We occasionally receive requests from clients to create independent contractor services agreements. When we start asking the client about the terms of the agreement, it becomes readily apparent that the working arrangement does not meet federal or state requirements for a contractor relationship. Often, the company exercises direct control over the means or methods by which the work is accomplished. In other situations, the purported contractor performs work identical to the company’s W-2 employees.

When we raise these concerns with the client, we often hear that this does not matter because the worker is willing to waive their rights to be covered under laws protecting employees. The client may be surprised to learn that regardless of the parties' preferences, individuals considered employees under the law cannot agree to forego these protections.

Employee misclassification claims arise in a number of contexts. The contractor could fail to pay income taxes, resulting in IRS questions over the failure to withhold from fees paid to the individual. The worker could become dissatisfied with the business relationship and later file claims for overtime, workers' compensation, or unemployment benefits. The independent contractor services agreement will not act as a shield against such claims or against investigation by government agencies. 

Some companies conclude that the worker’s desire not to be classified as an employee lessens the chances of later claims or enforcement actions. However, prudent risk management requires an evaluation of the legal status of the planned working relationship at the outset, and classification of the worker as an employee if they do not meet the requirements for true independent contractor status.

For more information, please contact me or your regular Parker Poe contact. Click here to subscribe to our latest alerts and insights.