Structuring Independent Contractor Agreements to Avoid Costly Misclassification Liability

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Structuring Independent Contractor Agreements to Avoid Costly Misclassification Liability Navigating Differing IRS, DOL, EEOC Definitions, Drafting Key Provisions, and Avoiding Fatal Mistakes TUESDAY, DECEMBER 17, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Ellen Bronchetti, Partner, Sheppard Mullin Richter & Hampton, San Francisco William C. (Cory) Barker, Of Counsel, Paul Hastings, Atlanta The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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4 Structuring Independent Contractor Agreements to Avoid Costly Misclassification Liability Ellen Bronchetti & William C. (Cory) Barker Strafford Webinar - December 17, 2013

5 Employee v. Independent Contractor INDEPENDENT CONTRACTORS Retain control over their schedule and number of hours worked, jobs accepted, and performance of their job. They may have a major investment in equipment, furnish all their own supplies, provide their own insurance, repairs, and all other expenses related to their business. They may also perform a special service that is not in the normal course of business of the employer. Many companies (particularly in the freight transport industry) specify the independent contractor's schedule, require purchase of vehicles from the company and prohibit work for other companies. While some independent contractors may work for a number of different organizations throughout the year, there are also many who retain independent contractor status even though they work for the same organization all year. EMPLOYEES Usually work at the schedule required by the employer. Usually, employee performance is directly supervised by the employer. 5

6 Importance of Proper Classification Independent contractor status is defined by law, not by the parties agreement. It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors by carefully evaluating the relevant factors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered. 6

7 Employee v. Independent Contractor Misclassification Why are employees misclassified? Ignorance or Misapplication of applicable legal standards Merely categorizing someone as an independent contractor does not make them one Paying an individual as a non-employee and issuing a 1099 does not make them an independent contractor Arrangements that have evolved over time and lost the proper characterization Individual decision-maker fails to follow company policies or directives Cost independent contractors are cheaper than employees and some employers are willing to take the risk 7

8 Legal Consequences of Misclassification Consequences of Treating an Employee as an Independent Contractor If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker. IRS reclassification as an employee occurs where persons claimed as (or claiming to be) independent contractors are re-categorized by the Internal Revenue Service (IRS), or by state tax authorities, as W-2 employees. The reclassification can result in the imposition of fines, penalties, and backtaxes for which the employer is generally liable. These amounts could cost a business large sums of money. 8

9 Other Legal Consequences of Misclassification Record keeping laws NLRA and duty to bargain OSHA State law issues (workers compensation; unemployment compensation) 9

10 Determination of Contractor Status Remember: Independent contractor status is defined by law, not by the parties agreement. Different Agencies Use Different Tests Internal Revenue Service: Right to Control Test Fair Labor Standards Act: Economic Realities Test National Labor Relations Act: Common Law Agency Test Title VII of the Civil Rights Act of 1964: Combined Test Employment Retirement Income Security Act: Common Law Agency Test Unemployment Insurance Acts: Largely the Control Test 10

11 Legal Framework: IRS Test and Guidance Issued

12 IRS Test: Overview For federal tax purposes, the usual common law rules are applicable to determine whether a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business. All evidence of the degree of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories: Behavioral Control Financial Control The Relationship of the Parties. 12

13 IRS Test: Behavioral Control Behavioral Control covers facts that show whether the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means. 13

14 IRS Test: Financial Control Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes: The extent to which the worker has unreimbursed business expenses The extent of the worker's investment in the facilities or tools used in performing services The extent to which the worker makes his or her services available to the relevant market How the business pays the worker, and The extent to which the worker can realize a profit or incur a loss 14

15 IRS Test: Relationship of the Parties Relationship of the Parties covers facts that show the type of relationship the parties had. This includes: Written contracts describing the relationship the parties intended to create Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay The permanency of the relationship, and The extent to which services performed by the worker are a key aspect of the regular business of the company 15

