Deciding whether to classify a worker as an employee or an independent contractor is one of most important decisions for a business. There are many ramifications for wrongly classifying a person, mainly regarding taxes owed to the IRS and money owed to the worker. When analyzing this important decision, the National Labor Relations Board (the “Board”), and courts in the United States, have applied the common-law test that uses several factors to help determine whether a person is an employee or an independent contractor. Although the test has been around for a long time, the Board recently returned to clarify the role of “entrepreneurial opportunity for economic gain” in the case SuperShuttle DFW, Inc.

The Facts of the Case

The case involved shuttle-van-driver franchisees of SuperShuttle. SuperShuttle drivers sign a Unit Franchise Agreement (“UFA”) that expressly characterizes them as non-employee franchisees who operate independent businesses. The UFA also states, among other things, the following:

• Franchisees are required to supply their own shuttle vans;
• Franchisees are required to pay SuperShuttle an initial franchise fee and a flat weekly fee for the right to utilize the SuperShuttle brand and its Nextel dispatch and reservation device;
• Franchisees are not required to work a set schedule or number of hours or days per week (they work as much as they choose, whenever they choose);
• Franchisees do not incur any negative consequences for passing on a trip, unless they accept a trip and then do not complete it;
• Franchisees are entitled to the money they earn for completing the assignments that they select.

Overruling FedEx Home Delivery

Entrepreneurial opportunity for economic gain, historically, had not been a factor included as one of the factors in the independent contractor test. This aspect had always been seen as an end item the courts and the Board would use to interpret the factors of the test. The Board would consider how the evidence in a particular case, viewed in light of all the factors, revealed whether the workers at issue did or did not possess entrepreneurial opportunity for economic gain. The Board departed from this standard, however, in FedEx, which was decided prior to SuperShuttle. In that case, the Board held that entrepreneurial opportunity represented merely one aspect of one of the factors of the test called “rendering services as part of an independent business.” The Board decided to revisit this standard in SuperShuttle.

The Board decided in SuperShuttlethat the FedExdecision had impermissibly altered the long standing factor test by creating a new factor and then making entrepreneurship opportunity one aspect of that factor. The Board decided to overrule its previous decision and return to the traditional test applied prior to FedEx.

The Clarified Standard

The Board decided to return to the traditional view of looking at how the evidence in a particular case affects the factors of the test, and from there, deciding whether or not the evidence shows that the worker had an entrepreneurial opportunity. The Board held that entrepreneurial opportunity is a principle by which to evaluate the overall significance of the factors. The Board compared entrepreneurial opportunity with the principle of employer control. The Board mentioned that factors that support a worker’s entrepreneurial opportunity will indicate independent contractor status, while factors that support employer control will indicate employee status.

The Board also mentioned that the independent contractor analysis is a qualitative, not quantitative analysis. A court cannot simply count the factors and see how many of the factors favor independent contractor and how many favor employee. The Board must evaluate each factor based on the circumstances of that case. If the evaluation shows significant opportunity for economic gain and significant risk of loss, the Board is likely to find that the worker is an independent contractor.

Conclusion

Applying its clarified standard, the Board concluded that the franchisees of SuperShuttleare not statutory employees under the National Labor Relations Act (the “Act”), but rather independent contractors excluded from the Act’s coverage.

The Board found that the franchisees had significant entrepreneurial opportunity for economic gain because (1) they were required to own or lease their work vans, (2) all the money they made was theirs, (3) they decided when and how much they worked with no control from SuperShuttle, (4) SuperShuttle did not supervise them, and (5) the parties’ understanding that the franchisees were independent contractors because it was stated in the UFA.

This decision should give employers some clarity in applying the factors in the common-law test to determine the correct classification of workers.

Reference:

SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338. Case 16-RC-010963

https://esub.com/independent-contracto/

https://www.floattanksolutions.com/employees-vs-independent-contractors-better-offering-additional-service/

If you have been thinking about creating your own business, then you have probably read or have been told that a Limited Liability Company (LLC) is the best way to go about it. Although an LLC is generally a good option, forming an S-Corporation (S-Corp) could be a viable option as well, depending on the purpose of your future business. In this post, I will outline some of the benefits and drawbacks of forming an S-Corp as compared to the benefits and drawbacks of forming an LLC or other business entity type.

Formation

The first piece of information to look for when deciding to form a business entity is the initial procedures required to form the entity. For an S-Corp, the entrepreneur is required to file the articles of incorporation with the state. Each state sets out its own form for the articles, so they differ on what exactly is included in them. Generally, the articles include items such as the name of the S-Corp, names of the officers and directors, and the name of the individual incorporating the entity.

For an LLC, the entrepreneur must file the certificate of organization with the state. That certificate is similar to the articles of incorporation of an S-Corp as it identifies the company and the members, along with including optional information the member would like to include.

