Could contract employees become a thing of the past?

Companies often hire other companies to provide labor services. As an example, a distribution warehouse may hire a staffing company to provide additional workforce during the busy holiday season. In this arrangement, the workers are employees of a different company from the company for whom the work is being performed.

In another example, while McDonald’s, at the corporate level as franchisor, benefits from the activities of its franchised restaurants, the individual franchisee restaurants are the companies that hire staff to perform the work in the restaurant.

Last week, the National Labor Relations Board (NLRB) made a cornerstone decision that could upend the way in which the law views employer-employee relationship, between companies, contractor companies, and contracted employees.

For the past three decades, the standard used by the NLRB to determine whether an employer-employee relationship existed was whether the company for which work was performed had direct and immediate control over the persons working on the job.

If the company for which work was performed was found to have direct and immediate control over the workers, even if those workers were hired, paid and managed by a separate contractor, both the contractor company and the company for whom work was being performed would be considered joint-employers.

If the company for which work was being performed did not exercise direct and immediate control over the workers, the contracting company was the sole employer over those companies, and the sole entity responsible to ensure that employment practice standards were being maintained.

Under the new “Browning-Ferris” decision of the NLRB, it was determined that the standard test for whether an employer-employee relationship existed should instead be whether or not the company had the potential to control wages and working conditions, regardless of whether the company does indeed exercise that potential control.

An effect of this ruling is that the company who hires a labor contractor to provide personnel to conduct work, may more easily be determined to be a joint employer of those personnel, along with the labor contractor, but may in fact have no interaction or control over the subject employees, but only the potential to exercise control.

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This decision is employee-friendly, and is intended to increase protections afforded to employees. This decision’s interpretation of the law is made with the intention of preventing certain situations in which workplace standards are not adequately maintained, and adherence to labor law standards are not complied with. Businesses who use contract labor, or franchisors whose franchisees hire employees, may face greater employment liability exposure.

The National Labor Relations Act, for which the NLRB is the quasi-judicial body, does not cover government employees, independent contractors or most supervisors.

While the NLRB is not a court of law, it interprets and enforces the National Labor Relations Act; this decision does not change the law, but it reflects a change in the NLRB’s interpretation of the law and their corresponding change in application to employers.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on September 1st, 2015. You can read it on the Register's website here: "Could contract employees become a thing of the past?"

How to sign a contract

Our firm represented an LLC recently. The LLC’s “Manager” came into our office requesting assistance with a lease dispute. When we reviewed the lease, we discovered that the manager was named individually as the party to be bound to the agreement, and on the signature page the individual had signed and written his name in his personal capacity, with no reference to the LLC or his role as its manager or as an officer or authorized agent of the company.

In this scenario, particularly when the business in question is a limited liability entity (such as a corporation or an LLC), the signor to the agreement had unintentionally defeated a portion of the liability protection that the entity would have offered, and could be personally obligated for the performance of the agreement.

This presented a potentially significant problem for the individual, who was at risk of being held personally obligated for the performance of the terms of the lease (namely, payment of rent).

The scenario is not hard to imagine; he had signed the lease while sitting at his desk, in his office, at his place of business, in the mindset of the LLC manager. His mind automatically drew the conclusion that the act of signing the lease was done so in his capacity as LLC manager, but the document’s terms did not lead to that same conclusion.

There are defenses and arguments that could be raised by the individual in his defense to try to avoid personal liability for the performance of the agreement, but the time and expense of making and proving those arguments – even if successful – would nevertheless require spending a significant amount of time and money.

Best practices would of course call for the document to be signed in the proper capacity from the beginning of the contractual relationship, to avoid the potential for such a conflict to arise.

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When reviewing a contract for your business, first verify that the business’s legal name is identified as the party to the agreement, not the individual name of the signor (unless signing as a sole proprietor).

When signing the document, ensure that the signature block lists the business’s legal name, and identifies the individual signor’s capacity as a signor on the business’s behalf, such as manager, president, vice president, or other title confirming the role that the individual maintains within the business.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on April 14th, 2015. You can read it on the Register's website here: "How to sign a contract"

Is your electronic signature enforceable?

Dear Alex: I would like to know once and for all, are electronic signatures enforceable or not? In the course of my business, I have been required to go into our bank branch to physically sign financial documents, our commercial real estate broker emailed our real estate documents for e-signature, most of our contracts are scanned and emailed, but some vendors require original signatures. It seems inconsistent and is very confusing!

If this issue seems confusing, that is probably because the law itself leads to confusion, which subsequently leads to businesses being confused when they implement their own contracting policies.

California was the first state to adopt the federal Uniform Electronic Transactions Act (UETA), which called for electronic signatures and electronic contracts to carry as much legal weight and enforceability as written, printed documents and hand signatures (with certain exceptions).

The UETA has been adopted by 46 other states, and is enforced in the District of Columbia, Puerto Rico and other federal territories. In California, the UETA is codified Civil Code Sections 1633.1 et seq. and applies to all electronic records or signature created, sent, communicated, received or stored on or after Jan. 1, 2000. The confusion arises because of the many exceptions to this rule, both in its federal form and that California has carved out on its own.

Although most common contracts and business agreements are enforceable by electronic signature, there are certain types of documents, generally of the sort that are subject to higher risk of fraud, which do require original signatures, or in which electronic notice is insufficient (such as in termination of a tenancy). The exceptions are where confusion sets in.

There are many exceptions, and most of them are identified by acronyms and references to other code sections. Some of the more typical exceptions include wills, codicils, and testamentary trusts. In the business realm, many of the documents and records governed by the Uniform Commercial Code (UCC) are excepted from the UETA, primarily as they relate to sophisticated financial transactions.

Real estate contracts, although they fall within one of the articles the UCC listed as an exclusion to the UETA, are permitted to be conducted electronically and are enforceable by electronic signature. Similarly, Article 2 of the UCC related to the sale of goods, falls within the UETA and transactions subject to that Article may be conducted electronically.

In practice, the majority of day-to-day contracts among small businesses may be made and signed electronically. One of the most familiar implementations of electronic signatures are the ubiquitous online “Terms and Conditions,” which so many software providers require.

Although clicking “I Accept” in response to innumerable pages of small print is a prerequisite to using the software, and I will admit to having accepted terms and conditions without reading them, that mouse-click creates a binding agreement.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column was revised for LinkedIn, and originally ran in the Napa Valley Register on July 21, 2015. You can read it on the Register's website here: http://tinyurl.com/pu9h72n