16 IRS Test: Application Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination. 16

17 Behavioral Control: Application Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of: (1) Instructions the business gives the worker. An employee is generally subject to the business' instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work: When and where to do the work What tools or equipment to use What workers to hire or to assist with the work Where to purchase supplies and services What work must be performed by a specified individual What order or sequence to follow The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right. (2) Training the business gives the worker. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods. 17

18 Financial Control: Application Facts that show whether the business has a right to control the business aspects of the worker's job include: (3)The extent to which the worker has unreimbursed business expenses. Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services they perform for their business. (4) The extent of the worker's investment. An employee usually has no investment in the work other than his or her own time. An independent contractor often has a significant investment in the facilities he or she uses in performing services for someone else. However, a significant investment is not necessary for independent contractor status. (5) The extent to which the worker makes services available to the relevant market. An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market. 18

19 Financial Control: Application Contined (6) How the business pays the worker. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly. (7) The extent to which the worker can realize a profit or loss. Since an employer usually provides employees a workplace, tools, materials, equipment, and supplies needed for the work, and generally pays the costs of doing business, employees do not have an opportunity to make a profit or loss. An independent contractor can make a profit or loss. 19

20 Type of Relationship: Application Facts that show the parties' type of relationship include: (8) Written contracts describing the relationship the parties intended to create. This is probably the least important of the criteria, since what really matters is the nature of the underlying work relationship, not what the parties choose to call it. However, in close cases, the written contract can make a difference. (9) Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay. The power to grant benefits carries with it the power to take them away, which is a power generally exercised by employers over employees. A true independent contractor will finance his or her own benefits out of the overall profits of the enterprise. 20

21 Type of Relationship: Application Continued (10) The permanency of the relationship. If the company engages a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship. (11) The extent to which services performed by the worker are a key aspect of the regular business of the company. If a worker provides services that are a key aspect of the company's regular business activity, it is more likely that the company will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship. 21

22 DOL Test / FLSA

23 Employment Tests Vary By Statute - FLSA The Fair Labor Standards Act ( FLSA ): The FLSA defines an employee, subject to certain limited exceptions, as any individual employed by an employer. 29 U.S.C. 203(e). The statute also defines employ as to suffer or permit work. 29 U.S.C. 203(g). 23

24 Employment Tests Vary By Statute - FLSA Because the FLSA itself lacks a definition of who is an employee, courts have developed their own legal test on the issue the so called economic realities test. (see Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1382 (3d Cir. 1985), cert. denied, 474 U.S. 919 (1985)). Some circuits consider only five factors (leaving out #6 below), while others consider all six factors. (1) The degree of control exercised by the employer over the work performed; (2) The relative investments by the employer and the worker in materials and equipment; (3) The degree to which the worker s opportunity for profit and loss is determined by the employer; (4) The skill and initiative required in performing the job; (5) The permanency of the relationship; and (6) Whether the worker s service is an integral part of the employer s business. 24

25 Employment Tests Vary By Statute - FLSA Recent illustrative cases regarding the application of the economic realities test to independent contractor cases: Gate Guard Services L.P. v. Solis, No. V (S.D. Tex. Feb. 13, 2013) The DOL sought over $6 million in back wages for gate attendants and service technicians whom the DOL contended were improperly classified as independent contractors. The court found that the gate attendants, who were responsible for logging in vehicles that entered and exited oil field operation sites, were properly classified as independent contractors. The gate attendants were authorized to hire relief workers and could leave the oilfield site at their discretion so long as they had the gate covered; they were not provided performance evaluations or disciplined and were expected to operate without daily supervision; they received no training or instruction on how to perform their work; they were free to accept or reject gate assignments as they pleased; they could potentially increase their profits by using relief workers or performing other jobs on site; and the nature of the position was temporary without guarantee of continued assignments. The company had also entered into written independent contractor agreements with the gate attendants. Scantland v. Knight, Docket No. 8:09-cv EAK-TBM (M.D. Fla. July 16, 2013) The Eleventh Circuit reversed the district court decision granting summary judgment for the company on misclassification claims brought by cable, internet and phone service technicians. The Eleventh Circuit applied the economic realities test and found that four factors favored employee status: 1) the company exercised significant control over the technicians such that they were not in business for themselves ; 2) the technicians had limited opportunity for profit and loss; 3) the relationships were of a long duration; and 4) the technicians were integral to the company s business. 25

