Avoiding the Independent Contractor Misclassification Pitfall

Recently, it's been reported that federal and state officials are going to be taking a hard look at companies using Independent Contractors to ensure that employers aren't passing off employees as Independent Contractors.  Hopefully you're not in the position to question whether or not the tension to save money has led you down the path to misclassification of your employees, but it looks like now would be a good time for a refresher course on Independent Contractors.

The IRS website is a great place to start. The IRS outlines 3 major, common-law areas to focus on: 

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker's job controlled by the payer? 
3. Type of Relationship: Are there written contracts or employee-type benefits? Will the relationship continue and is the work performed a key aspect of the business?

In addition to these key areas, many courts have faced this question and come up with various factors to guide a factual inquiry into an Independent Contractor controversy. These include (among MANY others): 

1. Terms of the contract.
2. Level of skill or expertise needed to perform the work.
3. Which party bears the risk of profit / loss.
4. Where the work is performed.
5. Which party supplies the tools, equipment, work environment, etc.
6. Which party retains discretion about where, when and how to perform the work. 
7. Whether the contractor is paid on a per project or commission basis.
8. Whether business or travel expenses are reimbursed. 

None of these factors in and of themselves is determinative - rather the bottom line will always be the degree of control the employer has over the way the worker accomplishes relevant tasks or duties.  The greater the control over day-to-day activities, the more likely the individual will be characterized as an employee rather than as an independent contractor. 

We've developed a short list of Dos and Don'ts to give you a little help along the way (not to be confused with legal advice ;-):

DO: 

• Develop and maintain specific goals and schedules. Document clear and specific goals and provide timeframes for projects that include interim checkups. Give necessary direction without mandating how the work must be completed.
• Execute project plans that are results focused. 
• Execute a well-written independent contractor agreement (read: see a lawyer!)
• Carefully integrate your Independent Contractors into your business. Use caution when including contractors at company events.

DON'T:

• Include the contractor in office functions (onsite & offsite).
• Provide performance feedback and discipline.
• Provide business cards.
• Provide administrative support.
• Give monetary bonuses.

This will give you a place to start and, most importantly, a reminder to re-evaluate your current Independent Contractor practices in light of heightened scrutiny. Good luck!

The Copyright Funkiness of the Google Book Settlement

Well, Google's Book Settlement website is up and running, the Fairness Hearing is scheduled for February 18, 2010, before the Court in the Southern District of New York and the reaction and speculation is really all over the board. I mean, if this settlement is only for the millions of out-of-print books that are making zero dollars for their authors and publishers, what's the big deal?

Despite the amended settlement agreement, the U.S. Dept. of Justice ("DoJ") still has concerns about what, in its view could be a far-reaching settlement. The DoJ's concerns boil down to three primary areas of interest: Copyright, Anti-trust and Class Action issues.  My primary focus is going to be the Copyright issue since I don't really follow Anti-Trust of Class Action and there are plenty of other more competent people out there to tell you about those things.  So here goes...

According to the DoJ's Statement of Interest, "[u]nder existing law, copyrighted works typically cannot be exploited in all the ways the [Amended Settlement Agreement] contemplates without the prior permission of the rightsholders." The problem that the settlement agreement brings to light something like the Y2K of publishing agreements: Many to most of the out-of-print books were written and published before the digital age and / or the contract just doesn't address who owns the digital rights to such a book. The Amended Settlement Agreement attempts to get around this thorny little issue by creating an "opt-out" mechanism whereby rightsholders could prevent their copyrighted material from appearing. 

This presents a couple of interesting things to think about. First, this would seem to give Google a license to books without permission from the rightsholder and shifting the burden to the rightsholder to say no way Jose! Not too many copyright holders are going to be in love with that idea. Second, from an academic standpoint, if no rightsholder can be found for a given book, isn't it better to throw it into the database rather than let it sit on obscure bookshelves of a handful of libraries?

Go Big or Go Home - BSkyB v. HP-EDS

If you work in the IT outsourcing industry or  follow legal headlines in any way, you've probably seen some press related to this issue - and honestly the numbers are a bit staggering: BSkyB initially claimed £700m in damages (roughly $1.098 BILLION) on a £48m contract ($75.25m). The legal fees are estimated at £70m ($110m) and the initial award - which HP-EDS is seeking to appeal - sits at £200m ($314m). 