Liability

One of the main benefits of having either an LLC or an S-Corp is the fact that they both provide limited liability to the members or officers, respectively. Limited liability means that the personal assets of the individuals are generally protected in case the company is sued or goes bankrupt. The peace of mind of not having their personal assets at risk is extremely valuable to most entrepreneurs, and it most likely is to you as well.

Limited liability is not absolute, however, and could be lost in two main scenarios. First, an owner of a business may face personal liability through piercing the corporate veil. Courts may apply this remedy when the owner comingles the company’s assets with personal assets. This concept is true for both S-Corps and LLCs. Second, limited liability does not protect an individual from torts committed by that individual. This means that if you own either an S-Corp or an LLC, you will be personally liable for any torts you commit.

Taxation

There are several aspects of taxation that make S-Corps and LLCs very popular. First, both types of companies have pass-through taxation. Pass-through taxation means that the entity itself is not taxed. The profits or losses are passed to the owner and filed with the owner’s personal income tax return. This is a great advantage over other entity types since it prevents double taxation on the income where the company is taxed then the owners are taxed separately.

Self-Employment Tax. The self-employment tax is one big difference in taxation between the S-Corp and the LLC. This tax is the tax that owners of companies must pay for Social Security and Medicare. The current self-employment tax rate is 15.3%. This means that if you own an LLC, you will pay 15.3% of your income to the IRS in self-employment tax. In an S-Corp, the company would pay half (7.65%) and you would pay the other half. Although this may seem like the same amount, since you own the company, the advantage is that an S-Corp does not have to pay all of its profits to its employees in wages. The S-Corp is allowed to give distributions. Consider the following example:

You make a $200,000 profit. As a member of an LLC, 15.3% is paid as self-employment tax, which equals to $30,600. As an S-Corp, you could be paid a reasonable salary of $160,000, with the remaining $40,000 being given as a distribution not subject to self-employment tax. In this case, the company and you would each pay $12,240, for a total of $24,480. This is a tax savings of $6,120.

The self-employment tax benefit is probably the most common reason why a person would decide to form an S-Corp over an LLC.

 Ownership

One drawback of forming an S-Corp over an LLC is that the IRS sets restrictions in the ownership and formation of an S-Corp. According to the IRS, an S-Corp:

• must be domestic;
• cannot have more than one-hundred (100) shareholders;
• can only issue shares to individuals, not businesses;
• must have only one class of stock; and
• will have any subsidiaries added to the assets of the S-Corp.

These restrictions are very different than LLCs and other business entities. LLCs can have members from anywhere in the world. There is no cap on the number of members, businesses can be members, and there are no restrictions on subsidiaries. If the IRS restrictions are not problematic for your business model, then it may be beneficial to form an S-Corp for the tax benefits.

Conclusion

If you are planning to start a company, think about the purpose of your company in order to better identify which entity would be the most beneficial to form. S-Corps and LLCs are very similar but have some big differences in the self-employment tax amount and the ownership restrictions. It is important to know the distinctions between types of entities in order to make an informed decision and prepare yourself for success.

References

https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes

http://uscode.house.gov/view.xhtml?req=(title:26%20section:1361%20edition:prelim)

What Social Entrepreneurship is

I will first explain what social entrepreneurship is. Social entrepreneurs use their skills to develop, fund, and implement solutions to social, cultural, or environmental issues. The entrepreneurs drive social innovation and transformation in many fields. Social entrepreneurs use a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these to achieve large scale, systemic and sustainable social change.

The main difference between a social entrepreneur and a business entrepreneur is that social entrepreneurs focus first on creating social value, while business entrepreneurs focus mainly on money and profit. Although there are some profit-making social entrepreneurs, most create nonprofit organizations because their main goal is to resolve a social problem, not to make money. However, there are many challenges in that arise for social entrepreneurs.

Challenges

Although social entrepreneurs work to improve the world, there are many challenges that arise that make it very difficult for the organization to be successful. First, social entrepreneurs go through the same challenges a business entrepreneur faces when starting a business. Both types of entrepreneurs need a plan. No business is going to succeed without a good plan of what it wants to achieve, and how it is going to achieve it. Both types of entrepreneurs need to fund their businesses. This is especially tough for non-profit social entrepreneurs because investors do not want to invest if they are not going to make a profit. Non-profit social entrepreneurs rely very heavily on people that believe in their cause donating money. It is very hard to run a business solely on donations. There are also some challenges that apply more towards the social entrepreneurs then they do towards business entrepreneurs. Some of those challenges include communicating value objectively, maintaining a good strategy and long-term focus, remaining true to the mission, and keeping good employees.

