From Contingent Workforce Strategies, Eric Rumbaugh of of Michael Best & Friedrich LLP, continues in part two of his article on the top independent contractor issues in 2019. Eric writes;
Arbitration. Following the United States Supreme Court decision in Epic Systems, businesses can, in most cases, effectively bar class litigation for employees and putative independent contractors. Arbitration has many shortcomings. Businesses that believe they will get a better result in arbitration, or who believe that arbitration will be more predictable or less expensive than court litigation, are usually wrong. With that said, there is a potential significant advantage in avoiding class litigation. Businesses that have not already done so should consider adopting arbitration agreements with class waivers.
Expenses. Perhaps the easiest thing businesses can do to mitigate the risk of independent contractor misclassification is to discipline themselves to stop reimbursing expenses. This is perhaps the most common IC classification mistake businesses make, and one of the easiest to fix. Independent contractors have opportunity for profit and risk of loss. That is one of the main features of IC status under many tests. In many cases, businesses want to insulate highly sought after talent from the ups and downs of business. Reimbursing expenses is one way to do this. In doing so, however, the businesses insulate the workers from some of the very facts that make them independent contractors in the first place.
If businesses want to make sure they get the talent they really want, they can increase the pay rate for that talent. Businesses should stop reimbursing expenses for anyone they are serious about treating as independent contractors. There are exceptions to this rule, but the exceptions should be exceptions.
Contract forms and insurance. A contract with an independent contractor is a business-to-business contract, and should borrow from vendor contracts, not employee contracts. One of the ways businesses self-create problems is by beginning IC engagements with employment template documents. Businesses engaging an independent contractor should start with vendor template documents, thus avoiding employment-looking language.
At the same time, however, businesses using vendor contracts as templates will very often run into the problem of standardized terms for required insurance. Independent contractors have expenses. Especially for knowledge workers, who in many cases do not need any equipment or resources to perform a job, coming up with expenses for a putative independent contractor can be difficult; in some cases, they do not have many, if any, expenses, whether they would be classified as employees or independent contractors. Insurance is a legitimate business requirement which can show fixed and recurring expenses for independent contractors. Waiving insurance requirements can be a mistake. Businesses should be careful not to waive insurance requirements for putative independent contractors without thinking through the consequences of this waiver, especially as applied to the underlying independent contractor status of the workers.
Read the full story at Contingent Workforce Strategies 3.0 – IC compliance: Top issues for 2019 — Part 2