Independent Contractors In Newspaper Operations Inland Human Resources Management Conference, March 10 & 11, 2015 Presented by: Kyle R. Hartman

©2015 Seyfarth Shaw LLP Independent Contractors – Biggest Risks Who are we contracting with? Distributors Newsroom Others? If the Contracts are with Companies is there a risk? Former Employee Turned Contractor Who Services Only One Client Distribution Business Temp Agency Relevant Concepts: Single Employer Joint Employer Status 2

©2015 Seyfarth Shaw LLP Independent Contractors – Biggest Risks (continued) Federal and State Enforcement Initiatives IRS & DOL State Labor Agencies State Unemployment Compensation/ Workers Compensation Private Attorneys Class and Collective Actions 3

©2015 Seyfarth Shaw LLP Independent Contractors -- Eliminating Risks Structure and Auditing of Relationship Contract Review Training of Mangers and all Individuals who Interact with Contractors Termination Provisions Arbitration and Waiver of Class Action Rights 4

©2015 Seyfarth Shaw LLP Background What is an Independent Contractor Update – Applicable Laws and Initiatives Consequences of Misclassification Contract Training and Negotiation 5

©2015 Seyfarth Shaw LLP What is an Independent Contractor? “Independent Contractor” is the legal term given to an individual or company providing services to another company to distinguish that person or company from an employee. An independent contractor has discretion to determine the manner and means by which the services are performed Different laws utilize different tests and consider different factors to analyze whether an entity or person is an independent contractor The factors considered and the weight given to any particular factor depends upon the law being considered, the relevant industry and relationship, and the agency or other entity making the determination. 6

©2015 Seyfarth Shaw LLP Misclassification Initiatives - Federal A federal study estimated that the U.S. government loses $2.72 billion a year because of employees misclassified as independent contractors. The same report cited an estimate that state governments lose nearly $200 million a year in unemployment insurance taxes for every 1% of employees who are misclassified. President Obama’s 2010 budget assumes that the federal crackdown will yield at least $7 billion over 10 years. 7

©2015 Seyfarth Shaw LLP Misclassification Initiatives - Federal In September 2011, the DOL and IRS signed a Memorandum of Understanding (“MOU”) to allow the sharing of information regarding worker misclassification. In 2012, the Wage and Hour Division of the Department of Labor requested $15,223,000 and 107 FTE to support an additional 3,250 investigations as part of its Misclassification Initiative. DOL’s FY2015 budget request sought an additional $41 million (18% increase) for the Wage & Hour Division to allow the Division to hire 300 new investigators. 8

©2015 Seyfarth Shaw LLP Misclassification Initiatives - States 20 State agencies have signed information sharing MOUs with the Wage and Hour Division of the DOL. 9

©2015 Seyfarth Shaw LLP Misclassification Initiatives - States Some states have made intentional misclassification a crime in connection with failure to provider worker’s compensation. Some states have provided for huge penalties for intentional misclassification. In California, up to $15,000 per contractor; $25,000 for a pattern or practice. Massachusetts imposes criminal penalties for intentional misclassification and in 2011 collected $10.9 million in restitution, penalties, fines and overdue taxes. 10

©2015 Seyfarth Shaw LLP Why Is the Independent Contractor Issue Such a Challenge? Few bright line tests, nearly all require a balancing of multiple factors, with no single factor controlling. Different decision makers can make different determinations when considering the same set of facts. Different tests, depending upon the law at issue. A worker can be an independent contractor under one law and an employee under another. 11

©2015 Seyfarth Shaw LLP Consequences of Misclassification If a court or agency determines that workers classified as independent contractors are in fact employees, then the employer could be subject to: Back taxes, interest and penalties (unemployment insurance) Workers compensation contributions Civil liability for injuries caused by the workers Liability for failure to comply with state and federal laws regulating employment relationships (e.g. pay stubs, expense reimbursment) Back taxes, interest and penalties for failure to withhold income tax and failure to pay FICA and FUTA Subject to Labor (unionizing) laws 12

©2015 Seyfarth Shaw LLP Threats from the Plaintiffs’ Bar Opportunity for large class actions and the ability to recover attorneys fees has lead plaintiffs’ law firms to seek out misclassification lawsuits for economic gain. Commercials Billboards Websites Even newspaper ads 13

©2015 Seyfarth Shaw LLP How Challenges to Independent Contractor Status Can Arise “Contractor” files unemployment claim upon contract termination. May trigger review and audit – UC almost always finds employee status. State UC may notify DOL under information sharing MOU, and DOL may choose to audit/ investigate 14

©2015 Seyfarth Shaw LLP How Challenges to Independent Contractor Status Can Arise Third party injured in auto accident sues newspaper as the “deep pockets.” Contractor is disgruntled or wishes to challenge termination of contract and: makes claim for severance benefit or other retirement, welfare benefits. claims not paid minimum wage. 15

©2015 Seyfarth Shaw LLP What Are Some Strong Independent Contractor Practices? NEGOTIATE TERMS IN THE CONTRACT ENSURE ACCURACY IN THE CONTRACT -- Make sure your day-to-day practices are consistent with the terms of the contract. LIVE BY The CONTRACT unless amended by a written document signed by both parties. 16

