Ten Key Provisions for Independent Contractor Agreements - Part 3 of our Updating

Briefly skipping over the important intellectual property ramifications of utilizing independent contractors rather than employees, I wanted to quickly review some of the important deal terms for independent contractor agreements, which are also available on a fully searchable basis at www.RealDealDocs.com.  I’ve also provided links to some recent independent contractor agreements filed by some public companies, such as this independent contractor agreement from an environmental consulting and technology provider based in Canada in addition to the ones found at the sites above.

It is generally good drafting to include the following terms in independent contractor agreements, particularly if your objective is to preserve independent contractor status rather than an employee relationship:

1.   Who the parties are and what is their intended relationship (i.e., independent contractor status)

2.   The services to be provided

3.   Compensation, the nature and timing of which contributes to the determination of independent contractor status

4.   Reimbursement of expenses

5.   Company’s cooperation obligations

6.   An affirmative representation of independent contractor’s understanding of tax obligations

7.   Ownership of work product, with particular attention to the assignment of intellectual property rights, which under statutory law in the US are automatically held by the independent contractor unless specifically assigned to the Company

8.   Confidentiality / non-disclosure and non-solicitation of employees or customers

9.   Termination provisions (the easier the independent contractor can terminate without penalty, generally the more likely an employee relationship is found)

10.   General provisions, including warranties, governing law provisions, arbitration, notices, survival, severability, assignability, indemnification, etc.

I should also mention that you can search here for specific deal clauses and provisions from independent contractor agreements, or from any other type of agreement for that matter.

Determining Independent Contractor vs. Employee Status - Part 2 of Updating our Independent Contractor Agreements

As I mentioned in a previous post on how we are updating our independent contractor agreements, one of the critical determinants is to figure out whether someone is an employee or an independent contractor.  This is important because it determines a Company’s liability to pay and withhold Federal income tax, social security, Medicare, and Federal unemployment tax, as well as potential liability for state based taxes.

Essentially, the tests to determine whether someone is an employee or an independent contractor come down to an issue of control - the more control the Company exerts over the individual, particularly with regard to how the work gets done and how autonomous the individual is in calling its own shots, the more likely the relationship is going to be seen as an independent contractor relationship.

The IRS breaks these elements of control down into three categories in this helpful guide:

1. “Behavioral Control – Facts that show whether the business has a right to direct and control the individual.”  These factors include the specificity of instructions and training.
2. “Financial Control – Facts that show whether the business has a right to control the business aspects of the worker’s job.”  To me, these factors go to how financially independent the individual is in terms of its ability to operate its business of providing services to the Company.
3. “Type of Relationship – Facts that show the type of relationship,” which include such factors as how long the relationship is intended to last, the written intention of the parties, etc.

In addition to the criteria proposed by the IRS, there are a number of common law criteria used in determining an individual service provider’s status with regard to employment, and individual states have their own guidelines for determining an individual’s status.  For example, see California’s guidelines here.

I’ll discuss some very important issues around intellectual propery ownership for independent contractor relationships in a subsequent post.

6 Tips on the New California Driving Ban on Handheld Cell Phones

Not so new, actually, as they were passed in late 2006, but the new prohibitions for driving while using a handheld cell phone in California take effect July 1, 2008.  Here’s the lowdown on the new California bans on using handheld cell phones while driving:

1)       It’s still OK to talk on the phone, but it must be handsfree to use it while driving.  And yes, holding the phone to dial is allowed.

2)      Amazingly, both text messaging and reviewing emails is not illegal per se.  Of course, to the extent you drive erratically or are involved in an accident, that could still result in citations and/or legal responsibility.  We expect this to be restricted or prohibited in the next 12 months.

3)       Any use of cell phones by those under 18 is banned, whether it is handheld or hands free.

4)       You may use a handheld phone for emergency purposes, but only to make emergency calls to a law enforcement agency, a medical provider, the fire department, or other emergency services agency.

