Faculty Employment Contracts: Avoiding (legal) Landmines

DETC 86th Annual Conference

Lucien Capone IIIUniversity General Counsel

UNC AshevilleApril 16, 2012

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

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What we will cover

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Please be sure to contact your own attorney before making any decisions.

DETC is not responsible for the content of this presentation.

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Obligatory Disclaimers

 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.

Some Statistics (from DETC)

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

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Part I

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

How is Employment Status Legally Determined?

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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

Behavioral Control

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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)

Financial Control

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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)

Type of Relationship

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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)

I.R.S.’ Philosophy

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“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.”

Sean Scally – Former I.R.S. Attorney (now counsel at Vanderbilt)

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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

Schramm v. Commissioner No. 8938-09 (T.C. Aug. 30, 2011).

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Nova issued a W-2, but Schramm deducted expenses on schedule C v. A.

Held: Employee

Schramm (continued)

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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)

Schramm (continued)

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What difference does that classification make ?

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Part II

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

To You?

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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

To Your Faculty?

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

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Part III

Copyright ownership & control

Non compete clauses

Liability issues

Term and Termination

Definition of duties

Governing law

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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

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Copyright Ownership & Control – Independent Contractors

Employers OWN employee works

◦ Unless contract says otherwise

◦ DO NOT agree to “joint ownership”

◦ Employer liable for employee’s infringement Get insurance!

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Copyright Ownership & Control –Employees

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

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Copyright Ownership & Control-In Either Case

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

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Non Compete Clauses

For Acts of employee◦ Infringement◦ Harassment (of students or other employees)

Liability to Employees◦ Discrimination◦ Retaliation◦ Workers compensation

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Liability issues

Term should be date defined or “at will.”

Termination should be at employer’s discretion◦ Why? If “for cause” then must prove it.

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Term and Termination

Clarity and specificity are desirable

Always include “other duties as assigned” for an employee.

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Definition of Duties

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)

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Governing Law

Sample Distance Education Policy and Contract language (AAUP)◦ 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 Faculty Employment Status: Do “I.C.” and

Employee?◦ Powerpoint presentation by Lucien Capone III

(available on request)

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Resources

Other Questions?

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