ARE YOU EMPLOYING MORE PEOPLE THAN YOU THINK??

By Peter Maretz
Shea Stokes Roberts & Wagner, ALC

It is not uncommon for businesses to enter into contracts for services such as janitorial or security. While you may consider this relationship an "independent contractor" relationship, the manner in which you administer that contract may dictate otherwise.

Certainly, most intended independent contractor agreements specify that the relationship is that of independent contractor, and not employer/employee, and that is good. Such language, however, is not conclusive. If you treat your independent contractors like employees, the Labor Commissioner will treat them as employees as well, no matter what the agreement says. This could leave you on the hook for wages, including overtime premium, wage penalties, and worker's compensation liability.

The first and most important factor to consider is the level of control you exert over the contractor. In a true independent contractor setting, you bargain for a particular result, and the independent contractor controls the means and manner to achieve that result. Does that mean you need to be completely hands off until the job is done? No. You may still retain an overall power of supervision and control as to the results of the work to insure satisfactory performance of the contract—including the right to inspect, stop the work, make suggestions or recommendations about the details of the work, or even dictate alterations or deviations in the work—without rendering the owner/independent contractor relationship into that of employer/employee.

Of course, the fact intensive analysis does not end there. To further ensure the relationship remains owner/independent contractor, craft the agreement so you are paying by the job, and not by the worker, and certainly not by the number of hours being put in by the workers. Do not specify the number of people to be working under the contract. Rather, leave it to the contractor to decide the appropriate number given the magnitude of the job.

Make sure the contractor supplies its own equipment and supplies. If it needs to store material on your property, provide a location that is segregated from the rest of your operations.

Avoid requiring that the contractor work only for your company. If, due to the nature of the work under the contract, it would present a conflict were the contractor to work, for example, for one of your competitors, a necessary level of exclusivity is appropriate and will not undermine the independent contractor nature of the relationship.

Finally, the agreement should be terminable by either party upon a specified notice period.

If you are in California, there is a "Safe Harbor" provision in the Labor Code depending upon the nature of the work contracted for. Specifically, Labor Code section 2810 provides that "A person or entity may not enter into a contract or agreement for labor or services with a construction, farm labor, garment, janitorial, or security guard contractor, where the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided." You can, however, create a rebuttable presumption that your company has not violated the Labor Code by requiring the contractor to provide a single writing containing the following:

(1) The name, address, and telephone number of the person or entity and the construction, farm labor, garment, janitorial, or security guard contractor through whom the labor or services are to be provided.

(2) A description of the labor or services to be provided and a statement of when those services are to be commenced and completed.

(3) The employer identification number for state tax purposes of the construction, farm labor, garment, janitorial, or security guard contractor.

(4) The workers' compensation insurance policy number and the name, address, and telephone number of the insurance carrier of the construction, farm labor, garment, janitorial, or security guard contractor.

(5) The vehicle identification number of any vehicle that is owned by the construction, farm labor, garment, janitorial, or security guard contractor and used for transportation in connection with any service provided pursuant to the contract or agreement, the number of the vehicle liability insurance policy that covers the vehicle, and the name, address, and telephone number of the insurance carrier.

(6) The address of any real property to be used to house workers in connection with the contract or agreement.

(7) The total number of workers to be employed under the contract or agreement, the total amount of all wages to be paid, and the date or dates when those wages are to be paid.

(8) The amount of the commission or other payment made to the construction, farm labor, garment, janitorial, or security guard contractor for services under the contract or agreement.

(9) The total number of persons who will be utilized under the contract or agreement as independent contractors, along with a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws or regulations.

(10) The signatures of all parties, and the date the contract or agreement was signed.

If you ask for this information from your contractor, and the contractor does not provide, you are presumed, in the eyes of the Labor Commissioner, to know the answer. Therefore, insist upon this from contractors in the specified trades. If the contractor will not abide, it is time to find a new contractor.