5)       Commercial drivers are exempted from the law.

6)       Using a hand held device is considered a primary violation, so you may be stopped and cited just for this offense.  The prohibition on drivers under 18 using hands free devices is a secondary violation. 

One important legal aspect to take into account is that, while the fine and associated penalties are less than $100 for the first offense, the fact that it is a separate offense means that any negligent or reckless driving while using a handheld device resulting in, for example, a death could be more easily treated as manslaughter by a prosecutor.

You can find the full text of the new laws under California Vehicle Code (VC) §23123 and VC §23124.  If you are interested in other states’ requirements, there is a helpful link from the Insurance Instititute for Highway Safety here.

We have yet to see the new cell phone restrictions hit many companies’ personal vehicle use policies, but if you’d like to see some of them, you can find them under the Vehicles/Driving document type within the Labor & Employment Policies document category at http://www.realdealdocs.com/SearchDocument.aspx.

 

 

Updating your independent contractor agreements template

There is a very wide range of issues you can consider in determining how to structure and draft a consultant / independent contractor relationship.  I’ll be walking through some of these issues in a series of posts over the next several days, but they include:

1. Understand the key differences between independent contractor and employee status.  These include issues ranging from tax withholding responsibilities and worker’s compensation coverage to other general liability issues.
2. Reviewing the particular nuances of intellectual property ownership in an independent contractor relationship.
3. Covering the general contractual elements found in typical independent contractor agreements.

In our business, we like to keep these agreements relatively straightforward, and we rely on templates which cover the key issues.  That said, we’re sticklers in terms of IP assignment and the like, as many venture-backed businesses are.

If you are looking for some outstanding independent contractor agreement samples or templates, I’ve highlighted an excellent resource of documents that were drafted by some of the largest companies and law firms in the country. 

Writing Delaware employment agreements

I recently wrote about new resources for identifying California Employment Agreements to use in your business, or for drafting documents for your clients.  The rationale is clear - negotiating effective employment agreements that are applicable to your jurisdiction is essential to enforcing your rights appropriately.  Additionally, the ability to leverage legal agreements drafted by top law firms enables business owners and lawyers alike to find new ways of constructing deal terms or simply getting documents turned around more quickly.

This of course applies to many state jurisdictions within the United States, not the least of which is the ability to quickly find and browse across thousands of Delaware employment agreements.  These documents are particularly likely to have been drafted by top law firms, as large corporations tend to be disproportionately organized under Delaware law. 

If you need to find Delaware employment agreements using full text search criteria or other tools, such as limiting searches to particular industries, you can do that as well using these employment agreement search tools.

Yahoo’s severance plan - protecting your business or playing dirty?

On Monday, June 2, a Delaware judge unsealed redacted portions of Yahoo’s Change of Control Employee Severance Plan originally filed with the SEC in February. 

For background, the plan was originally enacted in the midst of the Microsoft efforts to acquire Yahoo, which have recently geared up again.  Release of the confidential items shows that the plan, which would have come into play in the event of a qualifying event such as an acquisition by Microsoft, would have added between $500 million to $2.4 billion in acquisition costs to Microsoft.

In defense of Yahoo executives, they laid out a number of rational objectives for enacting the plan, not the least of which is that it would keep large numbers of employees from bailing out at the first opportunity given all the uncertainty around the company’s future.  Shareholders, many of which wanted to increase shareholder value or find an exit due to Yahoo’s struggles over the past several years, have filed suit, alleging among other things that this was an attempt to thwart the acquisition, rather than just protect the company from losing critical employees. 

In balancing these competing interests, it will ultimately come down to how reasonable the plan is.  An easy way to see this is to compare the plan to other Change of Control Agreements and Employee Severance Plans.  You can find thousands of these at www.RealDealDocs.com.

So what do you think - a righteous and reasonable effort to prevent defections, or a nefarious scheme to deter Microsoft and maintain control of the company?

