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.
My 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.
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.
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.
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.
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.
. . . 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.