At its heart, this is a fraudulent misrepresentation case - no new law was created to reach the decision. The sticker shock of this case grabs headlines because there was a limited liability clause in the contract that limited liability to £30m ($47m).  However, that clause could only come into play in the event of negligence (that is, negligent misrepresentation). The court found that HP-EDS' representations with respect to the time required to complete the project - made during the bidding process for the project - were made fraudulently, opening the door to unlimited liability for HP-EDS to BSkyB.

So why does this case matter? Companies embarking on similar IT or outsourcing services contracts should be concerned whether this case will affect service providers' view of risk (and, consequently, price) and whether their projects will feel the impact of more constrained service provider behavior - especially in the bidding process. This case could affect the way in which service providers can be called to account for its pre-contract sales pitches and the degree to which either party can rely on contractual limitation of liability clauses. 

Many times, the sales team comes in and makes promises about their company's capabilities thinking that they'll worry about those issues later or let the lawyers hammer it out later. This case could serve to change this process significantly by inserting a new tension: greater risk leading to greater cost. Service Providers will argue that this case increases their risk of exposure and justifies a higher contract price. Customers will counter that they don't want to bear the cost of the risk (which is going to be difficult to accurately measure in the first place, especially in the bidding stage where the project may not be fully scoped) and that such costs should be absorbed by the Service Provider anyway. 

Overall, this case is a milestone - but perhaps not in the way it has been hyped.  BSkyB was able to catch a key HP-EDS witness perjuring himself and that, but for HP-EDS' deceit, BSkyB would have selected a different service provider to perform the project. Not everyone is going to be able to gamble the kind of money that BSkyB did in this case. Combine that with the fact that BSkyB was able to prove fraud rather than mere negligence - kicking open the door to unlimited liability - you have a truly unique case on your hands. Many dissatisfied customers may try to go down this path, but far fewer will succeed. However, the fact that a precedent exists should be enough to cause many sales departments to evaluate their current bidding process with an eye to reducing their exposure to these types of claims.

Deal World Rule #9 - Use A Knowledge Trap

I once knocked my wife’s wedding ring down the drain in our kitchen sink. It could have turned ugly. Good thing sinks have traps.

Knowledge can also go down the drain if we’re not careful. We often hear, read, or see outstanding content, have “aha” moments only to later let these key learnings slip away, lost in the sands of time. That’s why we need a knowledge trap -- to prevent today’s takeaways from becoming tomorrow’s drainaways.

At the Studio, we review a ton of content every day. In order to preserve the important takeaways, we use a knowledge trap. The trap is sprung through 3 questions:

1. What are the big ideas in this content?
2. How do these ideas apply to my business (my life) to create ROI?
3. What tools can be developed to utilize (i.e., use and teach) these ideas and their benefits?

We use the answers to these questions to draw a picture that captures the key learnings. (click here for an example).

This technique can take a large amount of content (e.g., an entire book), condense it down to its essence, and depict this in a picture that we can use over and over again to refresh it in our minds and for our clients.

Do you use knowledge traps? If so, congratulations. If not, start today.

Quick, call in the SWOT team!

Most of the time, we are called upon to make reactive decisions with respect to most aspects of our lives. Whether it's slamming on the brakes because that guy doesn't know how to use a turn signal to change lanes or the 4 o'clock meeting is now at 2 o'clock and that 2 hour prep time you were counting on is now out the window.  Thankfully, there are plenty of times where we can take a little time to think strategically in order to make proactive decisions.

So, how do you go about being proactive? One of the tools we use that helps us start forming strategies is called SWOT analysis.  The great thing about SWOT is that it's a simple exercise that can help you to identify some key points within important categories - kind of like directed brainstorming!  Your focus is on 4 key areas of interest:

1. Strengths - What do you do well?
   
2. Weaknesses - Where do you struggle?
   
3. Opportunities - What avenues are open to you?
   
4. Threats - What circumstances exist that could derail you?

This simple exercise will, at the very least, get things flowing for you. By identifying these key areas of interest, you will have some fertile ground for being more proactive and less reactive!

