How To Avoid Uber’s Independent Contractor Agreement Mistake

Uber Technologies Inc. has discovered that an independent contractor agreement can be costly if not handled properly.

Why? The company has been getting pounded by government agencies and courts that have taken the position the company’s drivers are actually employees instead of independent contractors.

Although the extra benefits vary by jurisdiction, they can include eligibility for a minimum “living” wage, paid time off (PTO), health insurance, retirement plan contributions, worker’s compensation upon injury within scope of employment (e.g. traffic accident), and unemployment compensation upon departure from the company.

A common response to these extra costs is for Uber (and similar companies) to simply withdraw from jurisdiction by ceasing to provide transportation services.

Why Is Uber Losing These Cases?

Labor law has become very pro-employee over the past hundred or so years to correct for sweatshop abuses of the 19th and early 20th Centuries.

The legal hammer that’s used to beat down companies like Uber is the degree of control exercised over the workers. If there’s too much control, the government is going to err on the side that the work is being performed by employees rather than self-employed independent contractors.

The more socialistic a jurisdiction happens to be, the less control a company will be able to have over the work being done in order to avoid an employer-employee relationship.

What To Include In An Independent Contractor Agreement

Some of the issues your business lawyer should consider for inclusion in your independent contractor agreement with workers are:

• The contract’s title and language within the agreement should make it clear that it is between a company and an independent contractor, not an employment agreement.
• The agreement should provide the worker with considerable discretion on how and when the work is performed beyond that an employer would provide an employee for rendering the same services. For example, don’t require contractors to work identical hours as your employees unless it’s absolutely necessary.
• The contract should make it clear the contractor is ineligible for benefits the company offers its employees.
• The contractor should be informed that the contractor is responsible for related taxes (e.g. self-employment taxes as an independent contractor) and that the company is withholding taxes as if the contractor were an employee or making contributions to worker and unemployment compensation funds on the worker’s behalf.
• If the work can be performed somewhere other than the company’s premises, the contract should permit the worker to do so, except with restrictions that prevent such work being performed in jurisdictions likely to find there to be an employment relationship regardless of what’s in the agreement.
• Unless it’s not feasible, ideally you’ll want the agreement to shift the responsibility to the worker to use his or her own equipment and materials to perform the work.

Type Of Work Matters

It’s important to factor in the scope of the work being performed before deciding whether or not it makes sense to offer employment or an independent contractor relationship to worker. If the work is ongoing and such that is typically performed only by employees, it’s going to be difficult to argue from a legal standpoint that the worker is an independent contractor instead of an employee.

For example, a receptionist who answers telephones a reception area at your company’s headquarters during weekdays from 9 a.m. to 5 p.m. with a mandatory lunch break at noon is arguably an employee even if there’s a written agreement that refers to the receptionist as a contractor. On the other hand, a telephone answering service offsite makes for a stronger case that the worker(s) fielding the calls are contractors.

The B2B Contractor Agreement Solution

Ideally, you’ll want your contract to be between two companies instead of between your business and an individual. Even if there’s only one worker involved, it’s often better to contract with that worker’s single member limited liability company (LLC) or Subchapter S corporation to have the work performed.

This places a much higher hurdle for the worker to overcome for claiming employment status with your company because, if anything, the worker is an employee of the LLC or corporation the worker owns that has entered into the independent contractor agreement to provide the services to your business.

If you need an independent contractor agreement or an employment contract, you’ll want to learn more about our Business Contract Legal Protection Package now.