3 Key Provisions for Every Independent Contractor Agreement
Wisconsin and the United States Department of Labor have continued to crackdown on businesses misclassifying workers as independent contractors rather than employees.
Wisconsin Statute § 102.07(8)(b) provides the most stringent test applied by the Wisconsin Department of Workforce Development (DWD) for determining whether an individual is an employee or an independent contractor.
This test features nine (9) criteria, all of which must be met in order for an individual to be properly classified as an independent contractor. If an individual fails to satisfy any of the nine (9) criteria, the DWD will classify that individual as an employee of the company in question, regardless of what the parties intended. Such misclassification will subject the business to various employee related taxes and penalties.
The primary question which Wisconsin’s independent contractor test seeks to answer is whether or not the individual labeled as an independent contractor bears the entrepreneurial risks associated with business ownership.
Lately, many businesses utilizing independent contractors have undergone insurance audits for the purpose of ascertaining appropriate levels of premiums. Based on reports from several of these audited businesses, one common theme has arisen at the conclusion of the insurance audits that directly relates to satisfying Wisconsin’s most stringent independent contractor test.
Below is a list of three important clauses, suggested by multiple insurance companies conducting these audits, which should be in every single business independent contractor agreement.
Every independent contractor agreement should feature an indemnity clause. The purpose of this clause is to ensure that the independent contractor will be held liable for any damage or injury resulting from the independent contractor’s work performed under the contract. Not only should the indemnity clause include the key words “indemnify” and “hold harmless,” the clause should also feature a “duty to defend” the business from any claims arising from the work of the contractor or the contractor’s employees under the contract.
The independent contractor should be required to carry minimum amounts of general liability, auto and workers compensation insurance covering the independent contractor and all its employees. Additionally, the insurance section of an independent contractor agreement should provide that the contractor must furnish proof of such insurance upon the company’s request.
Additional Insured and Waiver of Subrogation:
Finally, and perhaps the most common suggestion brought up during these insurance audits, is that the independent contractor should name the company as an additional insured on all the applicable policies provided above. This ensures that the company will not have any liability exposure when acting in conjunction with the other two items in this list. Additionally, this section should feature a waiver of subrogation in favor of the company to prevent insurance companies from asserting any claims against the company arising from the actions or performance of the contractor or any of its employees.
The above suggestions require that the independent contractor have a legitimate “cost of doing business” under the independent contractor agreement. This happens to be one of the most heavily litigated criteria under Wisconsin’s independent contractor tests. To ensure that your independent contractor agreements are adequate in these regards, contact our office and one of our business attorneys will be happy to assist you in strengthening these agreements before it is too late.