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Transcript of Independent Contractors In Newspaper Operations Inland Human Resources Management Conference, March...
Independent Contractors In Newspaper Operations
Inland Human Resources Management Conference, March 10 & 11, 2015
Presented by: Kyle R. Hartman
©2015 Seyfarth Shaw LLP 2
Independent Contractors – Biggest Risks
• Who are we contracting with?• Distributors• Newsroom• Others?
• If the Contracts are with Companies is there a risk?• Former Employee Turned Contractor Who Services Only One
Client • Distribution Business• Temp Agency
• Relevant Concepts:• Single Employer• Joint Employer Status
©2015 Seyfarth Shaw LLP 3
Independent Contractors – Biggest Risks (continued)
• Federal and State Enforcement Initiatives• IRS & DOL• State Labor Agencies • State Unemployment Compensation/ Workers Compensation
• Private Attorneys• Class and Collective Actions
©2015 Seyfarth Shaw LLP 4
Independent Contractors -- Eliminating Risks
• Structure and Auditing of Relationship• Contract Review• Training of Mangers and all Individuals who Interact with
Contractors• Termination Provisions• Arbitration and Waiver of Class Action Rights
©2015 Seyfarth Shaw LLP 5
Background
• What is an Independent Contractor
• Update – Applicable Laws and Initiatives
• Consequences of Misclassification
• Contract Training and Negotiation
©2015 Seyfarth Shaw LLP 6
What is an Independent Contractor?
• “Independent Contractor” is the legal term given to an individual or company providing services to another company to distinguish that person or company from an employee.• An independent contractor has discretion to determine the
manner and means by which the services are performed
• Different laws utilize different tests and consider different factors to analyze whether an entity or person is an independent contractor• The factors considered and the weight given to any particular
factor depends upon the law being considered, the relevant industry and relationship, and the agency or other entity making the determination.
©2015 Seyfarth Shaw LLP 7
Misclassification Initiatives - Federal
• A federal study estimated that the U.S. government loses $2.72 billion a year because of employees misclassified as independent contractors.
• The same report cited an estimate that state governments lose nearly $200 million a year in unemployment insurance taxes for every 1% of employees who are misclassified.
• President Obama’s 2010 budget assumes that the federal crackdown will yield at least $7 billion over 10 years.
©2015 Seyfarth Shaw LLP 8
Misclassification Initiatives - Federal
• In September 2011, the DOL and IRS signed a Memorandum of Understanding (“MOU”) to allow the sharing of information regarding worker misclassification.
• In 2012, the Wage and Hour Division of the Department of Labor requested $15,223,000 and 107 FTE to support an additional 3,250 investigations as part of its Misclassification Initiative.
• DOL’s FY2015 budget request sought an additional $41 million (18% increase) for the Wage & Hour Division to allow the Division to hire 300 new investigators.
©2015 Seyfarth Shaw LLP 9
Misclassification Initiatives - States
• 20 State agencies have signed information sharing MOUs with the Wage and Hour Division of the DOL.
©2015 Seyfarth Shaw LLP 10
Misclassification Initiatives - States
• Some states have made intentional misclassification a crime in connection with failure to provider worker’s compensation.
• Some states have provided for huge penalties for intentional misclassification.• In California, up to $15,000 per contractor; $25,000 for
a pattern or practice.
• Massachusetts imposes criminal penalties for intentional misclassification and in 2011 collected $10.9 million in restitution, penalties, fines and overdue taxes.
©2015 Seyfarth Shaw LLP 11
Why Is the Independent Contractor Issue Such a Challenge?
• Few bright line tests, nearly all require a balancing of multiple factors, with no single factor controlling.
• Different decision makers can make different determinations when considering the same set of facts.
• Different tests, depending upon the law at issue.• A worker can be an independent contractor under one law and
an employee under another.
©2015 Seyfarth Shaw LLP 12
Consequences of Misclassification
• If a court or agency determines that workers classified as independent contractors are in fact employees, then the employer could be subject to:• Back taxes, interest and penalties (unemployment insurance)
• Workers compensation contributions
• Civil liability for injuries caused by the workers
• Liability for failure to comply with state and federal laws regulating employment relationships (e.g. pay stubs, expense reimbursment)
• Back taxes, interest and penalties for failure to withhold income tax and failure to pay FICA and FUTA
• Subject to Labor (unionizing) laws
©2015 Seyfarth Shaw LLP 13
Threats from the Plaintiffs’ Bar
• Opportunity for large class actions and the ability to recover attorneys fees has lead plaintiffs’ law firms to seek out misclassification lawsuits for economic gain.• Commercials• Billboards• Websites• Even newspaper ads
©2015 Seyfarth Shaw LLP 14
How Challenges to Independent Contractor Status Can Arise
• “Contractor” files unemployment claim upon contract termination.• May trigger review and audit – UC almost
always finds employee status.• State UC may notify DOL under information
sharing MOU, and DOL may choose to audit/ investigate
©2015 Seyfarth Shaw LLP 15
How Challenges to Independent Contractor Status Can Arise
• Third party injured in auto accident sues newspaper as the “deep pockets.”
• Contractor is disgruntled or wishes to challenge termination of contract and:• makes claim for severance benefit or other
retirement, welfare benefits.• claims not paid minimum wage.
©2015 Seyfarth Shaw LLP 16
What Are Some Strong Independent Contractor Practices?
• NEGOTIATE TERMS IN THE CONTRACT
• ENSURE ACCURACY IN THE CONTRACT --Make sure your day-to-day practices are consistent with the terms of the contract.
