1. DETC 86 th Annual Conference Lucien Capone III University General Counsel UNC Asheville April 16, 2012

2.  How to tell whether an adjunct faculty member is an employee or an independent contractor  What difference does that classification make - ◦ to you? ◦ to your faculty?  Important faculty contract Issues affected by the classification and how to address them  Resources  Questions 2

3.  IRS CIRCULAR 230 NOTICE: To the extent that this presentation or any attachment contains federal tax advice, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Please be sure to contact your own attorney before making any decisions.  DETC is not responsible for the content of this presentation. 3

4.  90% of you classify your faculty as independent contractors.  80-85% of your faculty are denominated “adjuncts.”  Virtually none of you have tenure track positions for your faculty.  Course deliveries are about 60/40 asynchronous/synchronous.  A majority of your faculty (∼85%) work from their homes. 4

5. How to tell whether an adjunct faculty member is an employee or an independent contractor 5

6.  The I.R.S. and most courts use a complicated 20 factor test  Boiled down to 3 categories ◦ Behavioral Control ◦ Financial Control ◦ Type of Relationship 6

7.  If School has the right to direct or control the work, then individual is an employee e.g. ◦ When and where to work ◦ Tools and equipment ◦ Order or sequence of tasks ◦ Degree of instruction given to faculty member ◦ Evaluation system ◦ Training 7

8.  Method of payment? – lump sum v. salary?  Significant investment by individual in tools/equipment?  Unreimbursed expenses?  Does individual have opportunity for profit or loss?  Can the individual provide services to others? (NOTE: more yes answers means more likely to be an independent contractor) 8

9.  How parties perceive each other ◦ What does contract say? I.C. or Employee? ◦ Benefits? ◦ One off job or repeater? ◦ Are the services provided a key activity of the business? E.g. teaching v. consulting (most critical) 9

10.  Worker is an employee until proven otherwise (unwritten policy)  Multiple rulings that adjuncts are employees ◦ PLRs 9132032 (May 9, 1991), 9612016 (Mar 22, 1996), 9612020 (Mar 22, 1996), 9612021 (Mar 22, 1996), 9612022 (Mar 22, 1996), 9634013 (Aug 23, 1996), 9735027 (Aug 29, 1997), 9814011 (Apr 3, 1998), 9821053 (May 22, 1998), 9825017 (Jun 19, 1998) 10

11. “In particular, [the I.R.S.] looks to whether the institution controls the ‘time and manner’ of the lessons to be offered; if so (which is almost always the case because the institution sets the schedule of classes and controls, to some extent, the curriculum of the class), then you got ‘yerself’ an employee.” 11

12.  Facts ◦ Adjunct at Nova Southeastern University ◦ Taught 4 to 12 online courses per year from 1997 to 2007 ◦ Separate contract for each course ◦ Paid fixed amount for each course ◦ Nova provided syllabus of material to cover ◦ Prof provided more detailed syllabus re: assignments and exams ◦ Prof set own hours and work location ◦ Nova set course dates, web site interface, for course and registrations 12

13.  Nova issued a W-2, but Schramm deducted expenses on schedule C v. A.  Held: Employee 13

14.  Why? ◦ Degree of control – textbooks used, subjects to be covered, duration (behavioral control) ◦ Investment in facilities – minimal by Schramm (financial control) ◦ Opportunity for profit or loss – None for Schramm (financial control) ◦ Teaching was part of Nova’s regular business (type of relationship) ◦ Permanency – reemployeed every year 1997 to 2007 (type of relationship) ◦ Treated by Nova as employee (type of relationship) 14

15. What difference does that classification make ? 15

16.  Federal wage and FICA withholding v. 1099  Unemployment insurance payments  Benefits  FMLA/ADA  Workers Compensation  Copyright ownership differs  Liability for infringement and other torts of faculty 16

17.  Employee’s business expenses are subject to 2% of AGI threshold- Schedule A  Employee doesn’t have to pay self-employment taxes  Independent Contractor’ business expenses are fully deductible – Schedule C  Independent Contractor must pay self employment taxes  Benefits v. no benefits 17

18. Important faculty contract Issues affected by the classification and how to address them 18

19.  Copyright ownership & control  Non compete clauses  Liability issues  Term and Termination  Definition of duties  Governing law 19

20.  Independent contractors OWN the content copyright! ◦ UNLESS written contract says “work for hire” ◦ IF NOT work for hire – get assignment or exclusive license ◦ Employer not liable for infringement BUT  Insert indemnification/hold harmless clause!  And a warranty of noninfringement 20

21. Employers OWN employee works ◦ Unless contract says otherwise ◦ DO NOT agree to “joint ownership” ◦ Employer liable for employee’s infringement  Get insurance! 21

22. Be sure to specify right & duty to; ◦ modify ◦ update ◦ translate ◦ (i.e., to make “derivatives”) 22

23.  Courts don’t like them  Must be limited in duration  Must be limited in space (just your service area)  Must be limited in scope to work performed  Illegal in some states (e.g. California)  Can’t be retroactive unless added “consideration” (e.g. $$$) given 23

24.  For Acts of employee ◦ Infringement ◦ Harassment (of students or other employees)  Liability to Employees ◦ Discrimination ◦ Retaliation ◦ Workers compensation 24

25.  Term should be date defined or “at will.”  Termination should be at employer’s discretion ◦ Why? If “for cause” then must prove it. 25

26.  Clarity and specificity are desirable  Always include “other duties as assigned” for an employee. 26

27.  Specify the state whose laws you want to control the contract (choice of laws).  Specify where litigation must occur ◦ Place (venue) ◦ Court v. binding arbitration (jursidiction) 27

28.  Sample Distance Education Policy and Contract language (AAUP) ◦ http://www.aaup.org/AAUP/issues/DE/sampleDE.ht m http://www.aaup.org/AAUP/issues/DE/sampleDE.ht m http://www.aaup.org/AAUP/issues/DE/sampleDE.ht m  Legal Issues in Online Education (Alger) ◦ http://net.educause.edu/ir/library/pdf/NTW0204.p df http://net.educause.edu/ir/library/pdf/NTW0204.p df http://net.educause.edu/ir/library/pdf/NTW0204.p df  Faculty Employment Status: Do “I.C.” and Employee? ◦ Powerpoint presentation by Lucien Capone III (available on request) 28

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