When is it safe to use independent contractors in Massachusetts?

For a small business, hiring employees can seem daunting, with payroll, tax and other compliance issues taking time from your busy schedule. It is tempting to instead use part-time independent contractors, pay them in “1099 income” and shift the tax and administration burden off your shoulders. Be careful: Massachusetts now has some of the country’s tightest employment classification laws, and interprets them strictly. You can get in much more trouble than it’s worth by misclassifying an employee as an independent contractor, and a simple “Independent Contractor Agreement” is often not enough to protect you.

Note: As always, this article is provided for general education only and to make the reader aware of the issues. If you need advice on your own or your business’s situation, consult a lawyer. This article pertains to Massachusetts law; other jurisdictions may have very different laws on independent contractors.

One common misconception is that the use of an independent contractor agreement is always sufficient to give your hire independent contractor status. If only it were that easy! An independent contractor agreement is only one piece of the puzzle. It will have no effect if the hire is not in a lawfully classifiable independent contractor position.

How do you know whether your hire’s independent contractor classification is lawful? Unfortunately, as in many areas of law, you don’t know for sure until the issue “hits the fan.” Many businesses could go on for years using misclassified workers and not realize the mistake until a complaint or other event results in a state agency or court needing to decide the issue, so instead of trying to write out a bright-line rule I will tell you the criteria that a Massachusetts judge would apply when deciding whether a worker is truly an independent contractor.

There are three criteria. A worker is not lawfully classified as an independent contractor unless all three prongs are met. If the answer to any of these questions is “no,” the worker must be an employee, not an independent contractor:*

  1. Does the worker have freedom from control by the employer? This means that the employer may tell the independent contractor what needs to be done and by what deadline, but should not place any unnecessary requirements on the manner in which the tasks will be done, such as where, during what hours, and by what methods. If the worker submits a time card and is paid by the hour, that will also weigh against independent contractor status. Usually, independent contractors should be paid by the task, not by the hour.
  2. Is the worker performing a service that is outside the employer’s usual course of business? This requires considering the employer’s line of business, and asking whether the independent contractor is doing something that is part of that business or would ordinarily be done by a separate company. If the business is a shoe store, it is unlikely that it would get away with classifying its shoe salespeople as independent contractors. But the graphic designer it hires to do its print ads? If handled properly, that can usually be an independent contractor. Software developers working for a software company? Probably an employee. Videographer hired to prepare web ads before the software company’s product launch? Usually an independent contractor.
  3. Is the worker engaging in an independently established trade or business? This sounds a lot like number 2, but what it is asking is whether the worker is a separate business entitled to act like one. Merely forming a separate LLC or Corporation is insufficient. Is the worker free to take on other projects for other companies, so long as they don’t conflict? If the worker is (or is in a line of work where traditionally he or she would be) advertising the services he or she is performing for the employer to other potential employers, scheduling time for the multiple projects and doing them independently, this prong will be satisfied.

Again, if the answer to any of these questions is no, you must sign the worker on as an employee, not as an independent contractor. Failing to do so could result in your company inadvertently violating a number of state laws, including (but not limited to) payroll record keeping rules, payroll tax withholding requirements, wage and hour law, minimum wage law, laws requiring overtime pay, and worker’s compensation laws. Companies found in violation of these laws could receive stiff fines and be prohibited from working on public contracts for a period of time.

*There are a few specific exceptions to this rule that are specified in Massachusetts statutes. For example, real estate agents usually sign on to a single company and would certainly appear to be employees under this law, but there is a separate law regulating real estate companies that specifically allows them to use independent contractors as agents. Taxi drivers, lawyers and a few other professions receive similar treatment.

Upcoming Event: Business Law Primer in Cambridge, Weds., Jan. 13

On Wednesday, 1/13 at 6:00 PM I will be giving a presentation on business law for startups in Central Square. The location is the first floor of Workbar, 45 Prospect St. (a block from the Red Line stop). Workbar members and nonmembers welcome.

I will cover the most common topics my startup business clients ask about, including pros and cons of different business entity types (LLC, S-Corp, Partnership, etc.), how to work with (or as) an independent contractor and how intellectual property assets are identified, categorized and protected.

Registration is free. Please register at the Eventbrite page here so we can get a head count.

The Massachusetts retainage law update is now in effect

A reminder to all of you with construction projects in progress or planned in the short term.