• LIVE BY The CONTRACT unless amended by a written document signed by both parties.
©2015 Seyfarth Shaw LLP 17
What Are Some Strong Independent Contractor Practices?
• CONTRACT FOR, PAY FOR, AND MEASURE RESULTS PROVIDED• define objective terms and leave the
contractor to determine how to meet those terms
• REQUIRE THE RESULTS CONTRACTED FOR, NOT INTERIM STEPS TO OBTAIN THOSE RESULTS
©2015 Seyfarth Shaw LLP 18
What Are Some Strong Independent Contractor Practices?
• Ensure the relationship leaves contractors with RISKS OF LOSS & POTENTIAL FOR VARIATION IN PROFITABILITY
• DO NOT GET INVOLVED with a contractor’s relationship with its employees or contractors
• DO NOT PAY EXTRA -- no additional bonuses or “benefits” which the contract does not require, unless there is an amendment to the contract
©2015 Seyfarth Shaw LLP 19
What Are Some Strong Independent Contractor Practices?
• DO NOT CHANGE THE CONTRACT without mutual agreement written and signed by both parties
• TREAT CONTRACTORS DIFFERENTLY, they do not perform any other services as employees or receive employee benefits
©2015 Seyfarth Shaw LLP
Terminology Matters
ACCEPTABLE UNACCEPTABLE
Contractual relationship Employment relationship
Independent business personContractorWorker
EmployeeAgent of Company
Manager SupervisorBoss
Contract with Hire
Terminated for material breach of contract Fired
Terminated for cause
Manage contractors Supervise
Train
Instruct Contractors
Requiring Contractor to meet the final requirements of the contract
Control over the manner, means, mode, and/or details of the work
©2015 Seyfarth Shaw LLP
Terminology Matters
ACCEPTABLE UNACCEPTABLE
Contract fees
Services Fees
Wages
Pay rate
Benefits
Contract for Services Job
Discussion regarding breach of contract Discipline
Suspension
Subcontracting services is permitted Personal services is required
Allowing contractor to provide substitute services at their own discretion
Control or approval necessary for substitute services
Completion of services per contract Regular reports
Performance of services at contractor’s own selection of site
Performance of services on Company premises
Contractor furnishes his/her own materials, supplies, equipment, or rents or purchases it (in their own discretion) at the fair market rate
Provision of expenses, materials, supplies, equipment for free, or at a subsidized cost
©2015 Seyfarth Shaw LLP
Terminology Matters
ACCEPTABLE UNACCEPTABLE
Contractors receive only gross profits from the Company
Contractors receive wages or net profits
Contractor may work for competitors Restrictions on the Contractor unrelated to completion of contractual services
Performance of services by a final time only Set hours to report to work or perform services
Telephone calls to inquire as to performance of delivery services per contract, and whether newspapers will be picked up
Wake up calls
Liquidated damages Severance pay
Contract / Contract Proposal Employment application
©2015 Seyfarth Shaw LLP
Life of a Contract
• negotiation• approval/execution/administration• monitoring/management• amending• terminating• records retention
©2015 Seyfarth Shaw LLP
Contract Negotiations
• Your responsibility to ensure that the contractor understands that the contract is negotiable
• Also your responsibility to ensure that the contract is negotiated
• Being willing to negotiate doesn’t mean being willing to agree; means listening to the proposal and considering it with an open mind
©2015 Seyfarth Shaw LLP
Six Principles of Contract Negotiation
1. Know the contract Important for negotiations and managing the relationship with the distributor
2. Explain each paragraph of the contract to the contractor
3. Offer to let the contractor take the contract home with him and have his lawyer review it
©2015 Seyfarth Shaw LLP
Six Principles of Contract Negotiation
4. Carefully consider any change in the contract suggested by the contractor
5. Think of some items that you can change before starting the negotiations
6. Note all contract changes in writing
©2015 Seyfarth Shaw LLP
Evidence of Negotiations
• As you negotiate, be mindful of ways that you can show that a negotiation actually took place
• Make sure such evidence is filed/stored in such a way that it can be retrieved
©2015 Seyfarth Shaw LLP
Approval/Execution/Administration
Signed by both parties
Faxed copy is ok, but original is preferred
Copies given to all interested departments
Procedures are set up – payment, invoicing, delivery procedures, etc.
©2015 Seyfarth Shaw LLP
Monitoring/Management
Review frequently to ensure that both parties are abiding by terms agreed upon Did we receive certificates of insurance? Did we receive updates? Are we performing our obligations
(payments, maintenance)? Do we need an amendment? Is the other party in breach?
©2015 Seyfarth Shaw LLP
Amending
Amend contract if reality is different from contract terms
Amend to change prices
All amendments should follow same rules as for initial contract (negotiation, approval, execution, etc.)
©2015 Seyfarth Shaw LLP
Terminating
If terminating for breach - work with legal Follow termination notice requirements - if need
to give notice by registered mail with copies, make sure that is what you do
Flag calendar if need to give notice in order to exercise option to renew or not renew
Be aware of termination transition issues
©2015 Seyfarth Shaw LLP
Records Retention
• Need to follow retention policy
• If potential for litigation arises, need to make sure that no documents are accidentally destroyed
• If use a contract as a basis for another contract, make sure identifying information is deleted
©2015 Seyfarth Shaw LLP
Conclusions
• Ensure documentation supports the classification
• Ensure Contractors understand and live by the relationship agreed upon
• Ensure managers are trained to manage the relationship