the employer’s orders. So for example, California employers cannot require employees to buy a uniform, and a mall retailer that makes its employee dress in the clothes it sells must pay for them. The idea is that being an employer means paying the costs of running the business.

Schwan’s Home Services, like many businesses, makes its employees use their own cell phones while working. It thought that it did not have to pay them for doing so because it was not making them buy the phones. The employees, after all, would have had the phones even if they did not have the job. The court pooh-poohed this argument: “Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee.”

What remains to be seen is how the employers will pay for the employee’s phones. Will they require the employees seeking reimbursement to turn in their cell-phone records every month? Those employers will then pay their employees the proportionate cost of using the phone for work rather than for private matters. They can also see just how much time their employees are making personal calls when they should be working.

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