Note: This article is for your information only. It is not legal advice. This information applies only to projects in Massachusetts. If you have specific questions, please send me a message at Andrew@AndrewLynnLaw.com or call 617-702-4045.

The new Massachusetts law on subcontractor retainage the I wrote about earlier is in effect, as of November 6th. Some of the key points:

Caps on retainage: Total retainage is now capped at 5% of the payment due. There are also specific caps for specific deficiencies, of example 2.5% of the contract value for incomplete document deliverables.

Payment timing: There are new timing requirements. For example, retainage most now be invoiced within 60 days following substantial completion, payable within 30 days of invoice receipt, with an allowance of 7 days per level of subcontract.

Substantial completion timing: The prime contractor must give notice of substantial completion within 14 days of actually achieving the substantial completion milestones.

Punchiest timing: The owner must submit the punchiest to the prime contractor(s) within 14 days of acceptance of substantial completion. The prime must provide the punchiest to its subcontractors within 21 days of acceptance of substantial completion.

Remember that these new requirements are statutory, so update your contracts.

Architects and designers: Enforcing payment using mechanic’s liens

Today on ArchitectureLaw.net:

A Massachusetts law passed in 2010 allows architects and design professionals to use mechanic’s liens – traditionally the domain of contractors and building material suppliers – to enforce payment. It’s one straightforward way to gain leverage if you have a delinquent payment dispute, but there are deadlines and the requirements include a written contract. Know your rights so that you do not lose access to this valuable tool.

Read the article here: “Mechanic’s Liens for Architects” and contact me at Andrew@AndrewLynnLaw.com for more information on mechanic’s liens and any other questions you have on law and contracts for design professions.

Contract Outline for Interior Design

One of the services that I provide to architect and designer clients is contracts customized for the needs of a firm or project. A well written contract is essential because it sets up the scope and timeline of a project, manages the expectations of the designer and the client and gives you the rights of the parties and the procedures they will follow when something goes wrong.

Contract outline for interiors projects

This article is republished from my architecture law blog at http://www.architecturelaw.net, where I write about legal issues that matter to architects. For more information on my architect and designer representation practice and how your business can benefit from personalized, affordable legal services designed for your industry, see my Architect and Designer Representation page.

Note: This is not a complete contract in any way, just a broad and rough outline. I wrote it for somebody in Massachusetts, and the requirements will vary by state, country and project, so please speak with an attorney in your area if you need a contract for design work.

A fellow lawyer recently asked me for an outline of a contract between a home owner and an interior designer. Here is what I wrote.

  1. General: Describe the project, the participants in the project and the parties to this particular contract. Include normal contract-for-services language, such as choice of law, arbitration, termination, modification, complete integration.
  2. Scope of Services: Describes generally the services that the designer will perform, and what services would be considered additional services. Additional services are work that is triggered by client requests or unforeseen circumstances and that is billed separately.
  3. Project Phases: Lists the project phases: Design phases such as pre-design, design development, contract drawings; construction supervision; project close-out; and there may be others depending on the complexity of the work. Includes the services to be performed during each phase – in more detail than the general Scope of Services section – and expected dates of completion. There should also be a discussion of the completion of each stage: presentation of the deliverables to the client, and how much time the client has to approve the work or request changes.
  4. Owner’s Responsibilities: What does the designer require of the owner? E.g., drawings to be provided, permit applications to be completed, access to the property, timely approval of design options.
  5. Compensation: What will the designer be paid, and at what times? If additional services are requested, what is the compensation?
  6. Delays: Describes the effects of delays. Delays caused by the client, by the designer, by the contractor, and by unforeseen circumstances will each be handled differently.
  7. Estimates: If the designer is providing cost estimates, at what points in the project cycle will they be given, and how reliable will they be? Language should be appropriate to your jurisdiction and give the limits of the designer’s liability for missed estimates if needed.
  8. Intellectual Property License: Make a clear statement of which party will own the intellectual property, including copyright in the drawings. By default, copyright ownership goes to the creator, which is usually the design firm. The non-rights-owning parties (e.g. the building owner) will need a license for use of the drawings to build the project. Include limitations on those licenses, such as limiting their use to this project only. If building information modeling (BIM) technology will be used, include a BIM protocol section that makes it clear whether the BIM model will be available to the client and contractors. If it will be, and this is your first time writing a contract with BIM provisions, be aware that this is potentially a very complex matter and ask somebody with knowledge in the field for help.
  9. Boilerplate”: When talking with other lawyers I tend to refer to this section as something like “the usual terms in a contract for services”, which doesn’t sound interesting, but this is not to be overlooked, because the terms that go in this section define the procedures to follow when something goes wrong. Terms here include choice of law, arbitration, termination, modification, integration, nonpayment and others. This is very dependent on the law of the particular state or jurisdiction, and a good lawyer in your area who drafts contracts will know what to include.