26 Employment Tests Vary By Statute - FLSA By contrast, in Luxama v. Ironbound Express, 2013 U.S. Dist. LEXIS (D.N.J. June 27, 2013), the court dismissed a misclassification lawsuit brought by truck drivers against a freight transportation company, finding that four factors supported independent contractor status: 1) the company exercised minimal control over the drivers, even though it retained the right to supervise the loading of trucks and to direct the drivers to load and unload trucks; 2) drivers retained substantial control over their work hours and jobs performed, could acquire additional trucks and hire helpers; 3) drivers have a significant investment in their trucks; and 4) possession of a CDL is a specialized skill. In Hart v. Rick s Cabaret, 09 Civ (PAE) (S.D.N.Y. Sept. 10, 2013), the district court found that exotic dancers were misclassified as independent contractors under the FLSA s economic realities test. Significantly, the employer issued print guidelines which regulated almost every aspect of the dancers behavior within the Club as well as their work schedules. The defendant argued that these rules were geared toward safety and legal compliance, but the court disagreed and found that the vast majority had nothing to do with either safety or legal compliance concerns. The Club s control of overall operations (music, advertising, etc.) also limited the dancers control over the means by which they could make money from customers, and the Club not the dancers made the primary financial investments in the business. Exotic dancing is also not considered skilled work. The dancers were also integral to the Club s business. 26

27 Federal & State Government Compliance Efforts - FLSA US Commission on Future of Work Management Relations recommended unified definition of employee/independent contractor in 1996 but no action has been taken DOL Misclassification Initiative: The DOL has been actively partnering with federal and state agencies to reduce instances of worker misclassification. As part of this initiative, the DOL has targeted certain industries, including the construction, restaurant, and landscaping industries, and identified specific cases for investigation. Federal & State MOU s: As part of its Misclassification Initiative, the DOL has signed Memoranda of Understanding ( MOU ) with federal and state agencies. The MOU Between the IRS and the DOL is a joint initiative to improve compliance with laws and regulations administered by the two agencies and to reduce the tax gap. As part this effort, the IRS and DOL will increase information-sharing and collaboration and participate in joint outreach relating to worker classification and other issues of mutual interest. Labor commissioners and other agency leaders in fifteen states have signed MOUs with the DOL s Wage and Hour Division and/or other federal entities, which will enable the DOL to share information and coordinate enforcement efforts with participating states. 27

28 Federal & State Government Compliance Efforts - FLSA DOL s Worker Classification Survey The Worker Classification Survey is the DOL s first survey examining worker classification issues. The DOL first issued notice of the survey and solicited comments on January 11, 2013 (with a comment period that closed on March 12, 2013). After the first round of comments, the DOL prepared a new survey. On November 8, 2013, the DOL published notice of this survey (see /pdf/ pdf), and again invited comments by December 9, There is speculation that the survey will be used to set the stage for new FLSA requirements. The DOL s website currently lists the survey as an on-going study and describes the Worker Classification Survey as follows ( The survey will purportedly seek to cover questions related to independent contractor/employee status and also overtime exempt status issues. It is likely that the DOL will try to utilize the survey as a basis for imposing disclosure/notice requirements that provide employees with additional information regarding their status and that will purportedly help them understand whether they are properly classified. 28

