Contractual Relationships Coming Under Fire


From Claims Management, Mark Bakota and Stephen Watring talk about the scrutiny of contractual relationships between companies and franchisees and independent contractors.  If the contracts are not upheld, companies can face significant liability.  They write:

Independent Contractors

There also has been considerable focus recently at the federal and state level on whether employers are misclassifying their employees as independent contractors. This is yet another setting in labor and employment law wherein familiar contractual arrangements are coming under fire.

The stakes are substantial, too. Potential liabilities for misclassification can include failure to pay minimum wage, overtime, and employee benefits as well as failure to pay workers’ compensation and unemployment premiums. That certainly is not an exhaustive list, however.

From an insurance coverage standpoint, claims by misclassified employees can be particularly problematic for a business. Many insurance policies that potentially provide coverage for labor and employment claims will contain exclusions related to wage and hour claims. Even those insurance policies that do offer some coverage for such claims may have wasting limits and/or low sublimits applicable to the claims. Thus, a business’s assets may be entirely unprotected or protected on a very limited basis.

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