Communicating Value Objectively

Social organizations have a view of the way they want the world to be, and they work to make it that way. The results of working towards that view is what delivers the value of these organizations. There is little to no commercial value because the value is social. This social value is also what the entrepreneur and the employees and passionate about. Although this is a great thing, it is hard to communicate the value of the organization to investors, donors, or even the community itself. A way social entrepreneurs can mitigate this is by keeping their goal and their view simple enough that it is easy to communicate. The harder it is to figure out what the mission of a business is, the less people will be interested. If social entrepreneurs have a set mission and it is easy to know it, it will be easier for people to understand the value the organization is bringing to the community.

Maintaining a Good Strategy and Long-Term Focus

Every business needs to have a good strategy on how they will achieve both their short and long-term goals. It is very difficult for any business to succeed without this. However, this is especially true for social entrepreneurs because of the social value they want to create. As mentioned above, it is difficult for social organizations to communicate their value. If a strong strategy is not in place it will be almost impossible. The entrepreneurs need to make sure they have set goals so that the employees, the investors, the donors, and the community can understand what the organization is doing. It is easy for a social organization to lose its way if it does not have a set strategy to achieve its goals. In order to avoid this problem, social entrepreneurs must create both short and long-term goals before even starting the organization so that they can create a strategy that will help them achieve those goals.

Remaining True to the Mission

Running a social organization has many obstacles, mainly funding, and it is easy for the entrepreneurs to forget about the long-term goals because they are so busy just trying to stay in business. However, this could result in the organization shifting away from its main purpose. Entrepreneurs need to continuously check to make sure the organization is still working towards its goals and that it is fulfilling its mission. The main solution to this issue is also to have a strong strategy to achieving all the goals. An organization that knows exactly what it wants to do and how it is going to achieve it will not shift away from its goals.

Maintaining Good Employees

Social entrepreneurs and their employees receive very small salaries because of the nature of the organization. For that reason, it is very difficult for an organization to maintain qualified, committed employees. The main way to solve this is to make sure a person has enough passion about the subject when before they are hired. This is difficult to do, but it is the main way to be sure employees will stay in the business. The passion for the cause will be the reason employees stay in the business.

Conclusion

To sum up, social entrepreneurs have a tough task when creating their organizations but they can be successful if they maintain a good strategy that will allow them to achieve their goals and communicate it to the community.

Introduction

When an entrepreneur decides to start a business, along with the joy, the hard work, the pride, the excitement, and the sense of achievement also comes the risk of a lawsuit. Statistics show that between thirty-six and fifty-three percent of all small businesses are engaged in litigation at least once a year. That number jumps to about ninety percent when referencing all businesses, not just small businesses. These lawsuits can be regarding many different claims, including but not limited to contractual disputes, employment discrimination, wrongful termination, or personal injury.

What the duty entails

The duty to preserve evidence has been defined by the courts as meaning that all parties have a duty to preserve any evidence that could potentially be relevant in litigation. To figure out the boundaries of the duty to preserve evidence we must look at when is there a duty to preserve evidence and what evidence must be preserved.

When is there a duty to preserve evidence?

The court in Zubulake v. UBS Warburg LLC held that the obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation. The duty also comes into play when the party should have known that the evidence may be relevant to future litigation. The notice to preserve evidence can come in several ways. The most basic way is when a party gets notice that charges have been filed against them. At this point, a party definitely knows that anything regarding those charges must be preserved because it may be relevant to the litigation that has already commenced. This notice usually happens after a complaint has been filed against a defendant.

When it gets harder however, is when courts must decide when a party should have known that evidence would be relevant in future litigation. Courts have found that there is a duty to preserve evidence when there is a reasonable anticipation of litigation. In Zubulake v. UBS Warburg LLC there was an email between the supervisors of the company sent prior to any court proceeding commencing that was titled “UBS Attorney Client Privilege.” Also, one of the supervisors admitted in his deposition that he feared litigation earlier than the court proceeding commenced. The court explained that just because an employee or two believe they might get sued it does not impose the duty to preserve evidence on the entire firm, but in that case, there were a lot of people copied in that email, meaning that many people knew about the possibility. The court held that the duty to preserve evidence began at the time of the email because they should have known that evidence may be relevant in future litigation.

What evidence must be preserved?

Although they have a duty to preserve evidence, a party does not need to save every shred of paper, every email, or any other type of electronic document. The scope of the duty is restricted in order to not put an undue burden on a party. The court has held that any individual that likely has discoverable information that the opposing party may use to support its case is subject to the duty to preserve evidence. The scope of the duty also encompasses information that is prepared for those people, not just the information they prepare. Basically, the duty applies to any person who is likely to have relevant information. As mentioned above, the information that must be preserved by the people responsible is any information that may be relevant to the litigation.

