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MINNEAPOLIS -- Keeping within the terms of carefully crafted contracts with free-lance workers can help employers steer clear of liabilities that can arise due to a blurring of the lines between employees and independent contractors, an attorney says.
The key concern for employers that use independent contractors such as free-lancers is the possibility that confusion over those workers' status can leave the company exposed to various employment liability issues or liable for providing employee benefits to those workers.
While the contracts under which independent contractors are hired are critically important, Camille Olson, a partner with the Seyfarth, Shaw, Fairweather & Geraldson law firm in Chicago, noted, "Contracts do not win cases."
But, Ms. Olson added during a presentation at the annual conference of the Society for Human Resource Management last month in Minneapolis, "Contracts can lose cases, so they are very important."
Contracts with independent contractors should accurately describe what's required of the employer and the contractor, the attorney advised. The contract should not be terminable except for a material breach or on written notice of no less than 30 days, she said.
The contract also should confirm the contractor's right to compete. Otherwise, Ms. Olson said, the worker tends to look like an employee of the company in the eyes of the courts. In addition, the contract should explicitly state that the contract worker declines any offer of employee benefits.
The agreement must be meaningful, and the contractor must understand and read it.
"No one can sign an agreement they don't understand," Ms. Olson said. "They also can't sign an agreement that is blank, that has blanks in it -- 'We'll fill it in later.' "
It's also critical that the contract be negotiable. "If every contract is absolutely the same you're going to lose," the attorney said.
The contract should describe all payment to be received and the basis for that payment must ensure the risk of loss or variability of profit to the contract worker. There should be no payment guarantees and no payments for services not performed.
It's also important that an employer involve its managers in developing contracts for freelance workers.
"I think it's a very bad idea to take a contract and give it to a group of managers," Ms. Olson said. Instead, before putting it in place, managers should be given a chance to review every aspect of the contract and critique its appropriateness for their operations, she recommended.
The attorney also suggested that employers should invest in manager training and should develop an overall set of documents, policies and procedures to govern the relationship between the company and its independent contractors.
How the company advertises for its free-lance workers also can be a key to whether courts later agree that they were, in fact, not employees of the company.
"The issue that comes up every time is where do you place the ad for the independent contractor? If it's in a 'help wanted' listing, it will be construed as an ad seeking employees," Ms. Olson said.
When advertising for independent contractors, "use the words 'independent contractor,' 'independent consultant,' or something that indicates that that person is not applying for an employee position," she said.
And, she added, "You really ought to have a different application or questionnaire for independent workers."
Employers also should conduct precontract screening of free-lance workers, because they could be held liable for actions of the independent contractor.
Once free-lance workers are in place, "They should absolutely be treated differently from employees in almost every way," Ms. Olson said.
It's critical to abide strictly by the terms of the contract. "You absolutely shouldn't have side agreements," she said.
The employer also needs to be aware of keeping dealings with freelancers at "arm's-length." If, for example, the company provides contract workers with supplies or office space on a free or discounted basis, again that could tilt a court's perception of the worker to that of an employee.
In terminating contracts with freelance workers, an employer must consider several issues to reduce any potential liability exposure.
First is the agreement's terms and any applicable company policies. Circumstances of termination, any verbal representations made to the contractor, length of service, the employer's past practices and applicable laws all can be considerations, as can any investments the contractor has made in connection with the job, Ms. Olson said.
If the contractor just bought a new computer or truck to perform the job, he or she could argue that they've made an investment and that the employer doesn't have a unilateral right to terminate that contract, Ms. Olson said.
The attorney also emphasized the need for contracts to be very specific about when they begin and end.
"No contract should continue indefinitely. No contract should be self-renewable," Ms. Olson said. "Every contract should begin and end on certain days."
She cautioned, "If you're just renewing a contract without any changes, that makes a person look an awful lot like an employee."