CONTINGENT WORKERS

The business world is in the midst of rapid transformation driven by globalization, e-commerce, and an array of technological advances. One aspect of this evolution that has not received much attention until recently is the trend away from the classic employer-employee relationship that has characterized our economy since the Industrial Revolution. Previous generations of workers were likely to experience only long-term, rigidly hierarchical employment that was long on security but short on flexibility.
Today, the work at many firms is being done by workers who do not fit the conventional model. They may be leased employees, freelancers, independent contractors, part-time or temporary employees, or an amalgam of these or other concepts to suit the needs of today's businesses. Collectively, such workers have come to be known as the contingent workforce.

The growth of the contingent workforce raises some new legal issues concerning employer compliance with a range of federal and state statutes, including the Fair Labor Standards Act, the Internal Revenue Code, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act (ERISA), and state laws on workers' compensation and unemployment insurance. In resolving these issues, our courts often distinguish an "employee" from other workers, using criteria that were first developed long before there was cyberspace or a "new economy."

Generally, the defining characteristic of an employer-employee relationship is the right of the hiring party to control the manner and means by which the product is accomplished. Among the factors relevant to this analysis are: the skill required of the worker; the source of the instrumentalities for accomplishing the work; the location of the work; the duration of the parties' relationship; whether the hiring party has the right to assign new projects to the worker; the extent of the worker's discretion over when and how long to work; the method of payment; the worker's role in hiring and paying assistants; whether the work is part of the hiring party's regular business; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the worker.

Determining that a contingent worker is an "employee" by weighing the various factors will not necessarily be decisive for purposes of statutory rights or benefits. For example, in order to be entitled to retirement benefits that are protected under ERISA, a person must be an employee and be entitled to receive retirement benefits under the language of the employer's retirement plan.
In a recent case, a computer programmer found work with a major corporation when she answered an ad placed by an independent staffing company. Her only written contract, which described her as an "independent contractor," was with the staffing company. She worked for the corporation under renewable one-year contracts between the corporation and the staffing company that governed her compensation and length of employment. Eventually, the programmer was told that her services were no longer needed.

According to a federal appeals court, the programmer had a legitimate argument that she was an "employee" of the corporation for purposes of retirement benefits despite the fact that she was leased to the corporation by the staffing company. She still did not come under the protection of ERISA, however, because the corporation's plan was generally restricted to "regular employees," defined in the plan as excluding temporary employees and including only employees working standard hours per week and weeks per year. In addition, other parts of the plan explicitly excluded leased employees.

If the law being interpreted is remedial in nature, some courts have defined the terms "employer" and "employee" even more expansively than they would under traditional criteria. For purposes of enforcement of the overtime provisions in the Fair Labor Standards Act, a federal appellate court ruled that temporary workers were "employees" of two temporary employment agencies that provided temporary workers for other businesses. Some of the same factors used in other contexts were relevant, but the court applied a broad "economic reality" test to all of the circumstances considered together.
The bottom line is that the worker generally will be regarded as an "employee" if he or she is economically dependent on the "employer."

In the above case, the temp agencies did not exercise direct supervision of workers at their client companies, but the agencies were solely responsible for hiring the workers and setting their work schedules. The agencies also determined the rate and method of payment, maintained employment records on the workers, and reserved the right to intervene if problems arose as to job performance. The workers were held to be employees of the temp agencies and could assert a right to overtime pay against them, notwithstanding that the agencies had required all job applicants to sign a "contractor agreement" that expressly stated that the workers were not employees of the agencies. Moreover, the fact that in the same litigation the workers were claiming to be employees of the client companies did not hurt their case. More than one "employer" can be found to have obligations to the same workers if the applicable test is met for each person or entity claimed to be an employer.

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CREDIT REPORTING

Using electronic signatures will change the way businesses interact with other businesses, how businesses work with their customers, and even how government serves its citizens. Paying bills, applying for loans, trading securities, buying goods, and contracting for services will all be made easier. Encryption technologies will give greater protections to consumers who conduct business with electronic signatures, and those who would seek to defraud consumers with electronic signatures may well leave a trail to their door in the process.

New federal legislation is trying to catch up with this technology by giving electronic signatures and records the same legal validity as those on paper. The law is intended to give businesses and their customers in transactions affecting interstate commerce the legal certainty needed to participate fully in electronic commerce. As of October 1, 2000, no contract, signature, or record may be denied legal effect solely because it is in electronic form. To be legally enforceable, however, such contracts and records must be in a form that is capable of being retained and accurately reproduced for later reference. The law does not favor one form of technology over another.

Consumers who may be unprepared to enter into electronic transactions are protected by a provision in the new statute that requires that the consumer's consent to a transaction be secured in a manner that reasonably shows that he or she can access relevant information in an electronic form. This means that the consumer must confirm a desire to conduct business electronically and attest to having the ability to access pertinent information electronically. The requirement that parties to a contract affirmatively agree to use electronic signatures does not apply to government agencies.

The E-Sign Act, as it is sometimes called, sets forth some specific contracts and other records to which it does not apply. These include wills; family law documents, including prenuptial agreements and divorce decrees; court documents; contracts covered by most parts of the Uniform Commercial Code; and notices relating to termination of utility services, evictions or foreclosures, cancellation of health insurance or life insurance benefits, and recalls of unsafe products.

Electronic transactions remain subject to applicable state and federal laws that prohibit unfair and deceptive acts and practices. The consumer consent requirements in the E-Sign Act are in addition to, not in place of, other statutory requirements with which the parties to the transaction must comply. Other statutes may include a state's own counterpart to the E-Sign Act. However, no state law can restrict the scope of coverage provided for in the federal law.

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The Internal Revenue Code taxes the transfer of property by gift. A donor does not pay gift tax on the first $10,000 of gifts made to any person during the calendar year, but this exclusion applies only to gifts of a present interest in property. A recent federal appeals court decision has held that gift tax was owed on the forgiveness of a corporation's debt because that transaction constituted an indirect gift of a future, not a present, interest to the shareholders of the corporation.

The donor in the case was a family matriarch who had formed a corporation with her five children and two grandchildren. She sold valuable farmland to the corporation to be paid for over 20 years. She then forgave the principal indebtedness on the sale of the land over three successive years. The corporation eventually sold all of the land, converted its assets to cash, and dissolved. When the donor died, the IRS audited her estate and ruled that forgiveness of the debt did not qualify for the gift tax exclusion.

The estate of the donor argued to no avail that when the corporate debt was forgiven the resulting gift was of a present interest in two respects: (1) the net worth of the corporation immediately increased by the amount of the debt reduction, and (2) the shareholders' stock increased in value. However, the shareholders could not individually enjoy these benefits without delay and without the action of others. Under the corporation's bylaws and the law of the state where the corporation was formed, corporate property could be sold only with the approval of two-thirds of the members of the board of directors and the holders of two-thirds of the stock. A majority of the board was required to authorize the declaration of a dividend. Since the gift of forgiveness in this case was a gift of a future interest, the gift tax that the donor's estate had paid under protest would not be refunded.

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LEGAL LINGO

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