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Employees and independent contractors can be a mixed blessing.

They can add tremendously to your business if handled correctly. If handled incorrectly, they can undermine your success and detract from your business. Here we'll deal with just a few of the issues that the careful founder, researcher and other entrepreneurs should be considering when engaging others to help in his or her venture.

First, let's go over some basic definitions. An employee is generally a person who is subject to the direct supervision of someone in the business, operates on the business premises, uses the assets of the company to accomplish his or her work and is intended to be employed for an indefinite period of time. An independent contractor may or may not work on the premises of the business, typically has more discretion over work hours, may use his or her own equipment or assets to deliver services to the company and typically works on a specific project or for a fixed term.

These are very general descriptions. The exact characterization requires a review of a number of factors. That's beyond the scope of today's Blog. We'll deal with that in a future posting.

But the characterization has important real world consequences. The company must withhold applicable local, State and Federal taxes from amounts paid to employees. The company need not do that for independent contractors. So, getting the characterization wrong can cause serious problems with the applicable taxing authorities - not something that would help the business.

Second, there are some features of the relationship with both categories of workers that should be covered explicitly in writing. These include, among others,

  • Confidentiality and non-use
  • ownership of intellectual property and
  • term of employment

Every worker should be under an express duty to protect the confidentiality of the company's (and all clients') proprietary and confidential information and to use that information solely for the benefit of the company. It may not be taken or used for the worker's purposes or for those of a subsequent employer or client.

Next, every worker should expressly agree that any intellectual property created in the course of his or her work is the property of the company. In the absence of a written agreement stating that and that the work done is a "work for hire", an employee and especially a contractor may claim that the company only received a license to use the intellectual property created - a bad result!

That would mean that any amendment to the IP would have to be done by the creator, which could be an overly expensive requirement.

In New York and New Jersey, workers are generally engaged on at "at will" basis. Absent some special factors or an agreement to the contrary, an employee may be dismissed at any time. It's important to have that in the written agreement the employee signs.

For contractors, a similar provision with immediate termination or termination after some notice period, e.g. 10 days, should be included.

Employee and contractor arrangements can be complex and we've just scratched the surface on issues to be covered, but that should give you enough to consider for this time. If you need help with any of the issues described there, use the contact form to describe your particular situation and request a free telephone consultation.

The foregoing is intended as a useful summary of some basic approaches to the legal areas covered. It is not intended as legal advice. The application of the materials to your unique situation should be made only with the guidance of your counsel.

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