29 EEOC Test and Guidance Issued

30 Employment Tests Vary By Statute - EEOC/Title VII Test An employer must have a certain number of employees to be covered by the laws that the EEOC enforces. This number varies depending on the type of employer (for example, whether the employer is a private company, a state or local government agency, a federal agency, an employment agency, or a labor union) and the kind of discrimination alleged (for example, discrimination based on a person's race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information). If an employer has the required number of employees, a person is protected by the anti-discrimination laws if he or she is: An employee A job applicant A former employee An applicant or participant in a training or apprenticeship program People who are not employed by the employer, such as independent contractors, are not covered by the anti-discrimination laws. 30

31 EEOC Test: Overview In most circumstances, an individual is only protected if s/he was an "employee" at the time of the alleged discrimination, rather than an independent contractor, partner, or other non-employee. The question of whether an employer-employee relationship exists is fact-specific and depends on whether the employer controls the means and manner of the worker's work performance. This determination requires consideration of all aspects of the worker's relationship with the employer and is determined by a multi-factor test. The overarching issue is the hiring party s right to control the manner and means by which the product is accomplished. Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318, (1992) 31

32 EEOC Test: Application Factors indicating that a worker is in an employment relationship with an employer include the following: The employer has the right to control when, where, and how the worker performs the job. The work does not require a high level of skill or expertise. The employer furnishes the tools, materials, and equipment. The work is performed on the employer's premises. There is a continuing relationship between the worker and the employer. The employer has the right to assign additional projects to the worker. The employer sets the hours of work and the duration of the job. The worker is paid by the hour, week, or month rather than the agreed cost of performing a particular job. The worker does not hire and pay assistants. The work performed by the worker is part of the regular business of the employer. 32

33 EEOC Test: Application The employer is in business. The worker is not engaged in his/her own distinct occupation or business. The employer provides the worker with benefits such as insurance, leave, or workers' compensation. The worker is considered an employee of the employer for tax purposes (i.e., the employer withholds federal, state, and Social Security taxes). The employer can discharge the worker. The worker and the employer believe that they are creating an employeremployee relationship. This list is not exhaustive. Other aspects of the relationship between the parties may affect the determination of whether an employer-employee relationship exists. Furthermore, not all or even a majority of the listed criteria need be met. Rather, the determination must be based on all of the circumstances in the relationship between the parties, regardless of whether the parties refer to it as an employee or as an independent contractor relationship. 33

34 Other Tests ERISA & ACA

35 Employment Tests Vary By Statute - ERISA In Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (1992), the Supreme Court found that the term employee as used in ERISA incorporated the common law agency criteria for identifying master-servant relationships. 503 U.S. at 323. The Court opined that the common law test involves the application of several equally weighted factors with the goal of determining the extent to which the hiring party controls the manner and means by which the product is accomplished. The factors include: The skill required; The source of the instrumentalities and tools; The location of the work; The duration of the relationship between the parties; Whether the hiring party has the right to assign additional projects to the hired party; The extent of the hired party s discretion over when and how long to work; The method of payment; The hired party s role in hiring and paying assistants; Whether the work is part of the regular business of the hiring party; Whether the hiring party is in business; The provision of employee benefits; and The tax treatment of the hired party. 35

36 Employment Tests Vary By Statute - ACA Beginning in 2014, large employers must offer at least 95% of their full time employees health coverage or pay a monthly penalty if at least one full time employee who is not offered coverage enrolls in an insurance exchange and receives a federal subsidy to help pay for coverage in the exchange. A large employer must employ at least 50 full time employees or full time employee equivalents Employee determinations are based on common law standards Penalties for failing to provide coverage are significant 36

37 Best Practices to Preserve the Independent Contractor Relationship

38 Drafting Independent Contractor Agreements Because different agencies use different tests, it is very difficult to draft an independent contractor agreement. However, when drafting the agreement, it is important to bear in mind that the key determinant of independent contractor status across most employment and tax laws is the company s degree of control over the individual worker. The more control the company retains whether or not that control is actually exercised the more likely the individual will be found to be an employee. 38

