San Diego Independent Contractor Agreements

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The misclassification of employees as independent contractors is one of the highest priorities of federal agencies such as the Internal Revenue Service and Department of Labor as well as California agencies such as the California Labor Board and the Employment Development Department (EDD). The EDD audits most California corporations every 3 years.

The first question asked of California employers today is “Do you have any 1099 workers?” If so an extensive effort to establish misclassification often ensues, resulting in penalties and payment of back wages, benefits and taxes which can easily exceed $100,000 per worker. How can you protect your company and establish sound Independent Contractor Agreements in San Diego?

The Elements
of a Successful Independent Contractor Agreement

A successful independent contractor agreement must establish the separate nature of the parties themselves, as well as the scope and time frame associated with the work to be completed under the agreement. Your experienced employer defense attorneys should clearly explain the “tests” applied by federal and state agencies to determine whether or not a worker is in fact an independent contractor or an employee.

A California independent contractor agreement should not be a long-term contract. Regulatory agencies consider long relationships to serve as evidence of an “employee/employer” relationship. The contract should clearly establish the reason for the business relationship between the parties and identify the unique or specialized skills, education, licensing or experience the independent contractor will contribute to the project.

The law requires a high degree of separation not only in the form of business entities but in the ability to determine profit or loss. An effective independent contractor agreement should clearly establish the latitude extended to the contractor regarding the work to be conducted and the manner with which they will fulfill the services covered by the agreement. These services should not include non-skilled work or services which are essential to your company’s business model. California law clearly dictates work which is essential to your business is accomplished by “employees.”

Your independent contractor agreement must capture the essence of a fairly short-term scope, requiring specialized skills, knowledge or tools which the company’s employees do not possess. Payments under this agreement should be made in the same manner as any other vendor or supplier of your company is to be paid.

Your attorney should ensure there are no other forms of “employee” related compensation such as collection and payment of taxes, control of work hours or scheduling of tasks or provision of insurance or other “benefits” by your company. Your attorney should also make sure your independent contractor agreement provides protections regarding trade secrets, proprietary information such as vendor and customer lists, restrictive covenants and limitation on the ability of the contractor to hire any existing employees.

The risk of an audit and a finding of misclassification of an employee as an independent contractor is directly related to the quality and clarity of your independent contractor agreement. Ask your attorney to provide information about related “tests” and how they have helped other businesses to avoid or successfully defend a misclassification audit.

ABOUT THE AUTHOR: Daniel Watkins
Mr. Watkins is an experienced litigator and trial attorney with over 50 Jury and Bench trials to his credit in decades of practice. He has successfully represented both large companies and individuals, and achieved substantial victories in well-publicized trials throughout California and Wisconsin

Mr. Watkins has successfully tried cases in the areas of Healthcare Compliance, Commercial Litigation, Unfair Business Practice, Fraud, Breach of Contract, Premises Liability, Product Defect, Discrimination, Sexual Harassment, Construction Defect, Unfair Competition, Defamation & Trade Secrets

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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