This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.
I of this article discussed the distinction between hiring “independent
contractors” versus “employees”, and some of the consequences
thereby resulting. To give the hypothetical some real-life relevance
to an entertainment lawyer like myself, how could, for example, a recording
studio or a film production
characterize its workers as the former (independent contractors), rather
than the latter (employees)? If the Internal Revenue Service (IRS) or
applicable Department of Labor (DOL) challenges the characterization
of the workers as independent contractors as opposed to employees, is
there anything that the film production or recording studio could have
done in retrospect to seek to prevent or withstand the challenge –
aside from calling its entertainment lawyer at the point of hire and
asking the entertainment lawyer, that is?
A signed written agreement between the music or film studio and each worker, which among other things characterized each of them as an “independent contractor”, prepared by the entertainment lawyer, might have been helpful. But do not believe for a minute that agencies like the DOL and the IRS will view that self-serving contractual “independent contractor” vs. employee characterization as fully-dispositive, even when drafted by the entertainment lawyer.
These agencies decidedly will not. Rather, the actual
facts and circumstances surrounding the worker’s services must
give additional support to the contractual characterization of an independent
contractor as opposed to an employee. Moreover, things change. The facts
and circumstances of work in the latter year may differ from what the
entertainment lawyer’s drafting predicted them to be in the former
year’s signed contract. See, e.g.:
In other words, the hiring company in the entertainment field should, at minimum, require all its independent contractor hires to sign independent contractor agreements prepared by the company’s entertainment lawyer, that among other things expressly disclaim an employee-employer relationship. But the smart company also further monitors the factual circumstances of that work relationship post-signature, to make sure that those facts continually support the contract and the “independent contractor” vs. employee characterization. Most independent contractor relationships themselves, as well as other forms of relationships, change over time and do not remain static. The entertainment lawyer can amend the pre-existing signed contract at the client’s further request.
This article will not rehash all factors in the past IRS “checklists” here, particularly because the governmental definition of independent contractor vs. employee continues to evolve and may have changed by the time you read this article. The hiring party should update itself on the IRS and DOL “independent contractor vs. employee” definitions anyway: (1) so to be sure to consider factors applicable to its own state and jurisdiction, and (2) so as to work off of the most updated definition Obviously it is wise to consult with one’s entertainment lawyer, accountant, and payroll company – particularly the latter two - before one rolls out an entertainment company payroll plan for independent contractors, employees or otherwise. Indeed, prospective advice should be obtained before the hiring party even make the hires. But below are some of the checklist factors which as an entertainment lawyer representing the hiring party I have found to have been given some significant weight in the context of past DOL actions. Query whether or not the hiring party will be able to “flip” any of them to its own favor and advantage, if the hiring party is ever challenged on its own characterizations of workers as independent contractors as opposed to employees:
A. Nature Of Services.
The entertainment lawyer first inquires of hiring party, “What exact services or types of services does the claimed independent contractor worker perform?” If the hiring party is held to exercise or reserve the right to exercise sufficient supervision, direction, and control over the worker’s services, an “employer-employee” relationship may be established, even if such relationship was never intended by the hiring party thinking he or she was instead hiring an independent contractor rather than an employee. To this extent, a written job description in the agreement drafted by the entertainment lawyer suggesting that the worker toils independently, may support the company’s assertion of an “independent contractor” vs. an employee-employer relationship. But the written job description must be an accurate reflection of the facts, and must stay accurate going forward in time which is even more difficult. In any event the written job description scribed by the business owner’s entertainment lawyer, is not dispositive on “independent contractor vs. employee” question. Moreover, most media and entertainment hiring parties are unwilling to relinquish supervision, direction, and control over even its independent contractor hires, as a practical matter - much less instruct their entertainment lawyer do so in writing. Therefore, this “nature of services” item is a difficult checklist factor for the hiring party to “flip” to its own advantage in favor of an independent contractor adjudication as opposed to employee determination.
B. In Business For Himself/Herself.
The entertainment lawyer next asks, if this worker that the hiring party wishes to characterize as an independent contractor as opposed to employee, in business for himself or herself. For example, does this worker run his or her own business or corporation, or work through a "loan-out" entity? Does the worker have an independent consulting business? Does the worker advertise any business, or have the trappings or indicia of any self-standing business? If the worker is in business for himself or herself - and particularly if the worker can be documented by the hiring party's entertainment lawyer to have been such, well-prior to the making of the hire in question – then that would be a strong suggestion that the worker is an independent contractor rather than an employee. In fact, the party wanting to hire a worker can choose to limit its hires only to those contractors that are already separately incorporated or functioning through a limited liability company, which the entertainment lawyer can normally confirm on-paper through the use of public-record databases. This “business for himself/herself” item is therefore a factor that can be flipped to the hiring party’s advantage in favor of an independent contractor determination over an employee characterization, if set-up carefully in advance, and a step in which it may be critical to involve the entertainment lawyer.