39 Best Practices/Key Provisions for IC Agreements Centralize controls over who can retain independent contractors and under what circumstances Train employees who manage independent contractor relationships Routinely review individuals classified as independent contractors to ensure the status is appropriate 39

40 Managing an Independent Contractor DO: Allow the independent contractor to work a flexible schedule that focuses on completion of the final result by the delivery deadline An independent contractor should work at his/her own discretion, as long as it is within the confines of the agreement Allow the independent contractor to subcontract part of the services if s/he sees fit Pay independent contractors out of accounts payable and provide them with a Form 1099, if appropriate Do not pay them out of payroll or provide them with a W-2 40

41 Managing an Independent Contractor DO NOT: Provide the independent contractor with Employee benefits Payment at an hourly, weekly or monthly rate Use a fixed or project rate Training or instructions Tools, equipment, supplies or materials for free or at a subsidized price Allow the independent contractor to represent himself under the company s name or use copyrighted or trademarked company materials Unless s/he identifies him/herself as an IC Require the independent contractor to provide services exclusively for your company or perform services exclusively on your property 41

42 Key Provisions to Include in Independent Contractor Agreements and Sample Language

43 Best Provisions and Practices: Titles and Names The contract should affirmatively state that the contractor is engaged as an independent contractor. Nowhere in the contract should the individual contractor be referred to as an employee. Independent Contractor. Contractor is an independent contractor to the Company. Nothing in this agreement shall be construed or applied so as to create or constitute any employment arrangement, partnership, joint venture, membership, or other relationship besides that of an independent contractor between Contractor and Company. Under no circumstances shall Contractor look to Company as his/her employer, or as a partner, agent, or principal. 43

44 Best Provisions and Practices: Nature of Services The contract should specify the particular purpose for the engagement the services the contractor will render but should not dictate how the services will be performed on a day-to-day basis. There should be no directions or control, other than the end result of the engagement. The agreement should expressly grant the independent contractor the right and freedom to work the hours that s/he deems necessary to perform under the contract. Independent Contractor To Control Performance. Company shall have no right or authority to direct or control the Independent Contractor or his employees with respect to the performance of the Independent Contractor's duties under this Agreement, or with respect to any other matter, except as otherwise provided by this Agreement. It is understood and agreed that Company is interested only in the results to be achieved by the Independent Contractor under this Agreement; the manner and method of performing all duties and services of the Independent Contractor under this Agreement and achieving the desired results shall be under the exclusive control of the Independent Contractor. It is further understood that the Independent Contractor is free to contract with other companies to provide consulting services, as long as such companies do not sell products or services which are directly competitive with the products or services sold by Company. 44

45 Best Provisions and Practices: Duration of Engagement The engagement should have a definite duration or be for a specific project and state that the relationship will terminate at the close of the specified time or project. Term and Termination. The term of this Agreement shall be for a period of months, commencing on. This Agreement may be terminated by either party hereto for any reason whatsoever by providing written notice to the other party at least seven calendar days prior to the effective date of such termination. Company shall not owe the Independent Contractor compensation for any services provided by the Independent Contractor following the effective date of such a termination. 45

46 Best Provisions And Practices: Benefits The parties should agree in writing that the contractor will not receive any employee benefits. Benefits. Neither the Independent Contractor nor his employees shall be eligible to participate in any benefits or programs sponsored or financed by Company for its employees, including, but not limited to, any insurance, profit sharing, workers compensation, retirement, vacation, sick, or holiday programs and benefits. 46

47 Best Provisions And Practices: Insurance The parties should agree that the contractor is responsible for obtaining all general business and liability insurance, as well as appropriate licenses. Insurance. The Independent Contractor is responsible for obtaining liability insurance, as well as all other forms of insurance required by law. 47