Actions to take when the duty is imposed on you

Once the duty to preserve evidence has been imposed on a party, the best way to comply with it is to save anything that has to do with that particular case. You can think to yourself and ask, “what is the lawsuit about” and “what information or materials do I have regarding it.” Save anything that came to your mind because it may be relevant during the litigation. Also, if you are an employer, make sure that all employees that may have relevant information know about the duty and are following the rule. It is a good habit to remind the employees often about the duty just to make sure they continue to preserve the necessary evidence. It is also a good idea to contact an attorney the moment you know the duty has been imposed on you, or whenever you are unsure as to whether the duty has been imposed or not, so that you comply with the law. An attorney will know the right process to make sure you are following the law. Plus, if litigation does in fact happen you will need an attorney to defend yourself. By getting the attorney involved early in the process, you are preparing yourself to succeed at trial.

References

Rubin, B. (2014, July 14). You’re Going To Get Sued – Here’s How Not To Get Screwed. Retrieved March 25, 2018, from https://www.forbes.com/sites/basharubin/2014/07/14/youre-going-to-get-sued/#2b8ecaa37f08

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003).

“Office of General Counsel.” Summary of Federal Laws – Office of General Counsel, The Catholic University of America, counsel.cua.edu/fedlaw/frcp.cfm.

Introduction

Most employers have heard of the dreaded interview questions that are illegal. These are questions that solicit information involving the following: age; race, ethnicity, or color; gender or sex; country of national origin or birth place; religion; disability; marital or family status; or pregnancy. Knowing this type of information is likely to make a company liable in a discrimination lawsuit. Employers need to avoid asking those types of questions when conducting an interview to protect themselves against a lawsuit. Employers who are aware of the law avoid asking these questions to make sure they are not soliciting this information. However, what happens when the interviewee gives that sort of information without being asked? What happens when the employer stays away from all those questions, but finds out about the information anyway?

Laws prohibiting discrimination

The federal government has many employment discrimination laws in place to protect persons from being discriminated against. The Equal Pay Act, for example, prohibits employers from paying different wages based on the employee’s sex if the workers perform equal work on the same type of job. Title VII of the Civil Rights Act of 1964 prohibits discrimination based on race, color, religion, sex, or national origin. This act also includes pregnancy and childbirth. The Supreme Court of the United States has held that Title VII tolerates no discrimination, subtle or otherwise. Another prominent act in the employment discrimination laws is the Age Discrimination in Employment Act. This act protects people between the ages of 40 to 65 by prohibiting employers from discriminating against them. Although some of these characteristics will be easily noticeable when the person walks into the interview, employers must keep that information out of their decision-making process.

Unfortunately, there is no way to get rid of information an interviewee gives voluntarily, even if the employer would rather not know. However, there are ways of remedying the problem so as to avoid a discrimination lawsuit. I explain two methods below.

Method one

One way to react to an interviewee’s voluntarily giving an employer information the employer does not want to know is to move on to the next question or topic. It would be easy for an employer to say, “they brought it up, not me,” and continue to talk about it. However, this mindset would still subject the employer to liability in a discrimination suit. The problem with the “illegal” questions is not the fact that the employers are asking them; the problem is that the employers find out about the information. The laws are in place to prevent an employer from discriminating based on the person’s information; this can occur whether the employer asks the questions or not. If the employer can show that he or she moved the conversation to another topic, it will be good proof that he or she was not discriminating against the person when making the hiring decision. By moving on to another topic, the employer shows that he or she had no interest in the specific information and only cared about whether the person had the skills necessary to excel at the job.

Method two

Another way of dealing with an interviewee’s giving unwanted information is for the employer to make sure that no notes are taken on that part of the conversation. It will not look good for the company, in case of a lawsuit, to have notes on information that could be used for a discriminatory purpose. The employer is not supposed to be using that information in the decision-making process, so there should not be any notes about it.

Conclusion

No matter how careful an employer is in preparing for the interview and avoiding questions that would solicit information prohibited under the Employment Discrimination Laws, some candidates will volunteer this information. Although employers cannot forget the information, they can eliminate it as a discussion point and hiring factor. Proving that the employer did not solicit the information and ignored it when it was volunteered is a very strong indicator that the employer did not take the information into account while making the hiring decision. The company would be able to defend itself well in a lawsuit if it can prove the information volunteered by the employee was not used in decision-making. Employers, unfortunately, do not have many options when dealing with information volunteered by the interviewee. The main thing they can do to protect themselves is to act like it was never said and avoid continuing the topic in their conversation.

References

Types of information that is illegal.

     https://www.thebalance.com/job-interview-questions-that-are-           illegal-1918488

Equal Pay Act

88 P.L. 38, 77 Stat. 56

Title VII

McDonnell Douglas Corp. v. Green, 93 S. Ct. 1817, 1824 (1973)

Age Discrimination Act

90 P.L. 202, 81 Stat. 602

Photos

https://www.alphagamma.eu/entrepreneurship/look-professional-job-     interview/

https://www.best-job-interview.com/illegal-interview-questions.html