Are Buildings Copyrighted?

This article is republished from my architecture law blog at http://www.architecturelaw.net, where I write about legal issues that matter to architects. For more information on my architect and designer representation practice and how your business can benefit from personalized, affordable legal services designed for your industry, see my Architect and Designer Representation page.  

Are Buildings Copyrighted?

Most architects know that their drawings are protected by copyright. That’s sometimes the basis of contract sticking points (“Who owns the drawings?”) and the more tech-savvy know that limited copyright licenses can be used to limit the uses of BIM files by owners and contractors both as a method of retaining control over the process and as a limitation on the architect’s liability. What gets less press – and this is true even in law school copyright classes, where the topic is only mentioned but not explored – is that buildings themselves enjoy a form of copyright protection. Please note: This article applies in the US only. Other countries have different copyright laws. This is not legal advice, just a broad overview. If you need help with a legal question, contact a lawyer in your area.

History

Before the United States joined the Berne Convention (the international agreement on copyright protection, enacted in 1886 and joined by the US in 1988) there was no building copyright in the US except for purely ornamental works – structures that were sculpture only. The federal law that formally added copyright protection for other buildings was not enacted until 1990, and any buildings substantially completed or published before December 1, 1990, are not protected.

What Buildings Are Protected

Copyright protection now applies to buildings newer than December 1, 1990, that are capable of human occupation (e.g., houses, office buildings, even gazebos, but not monuments that lack roofs). Mobile structures – mobile homes, RVs, boats – are not protected by architectural works copyright, though they may have other forms of intellectual property protection. Modular structures assembled on-site can be protected.

What Features Are Protected

Copyright protection on buildings applies to those aspects of the design that are form, not function. In any design context, separating the two is difficult; if I ever write an extended article on the subject it will have to quote from Huxtable and Banham, feature interviews with theory professors and be unreadable by anybody without at least an M.Arch. The Congressional committee report references Michael Graves’ dichotomy between “internal” and “poetic” architectural languages. The internal is “determined by pragmatic, constructional, and technical requirements,” while the poetic is “responsive to issues external to the building, and incorporates the three-dimensional expression of the myths and rituals of society.” The report states that the intent of the law is protect the poetic language only. In real-world terms, therefore, design decisions made for practical reasons are less likely to result in copyright protection than those made for aesthetic, cultural or dare I say whimsical reasons. (Yes, I admit, I have made design decisions for purely whimsical reasons.) While “standard” features – e.g. a window from a catalog, a common wall assembly or a rectangular panel of fiber-cement board – are not copyrightable, creative combinations, configurations and combinations of otherwise standard items are.

What Is Infringement

A building can be accused of infringing another building’s copyright in the same ways that any other work can infringe, though most obvious and common would be actual copying or “substantial similarity” copying. The line between inspiration and copying can be fine and difficult to place. In one famous case – which never made it to court and so never produced a legal precedent – recent architecture school graduate Thomas Shine accused architect David Childs of making the New York Freedom Tower a “substantially similar” copy of Shine’s student project. Had the case gone to court, Shine would have had to prove that Childs’ design was so similar that copying should be inferred, and that Childs had access to Shine’s design. The latter part could be proven by showing that Childs was a member of the jury that evaluated Shine’s project and that Childs had commented on the project. Childs responded that the similar elements were really industry standard and that the design was informed by the site and other unique factors. The line between inspiration and copying is a distinction that would make many architects rightfully uncomfortable, because the practice of drawing on “precedent” studies is time-honored tradition in architecture, and perhaps this – together with the relative newness of architecture copyright – contributes to the relative scarcity of architectural copyright disputes, compared with more litigious fields such as software and music.

What Else Should I Know?

Too much to write here! It took me three law school classes and two co-op placements in the field to get a handle on copyright law. I’ll write more along these lines in upcoming posts continuing my discussion of BIM and the law and maybe one relating the recent Oracle v. Google case to architecture copyrights, but if you have any questions please email me at Andrew@AndrewLynnLaw.com.