Workshop: Independent Contractors and other Legal Issues in the Shared Economy

Transcription

1 1871 Workshop: Independent Contractors and other Legal Issues in the Shared Economy Tim Brennan January 11, 2016

2 Contact Information Tim Brennan Senior Associate Employment

3 The Shared Economy 3

4 Independent Contractors Founder Compensation Background Checks 4

5 Independent Contractors Independent Contractors Founder Compensation Background Checks 5

6 Independent Contractors: Why Do We Care? Motivation: 20%-40% labor cost savings flexibility no employment tax no overtime or minimum wage no payment for down time no benefits or Obamacare no workers compensation no unemployment contributions no discrimination statutes Start-Ups Drivers Branded Service / Installation Strippers 6

7 Independent Contractors: Why Do We Care? Revenue Federal: $2.72 Billion/year in lost revenue State: $200+ Million/year (per state) This is a sample presentation title in footer MMM dd, yyyy 7

8 Independent Contractors: Why Do We Care? Too many hunters: State unemployment tax dept. State workers comp agency Private plaintiffs (e.g., discrimination) State income tax Federal income tax Social Security Government investigations (e.g., state or federal dept. of labor) 8

9 Independent Contractors: Why Do We Care? Too many hunters: State unemployment tax dept. State workers comp agency Private plaintiffs (e.g., discrimination) State income tax Federal income tax Social Security Government investigations (e.g., state or federal dept. of labor) 9

10 Independent Contractors: Why Do We Care? Too many hunters: State unemployment tax dept. State workers comp agency Private plaintiffs (e.g., discrimination) State income tax Federal income tax Social Security Government investigations (e.g., state or federal dept. of labor) 10

11 Independent Contractors: Why Do We Care? Too many hunters: State unemployment tax dept. State workers comp agency Private plaintiffs (e.g., discrimination) State income tax Federal income tax Social Security Government investigations (e.g., state or federal dept. of labor) 11

12 Independent Contractors: Why Do We Care? Too many hunters: State unemployment tax dept. State workers comp agency Private plaintiffs (e.g., discrimination) State income tax Federal income tax Social Security Government investigations (e.g., state or federal dept. of labor) $97M in unpaid stock benefits to misclassified workers 12

13 Independent Contractors: Why Do We Care? Too many hunters: State unemployment tax dept. State workers comp agency Private plaintiffs (e.g., discrimination) State income tax Federal income tax Social Security Government investigations (e.g., state or federal dept. of labor) $97M in unpaid stock benefits to misclassified workers 13

14 Independent Contractors: Why Do We Care? Too many hunters: State unemployment tax dept. State workers comp agency Private plaintiffs (e.g., discrimination) State income tax Federal income tax Social Security Government investigations (e.g., state or federal dept. of labor) $97M in unpaid stock benefits to misclassified workers 14

15 Independent Contractors: Why Do We Care? Increased attention from federal and state regulators has led to a surge in misclassification lawsuits $97M misclassifying freelancers $27M misclassifying drivers $11M misclassifying delivery carriers $6.5M misclassifying installers and prospective buyers and investors are watching!

16 Misclassification: the Tests A-B-C Test A. The worker is free from the company s control and direction in performing the service B. The work doing is outside the employer s usual course of business C. The worker is customarily engaged in an independent trade, occupation, profession, or business IRS Test Behavioral Control: Does the company control or have the right to control what the worker does and how the worker does it? Financial Control: Are the business aspects of the worker s job controlled by the payer? (e.g., how worker is paid, whether expenses are reimbursed, who provides tools) Type of Relationship: Are there contracts or employee benefits (e.g. pension plan, insurance, vacation pay)? Will the relationship continue and is the work performed a key aspect of the business? DOL Test 1) The extent to which the work performed is an integral part of the employer s business. 2) The worker s opportunities for profit or loss 3) The relative investments in facilities and equipment by the worker and the employer. 4) The worker s skill in performing the job and initiative required for success. 5) The permanency of the worker s relationship with the employer. 6) The nature and degree of control by the employer. 16

17 Misclassification: Overtime The U.S. Department of Labor thinks it s pretty simple. Under the federal minimum wage and overtime laws: Most workers are employees 17

18 Misclassification: Overtime 18

19 Misclassification: Control Generally an individual is an independent contractor if the client controls only the resultof the work, and not themeans and method by which the contractor accomplishes it. Means/Method Result

20 Misclassification: Control This is a sample presentation title in footer MMM dd, yyyy 20

21 Misclassification: Disruption This is a sample presentation title in footer MMM dd, yyyy 21

22 Misclassification: Disruption Employee Hole IC Hole Dependent Contractor Hole? Overtime Minimum wage Social Security Medicare Health insurance Workers comp Unemployment Obamacare Paid leave Discrimination protection Expense reimbursement NOTHING Worker s comp? Unemployment? Expense reimbursement? This is a sample presentation title in footer MMM dd, yyyy 22

23 Best Practices: What To Avoid Training IC s IC s performing core functions of company Independent Contractors IC s in same positions and performing same work as employees IC s have no other clients IC s don t have their own profit/loss margins 23

24 Best Practices: IC Agreements IF you take the risk of using IC s or temps, use an agreement: Require IC to be a business entity, and contract with that entity only The company is prohibited from controlling how the IC does her/his job Require indemnity from the entity for employment claims Use arbitration clauses to inhibit class or collective actions Say IC can and does work with other clients and IC s own employees/subcontractors BUT, IC agreements only take you so far 24

25 Best Practices: Temp/IC Agreements Looks fine Well-drafted temp/ic agreements: 1. portray facial compliance with employment laws, 2. create some real protections. BUT CAUTION: a look beyond the document can betray it as a mere façade. The FACTS behind the façade are what matter. 25

26 Best Practices: Check Benefit Plans This Plan applies to employees only, and not to independent contractors. This Plan applies to only to individuals treated as Company employees for payroll tax purposes, regardless of whether a court or government agency determines them to be employees. 26

27 Founder Compensation Independent Contractors Founder Compensation Background Checks 27

28 Founder Compensation Employees and sometimes even founders cannot contractually agree to forego salary or wages. 28

29 Employer and Employee in Illinois Employer definition: entity that has employees. Employee definition: person permitted to work by an employer. This is a sample presentation title in footer MMM dd, yyyy 29

30 Employer and Employee in Illinois Employer definition: entity that has employees. BEST PRACTICE: Just pay each other salary of $455/week Employee definition: person permitted to work by an employer. Amounts to $23,660/year This is a sample presentation title in footer MMM dd, yyyy 30

31 Background Checks Independent Contractors Founder Compensation Background Checks 31

32 Background Checks U.S. Fair Credit Reporting Act Must get written authorization on stand-alone form. Before declining to hire based on background check results, must first give applicant opportunity to respond. Some studies show background check reports are wrong 20% of the time! A complex law. Talk to your lawyer. Illinois/State Law Do not ask about (a) arrests or (b) convictions that were expunged. Many states (including Illinois) prohibit asking about criminal background on an application. They require companies to wait until offering an interview or making a conditional employment offer. This is a sample presentation title in footer MMM dd, yyyy 32

33 Background Checks This is a sample presentation title in footer MMM dd, yyyy 33

34 Contact Information Tim Brennan Associate Employment Questions? This is a sample presentation title in footer MMM dd, yyyy 34