48 Best Provisions And Practices: Non-Exclusivity The agreement should not restrict the independent contractor s ability to work for other companies. Non Exclusive, No Guarantee. The relationship between Company and Contractor is discretionary and nonexclusive. It is anticipated that Contractor will provide services to third parties, and this Agreement does not restrict Contractor from any pursuits unrelated to the Services. Company may employ or engage other to perform services similar to the Services provided by Contractor. 48

49 Best Provisions and Practices: Compensation Payment should be in the form of a lump sum or in installments as work is performed. It should not be given on an hourly, weekly or monthly basis, because this too clearly mirrors employee wages. Compensation. The Independent Contractor shall be paid a project fee equal to. The Project Fee will be paid to the Independent Contractor at/on. 49

50 Best Provisions And Practices: Performance of Services The agreement should allow the contractor to have the discretion to decide where to perform the work, rather than forcing the independent contractor to always be on company premises. Services. Contractor shall provide the services and any associated tangible items described in this contract. Contractor, and not the Company, shall determine and control the means, details and methods used in performance of the Services. 50

51 Best Provisions And Practices: Expenses The contract should expressly state that the contractor is responsible for paying business expenses related to furnishing services under the contract, such as the cost of equipment, tools, office space and support services. Equipment, Supplies and Expenses. Except as specified below, Contractor shall provide, at Contractor s expense and without reimbursement by the Company, all equipment, supplies, and other resources used by Contractor, and pay all other expenses incurred by Contractor, in the provision of the Services and other performance under this Agreement. 51

52 Best Provisions And Practices: Non-Disclosure / Confidentiality The parties should include a written agreement regarding confidentiality of information and the ownership rights of the Company with respect to material created by the contractor. Confidentiality / Intellectual Property / Non-Disparagement. In performance of the Services, Contractor may have access to Company Confidential Information. At all times during and after the term of this Agreement, Contractor shall keep all Company Confidential Information confidential, shall not disclose Company Confidential Information to any third party, and shall not use any Company Confidential Information in any manner or for any purpose other than the performance of the Services. Upon termination of this Agreement or earlier upon request by Company, Contractor shall return to Company all Company Confidential Information and all property of Company or its members. 52

53 Key Provisions to Avoid in Independent Contractor Agreements

54 Provisions And Practices To Avoid Do not utilize independent contractors who perform the same duties as company employees. Do not hire former employees as independent contractors and if you do establish restrictions on their engagement that prohibit them from performing the same work as when they were employees. 54

55 Provisions And Practices To Avoid Do not provide independent contractors any employee benefits. Not only access to benefit plans but things like vacation, access to employee discounts, invitations to employee events. Do not pay independent contractors in the same manner as employees. Limit training provided to the independent contractor to need to know items that are related to a specific project. Do not provide a new independent contractor with the full panoply of training you would provide an employee. 55

56 Provisions And Practices To Avoid Do not require independent contractors to work a particular schedule or hours of work. It is also important to avoid tracking independent contractor hours or whereabouts. Independent contractors should have far greater flexibility to come and go as needed to complete the assigned project. 56

57 Provisions And Practices To Avoid Place limits on direction given to independent contractors. Although some degree of communication regarding the execution of a project is acceptable, you should avoid controlling the way in which the goals of the independent contractor are accomplished. You may have financial penalties in the independent contractor agreement for failure to achieve goals. 57

58 Provisions And Practices To Avoid Limit the length and scope of independent contractor projects. Do not retain the independent contractors on an open ended basis. Do not use one independent contractor agreement to cover a lengthy or open ended retention. Enter into new independent contractor agreements for each significant project. Defining the scope of the work to be performed and the length of the engagement in the agreement are important. Do not prohibit the independent contractor from working for more than one client at a time. 58

59 Ellen Bronchetti Sheppard Mullin Richter & Hampton William C. (Cory) Barker Paul Hastings