©2015 Seyfarth Shaw LLP What Are Some Strong Independent Contractor Practices? CONTRACT FOR, PAY FOR, AND MEASURE RESULTS PROVIDED define objective terms and leave the contractor to determine how to meet those terms REQUIRE THE RESULTS CONTRACTED FOR, NOT INTERIM STEPS TO OBTAIN THOSE RESULTS 17

©2015 Seyfarth Shaw LLP What Are Some Strong Independent Contractor Practices? Ensure the relationship leaves contractors with RISKS OF LOSS & POTENTIAL FOR VARIATION IN PROFITABILITY DO NOT GET INVOLVED with a contractor’s relationship with its employees or contractors DO NOT PAY EXTRA -- no additional bonuses or “benefits” which the contract does not require, unless there is an amendment to the contract 18

©2015 Seyfarth Shaw LLP What Are Some Strong Independent Contractor Practices? DO NOT CHANGE THE CONTRACT without mutual agreement written and signed by both parties TREAT CONTRACTORS DIFFERENTLY, they do not perform any other services as employees or receive employee benefits 19

©2015 Seyfarth Shaw LLP Terminology Matters ACCEPTABLEUNACCEPTABLE Contractual relationshipEmployment relationship Independent business person Contractor Worker Employee Agent of Company ManagerSupervisor Boss Contract withHire Terminated for material breach of contractFired Terminated for cause Manage contractorsSupervise Train Instruct Contractors Requiring Contractor to meet the final requirements of the contract Control over the manner, means, mode, and/or details of the work

©2015 Seyfarth Shaw LLP Terminology Matters ACCEPTABLEUNACCEPTABLE Contract fees Services Fees Wages Pay rate Benefits Contract for ServicesJob Discussion regarding breach of contractDiscipline Suspension Subcontracting services is permittedPersonal services is required Allowing contractor to provide substitute services at their own discretion Control or approval necessary for substitute services Completion of services per contractRegular reports Performance of services at contractor’s own selection of site Performance of services on Company premises Contractor furnishes his/her own materials, supplies, equipment, or rents or purchases it (in their own discretion) at the fair market rate Provision of expenses, materials, supplies, equipment for free, or at a subsidized cost

©2015 Seyfarth Shaw LLP Terminology Matters ACCEPTABLEUNACCEPTABLE Contractors receive only gross profits from the Company Contractors receive wages or net profits Contractor may work for competitorsRestrictions on the Contractor unrelated to completion of contractual services Performance of services by a final time onlySet hours to report to work or perform services Telephone calls to inquire as to performance of delivery services per contract, and whether newspapers will be picked up Wake up calls Liquidated damagesSeverance pay Contract / Contract ProposalEmployment application True / False for Managers

©2015 Seyfarth Shaw LLP Life of a Contract negotiation approval/execution/administration monitoring/management amending terminating records retention

©2015 Seyfarth Shaw LLP Contract Negotiations Your responsibility to ensure that the contractor understands that the contract is negotiable Also your responsibility to ensure that the contract is negotiated Being willing to negotiate doesn’t mean being willing to agree; means listening to the proposal and considering it with an open mind

©2015 Seyfarth Shaw LLP Six Principles of Contract Negotiation 1.Know the contract Important for negotiations and managing the relationship with the distributor 2.Explain each paragraph of the contract to the contractor 3.Offer to let the contractor take the contract home with him and have his lawyer review it

©2015 Seyfarth Shaw LLP Six Principles of Contract Negotiation 4.Carefully consider any change in the contract suggested by the contractor 5.Think of some items that you can change before starting the negotiations 6.Note all contract changes in writing

©2015 Seyfarth Shaw LLP Evidence of Negotiations As you negotiate, be mindful of ways that you can show that a negotiation actually took place Make sure such evidence is filed/stored in such a way that it can be retrieved

©2015 Seyfarth Shaw LLP Approval/Execution/Administration  Signed by both parties  Faxed copy is ok, but original is preferred  Copies given to all interested departments  Procedures are set up – payment, invoicing, delivery procedures, etc.

©2015 Seyfarth Shaw LLP Monitoring/Management Review frequently to ensure that both parties are abiding by terms agreed upon  Did we receive certificates of insurance?  Did we receive updates?  Are we performing our obligations (payments, maintenance)?  Do we need an amendment?  Is the other party in breach?

©2015 Seyfarth Shaw LLP Amending  Amend contract if reality is different from contract terms  Amend to change prices  All amendments should follow same rules as for initial contract (negotiation, approval, execution, etc.)

©2015 Seyfarth Shaw LLP Terminating  If terminating for breach - work with legal  Follow termination notice requirements - if need to give notice by registered mail with copies, make sure that is what you do  Flag calendar if need to give notice in order to exercise option to renew or not renew  Be aware of termination transition issues

©2015 Seyfarth Shaw LLP Records Retention Need to follow retention policy If potential for litigation arises, need to make sure that no documents are accidentally destroyed If use a contract as a basis for another contract, make sure identifying information is deleted

©2015 Seyfarth Shaw LLP Conclusions Ensure documentation supports the classification Ensure Contractors understand and live by the relationship agreed upon Ensure managers are trained to manage the relationship