Is Displaying all these Legal Agreements legal and ethical?

I received a call on Thursday from the marketing director of a prestigious law firm about a new feature that was just released on RealDealDocs.com.  I wrote about it last week, but basically it makes it very easy to find legal agreements and contracts from top law firms, including, for example, agreements involving Latham Watkins, Wachtell Litpon agreements, Baker McKenzie contracts, etc.

It seems that an attorney at this marketing director’s firm mentioned that he had seen one of his agreements on a page on our site that highlighted agreements involving his firm, and he was wondering where the contracts came from.

We explained that these were publicly available documents, and that everyone is comfortable with both the legality and the ethics of posting these legal documents.  What makes it interesting is that, for the first time, there are millions of legal documents, including agreements and contracts, located in one place that are so easily searchable across lots of different criteria, including types of agreements, document titles, governing law, law firm, industry, etc., all the way down to the clause search level.

We started talking about the implications on larger law firms’ practices.  Our view is that this is another opportunity to get a firm’s name out in front of an audience of people working on the very deals that these firms specialize in, and it will help those who work to take advantage of this.  In fact, later this summer we plan on doing just that - providing law firms with an opportunity to get involved in contributing additional content, such as firm or practice area profiles, uploading additional documents or templates, etc. to get in front of this audience.

What do you think?

Browse Millions of Legal Agreements and Documents from top law firms

RealDealDocs.com just released a new feature, where lawyers, deal professionals, and entrepreneurs can browse legal agreements, contracts and documents from top law firms  across the world. These legal agreements include deals from companies ranging from the Fortune 500 to small and medium sized businesses, and cover everything from simple employment contracts to the most detailed employee benefits plans, and huge merger agreements to simple office leases.

Links to search documents by document type, full text, law firms, governing law clauses, etc. are also provided, making this a tremendously powerful tool for anyone needing to leverage real deal documents.

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New York Employment Agreements

I recently wrote about new resources for identifying California Employment Agreements to use in your business, or for drafting documents for your clients.  The rationale is clear - negotiating effective employment agreements that are applicable to your jurisdiction is essential to enforcing your rights appropriately.  Additionally, the ability to leverage legal agreements drafted by top law firms enables business owners and lawyers alike to find new ways of constructing deal terms or simply getting documents turned around more quickly.

This of course applies to many state jurisdictions within the United States, not the least of which is the ability to quickly find and browse across thousands of New York employment agreements.  If you need to find New York employment agreements using full text search criteria or other tools, you can do that as well using these employment agreement search tools.

Using California Employment Agreement Forms

A couple of months ago I wrote about noncompete covenants in California, and how the peculiarities of California employment law around noncompetition issues impacts hiring and firing California employees as well as buying businesses in California.

Many times, when small business owners are looking for an employment agreement form, they may just download a document or use an old template.  This works in the majority of cases when no legal disputes regarding employment arises.  Of course, attorneys and experienced managers understand that competent contract authoring is all about controlling how disputes are resolved - if there is no dispute, the contract language doesn’t come into play.  To sophisticated managers, attorneys and investors, that seems a lot like crossing your fingers and hoping for the best.

Accordingly, it’s critical that employers and attorneys find templates and work product precedent that are geared towards the relevant jurisdiction.  You can search across thousands of employment agreements by governing law provisions here.  In the case of California employment agreements, here is a great resource to browse thousands of California Employment Agreements, or you can combine full text searching across California employment agreements.

In our business, we’ve been fortunate enough to avoid any serious employment related disputes that have resulted in litigation.  However, we recently have had to deal with a specific example of a former consultant hiring away an employee despite a variety of non-compete and non-solicitation clauses, and the existence of appropriate contract language has been extremely helpful to us in negotiating an appropriate resolution.

Please let me know if you are aware of any additional resources we can share, or comment directly below.