Tapping The Power of Relationships Through Negotiation

I imagine that you all have heard and read - to the point of cliché - that we all negotiate, to a greater or lesser degree, each day. What may fall by the wayside is the importance of relationships and the ways in which we leverage those relationships in our every day negotiations.

Thinking back to when I was a lot younger and a bit less responsible with my choices, my parents often leveraged our relationship to help me "see" that what I wanted to do and what I should do were two different things. While I don't recommend guilt-tripping your vendors or telling them that "you aren't upset, just disappointed" there are plenty of ways to leverage your relationships within the context of negotiation.

We are all going to have varying viewpoints with respect to what constitutes a "good" relationship with our negotiation counterparts.  In their book Getting Together - Building Relationships As We Negotiate, Roger Fisher & Scott Brown suggest that a good working relationship is one that can deal well with differences. We don't have to see eye-to-eye on every issue that crops up between us. In fact, if we did, there would be little need to negotiate in the first place. The important facet of the relationship is that we can work together to come up with creative solutions without wanting to gouge out the other person's eyes. Avoid sweeping disagreements under the rug, but at the same time be willing to use trade-offs to balance your competing substantive interests.

When someone says that they are "leveraging a relationship" this often has a negative connotation - something like a nice way of saying "I'm going to use them to achieve my ends." However, you can leverage relationships without damaging them.  Try some of these ideas from the Getting Together book:

1. Be unconditionally constructive.  If your negotiation counterpart sees that you are consistently seeking to build rather than tear down, they will be encouraged in their efforts to help reach mutually beneficial solutions to do the same.
2. Be wholly trustworthy, but not wholly trusting. Follow through is probably the most important way to establish and maintain a good working relationship. If you don't do what you say you will do, the other side looses incentive to perform. 
3. Persuasion, Not Coercion. It is easy to feel hijacked when one side begins making demands on you in a "my way or the highway" manner. Seek to bring your counterpart around to your point of view rather than cramming it down their throats.

By utilizing these tips you will be able to maximize the value of your good working relationship!

Handling Awkward and Embarrassing Situations with Humor

Here's a great story from our very own Kendra Richgels, who knows how to think on her feet given even the most unexpected surprises...enjoy!

It was mid-afternoon on the second day of an extremely difficult negotiation involving 20+ individuals.  Tensions were high and the mood was serious.

Suddenly, I received a note from my female negotiation partner.  “Do you have a sewing kit and do you know how to sew?”  I looked over and one of the buttons on her carefully selected new coat dress had fallen off from a key section of the dress.  Turns out the buttons were metal buttons and were slicing through the threads holding the buttons in place.

We had precious few hours left to complete the deal and were moving into a critical part of the day with a small group selected to complete the legal terms.  We had found the attorneys from the other party oblivious to our charm and were finding it tough to crack their serious and difficult nature.  Due to the timeframe, location and logistics, leaving for a wardrobe change was not an option.  We devised a workaround for this button without calling attention to the issue.  An hour or so later, a second button popped off.  No longer able to contain her laughter at the absurdity of the situation, my colleague burst into laughter, announcing to the tension filled room that she must apologize, but her dress was exploding. 

We all know that appearance in a negotiation is critical.  The right clothing goes a long way to setting the tone for the negotiation.  However, wardrobe malfunctions happen to everyone.  The exploding dress continued to lose buttons throughout the remainder of the long evening, a situation we handled with laughter and seeking assistance with the other part’s team to laughingly find alternative button holding solutions.  The humor of the situation connected the parties and continued to act as the spigot to release the tension built in a room.  The way we handled the situation exemplified exactly what we were looking to do in the negotiation - to improvise practically and creatively in the scene at hand.

The “Exploding Dress” story exemplifies how an absurd situation handled correctly can be turned into a positive outcome with the use of humor.  Often, the ability to use humor as a connector between the parties presents itself unexpectedly.  Having a responsive sense of humor in contentious settings weaves together laughing matters and deeply serious ones.