C. Invoicing Or Billing For Services.
Asks the entertainment lawyer to the hiring party, “Does the claimed independent contractor worker submit a bill or invoice for services?”. Most employees don’t. Most independent contractors do – or, should. Again, this is a factor that the hiring party can flip to its advantage in favor of an independent contractor characterization as opposed to an employee determination, if assessed and set-up carefully in advance, and a step with which the entertainment lawyer can help by assisting the documentation process. The party wanting to hire a worker can choose to limit its hires only to those claimed independent contractors that furnish or are willing to furnish periodic invoices. An employee would be unlikely to do so, and unlikely to be asked to do so. This “invoicing” factor will likely not be dispositive by itself, but could be helpful to the hiring party to support an independent contractor determination over an employee ruling.
D. Where, When And How Long.
The entertainment lawyer then asks the hiring party, “Is this worker claimed to be an independent contractor rater than an employee, told where to work each day? Or, when to work each day? Or, how long or how many hours to work each day?” The entertainment lawyer observes that a worker toiling off-premises is more likely to be characterized as an “independent contractor” rather than an employee. A worker on his or her own schedule is more likely to be characterized as an “independent contractor” rather than an employee. And, a worker who chooses his or her daily hour expenditure is more likely to be characterized as an “independent contractor” rather than an employee. But again, most hiring parties are unwilling to relinquish that kind of supervision, direction, and control over their hires much less instruct their entertainment lawyer do so in writing – be they employees or even independent contractors.
E. Review Of Work.
“Regarding the worker sought to be classified as an independent contractor rather than an employee”, asks the entertainment lawyer, “is this worker’s effort subject to review by anyone – particularly annual reviews? Is the worker’s effort reviewed as ‘satisfactory’ or ‘unsatisfactory’”? The more discretion of review that the company exercises, the more likely that this worker will be characterized as an “employee” rather than an independent contractor. One presumption would be that the remedy for a bad independent contractor would be simply to terminate rather than to review, which the hiring party might do through his or her counsel, or just on his or her own. But again, most hiring parties are unwilling to relinquish that kind of supervision, direction, and control over their hires, much less instruct their entertainment lawyer do so in writing – be they employees or even independent contractors.
F. Refusal Of Work Assignments.
This worker that the hiring party calls an independent contractor rather than an employee – the entertainment lawyer muses - can this worker refuse work assignments? Does this worker in fact refuse any work assignments? If so, what happens as a result? Though not an absolute, a worker entitled to refuse assignments is at least somewhat more likely to be characterized as an “independent contractor” rather than an employee. But again, most hiring parties are unwilling to relinquish that kind of supervision, direction, and control over their hires, much less instruct their entertainment lawyer do so in writing – be they employees or even independent contractors.
G. Tools And Office Space.
As for this worker that the hiring party claims to be an independent contractor as opposed to an employee, the entertainment lawyer inquires - what equipment or other tools or objects does this worker supply or bring to the job site by himself or herself, if any? Who provides the office space, if any? The more equipment and tools that the worker brings to the work site, the more likely it is that the worker will be characterized as an “independent contractor” rather than as an employee. If, on the other hand, the company provides an office, tools and equipment, the relationship looks more like an employee-employer employment relationship. In this day and age of the laptop and telecommuting, we will more frequently see hiring parties try to flip this variable to their advantage in favor of an independent contractor determination as opposed to an employee determination. And this factor will not be ignored by the governmental authorities adjudicating the issue, or entertainment lawyers drafting the prospective agreements, either.
Again, please do not rely upon the excerpted list of “independent contractor vs. employee” factors above - it is only illustrative in the context of media and entertainment company hiring patterns in the past - and different tribunals may adjudicate different results. Any determination that a hiring party in the entertainment field makes about a worker’s status should be done only upon review with one’s own entertainment lawyer, one’s tax accountant, and one’s payroll company – particularly the latter two. The most important thing to remember is that the rule of “ipse dixit” does not apply to the “independent contractor vs. employee” question. In other words, just because the hiring party calls someone an “independent contractor” as opposed to an employee, does not make them so! (“Ipse dixit” is Latin for “he himself said so”).
There are structural modifications that the hiring party can make to the hiring relationship, as well as entertainment lawyer-drafted text, that will increase its chances of successfully claiming the worker to be an independent contractor rather than an employee. But there are seldom any absolutes in this regard. Finally, keep in mind that there is a real “Catch 22” to the “independent contractor v. employee” characterization. The entertainment lawyer will advise the hiring party that the hiring party must truly be willing to part with a substantial amount of supervision, direction, and control over a worker - and must in fact do so - in exchange for the privilege of paying them like an independent contractor rather than an employee. There is only a very limited extent to which a hiring party may be able to contract around this problem.
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My law practice as an entertainment attorney includes
state and federal employment law matters relating to independent contractors
and employees and other human resource matters as they arise in the
fields of music, film,
publishing, television, Internet, and other media and industries. If
you have questions about legal issues which affect your career, and
require representation, please contact me:
Law Office of John J. Tormey III, Esq.
John J. Tormey III, PLLC
1324 Lexington Avenue, PMB 188
New York, NY 10128 USA
(212) 410-4142 (phone)
(212) 410-2380 (fax)