California Employment Agreements San Diego
California Employment Agreements San Diego Summary
The largest threat to a business comes not from the outside, but from the employees and independent contractors who work for the business. Using employment agreements and written contracts with independent contractors provide the following protections:
• Avoid worker disputes and deflect wrongful termination lawsuits;
• Protect trade secrets and other assets from worker misappropriation;
• Establish shop rights, which dictate who owns an worker’s inventions;
• Preclude departing workers from recruiting your other workers to a new businesses;
• Assure proper taxation and compensation of workers;
• Establish provisions for deferred compensation and other benefits; and
• Require dispute resolution methods that will be to your advantage.
California Employment Agreements San Diego Details
Noting in a contract that a worker is an employee or an independent contractor is a strong policy. However, neither an employer nor a worker may contractually determine whether the worker is properly an employee or an independent contractor. The Internal Revenue Service and other government agencies apply a test to the relationship between a business and a worker in order to determine if a worker is an employee or an independent contractor. A brief overview of the test is below.
The three groups into which the eleven factors used to determine if a worker may legally be classified as an independent contractor are (1) behavioral control, (2) financial control, and (3) relationship type. While a detailed analysis of each factor is beyond the scope of this discussion, the general idea of each group is as follows:
The idea behind behavior control is to examine how a worker completes his or her tasks. Independent contractors must not be subject to the direction and control of their principals. If the business has the right to direct how the worker completes tasks, the worker is likely an employee. Even if the business does not actually control the way work is done, having the unexercised right to direct and control is sufficient to establish behavioral control.
Another form of behavioral control is training. Independent contractors are not permitted to receive training from their principals. If a business gives training to a worker, it establishes that the business wants the worker to complete tasks in a specific manner, which is indicative of the behavioral control an employer exerts over an employee. If periodic or continuing training is provided by a business, this provides an even stronger indication of an employer/employee relationship.
Independent contractors frequently make significant investments in the tools and instrumentalities used to perform tasks. Employees, to the contrary, are usually supplied with everything needed to complete their work by the employer. There are no set investment figures by which to judge the significance of a worker’s investment, and this factor alone is never dispositive, but independent contractors generally have their own computers, their own software, and other similar tools. A worker using the tools of a business is likely to be considered an employee.
The opportunity for profit or loss is another consideration of financial control. Independent contractors are usually paid by a flat fee for a job, while employees are guaranteed a regular wage amount for an hour, week, or other period of time. Most expenses are reimbursed to employees, while independent contractors generally pay their own expenses. If costs increase, an independent contractor may be paid less than the cost of completing a task and lose money, shifting the loss to the employer. Showing an opportunity for profit or loss is a great way to support an assertion that a worker is an independent contractor.
Type of Relationship
A worker might contractually agree to independent contractor status in writing, but the IRS is not required to follow a contract stating that a worker is an independent contractor. Instead, the IRS will look at how the business and the worker interact.
Independent contractors usually work on a specific project or for a specific period of time, whereas an ongoing relationship is indicative of an employer/employee relationship.
The importance of the worker’s role in the business is also examined. If a worker provides services key to the success of a business, these services are more likely to be performed under the direction and control of the business, meaning the worker is an employee and not an independent contractor.