As DJs found themselves out of work during the coronavirus pandemic, many of them began applying for unemployment benefits, only to find out that they were ineligible, because they are independent contractors. While Congress passed the CARES Act which provides some relief to independent contractors, the distinction between an employee and independent contractor warrants further discussion. Employee classification has tax and labor implications (health benefits, paid-time off, worker’s compensation, etc). In the context of DJs, it also affects the scope of a non-compete agreement.
Independent Contractor v. Employee
An employee is an individual whose work—what will be done and how it will be done—is controlled by the employer.
An Independent Contractor on the other hand is an individual who offers their services to the general public and the client/payer has the right to control or direct only the end result of the work—not how it will be done.
These are broad definitions and they are hard to apply generally; rather it’s necessary to look at specific factors to determine whether an individual falls under one or the other. While each state has their own set of factors and analysis, for our purposes we will focus on the IRS’s guidelines:
Type of instructions given, such as when and where to work, what tools to use or where to purchase supplies and services. Receiving the types of instructions in these examples may indicate a worker is an employee.
Degree of instruction, more detailed instructions may indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.
Evaluation systems to measure the details of how the work is done points to an employee. Evaluation systems measuring just the end result point to either an independent contractor or an employee.
Training a worker on how to do the job -- or periodic or on-going training about procedures and methods -- is strong evidence that the worker is an employee. Independent contractors ordinarily use their own methods.
Significant investment in the equipment the worker uses in working for someone else.
Unreimbursed expenses, independent contractors are more likely to incur unreimbursed expenses than employees.
Opportunity for profit or loss is often an indicator of an independent contractor.
Services available to the market. Independent contractors are generally free to seek out business opportunities.
Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission. However, independent contractors are most often paid by a flat fee.
Services provided which are a key activity of the business. The extent to which services performed by the worker are seen as a key aspect of the regular business of the company.
Written contracts which describe the relationship the parties intend to create. Although a contract stating the worker is an employee or an independent contractor is not sufficient to determine the worker’s status.
Benefits. Businesses providing employee benefits, such as insurance, a pension plan, vacation pay or sick pay have employees. Businesses generally do not grant these benefits to independent contractors.
The permanency of the relationship is important. An expectation that the relationship will continue indefinitely, rather than for a specific project or period, is generally seen as evidence that the intent was to create an employer-employee relationship.
Application to DJs
Consider the following two examples:
DJ Sue Every1 has a weekly residency at Club Quarantine. While the management instructs her on what type of music to play, no one is standing over her shoulder directing her exactly what songs to play and how to blend them. Although Club Quaratine has a DJ booth with turntables and a mixer, DJ Sue Every1 is expected to bring her own collection of music. Lastly, she is paid a flat fee per night.
Based on these facts, it is clear that DJ Sue Every1 is an independent contractor hired by Club Quarantine.
DJ Noob is a “bedroom” DJ looking for gigs. DJ Noob signs a one-year contract with Beatz Productionz, a mobile DJ company. The contract stipulates that Beatz Productionz will train DJ Noob on DJing for corporate events, will provide him access to its record library, and will furnish him with sound equipment to use at gigs. On the other hand, the contract restricts DJ Noob from working with any other company during the period of the contract and from using his own logo.
This example is little less clear-cut. Here, Beatz Productionz is providing training; DJ services are the key activity of Beatz Productionz; Beatz Productionz is investing in the equipment used by DJ Noob; and DJ Noob is not allowed to seek out business from other companies. On the other hand, there is a permanency to the relationship and the contract does not specify benefits.
While there are several implications of whether an individual is an employee or an independent contract, perhaps the most important one in the eyes of the DJ is the effect on a non-compete agreement.
Example 2 from above highlights a common scenario: a booking agreement that includes a non-compete clause. Generally, requiring an individual to sign a non-compete agreement amounts to a high level of control. Independent contractors after all are expected to work for different businesses and have multiple contracts. This is especially true for someone with substantial experience in a particular industry. Therefore, while non-competes are common with employees and are legally enforceable, courts may find that they are an unreasonable restraint on an independent contractor’s trade.
Courts may enforce a non-compete clause if it’s narrowly tailored, but again it all depends on the particular situation. What is more clear is that Courts will generally enforce non-solicitation and confidentiality agreements. To borrow from Example 2 again, if Beatz Productionz provides DJ Noob with a list of leads, the contract can include an enforceable provision which prohibits DJ Noob from using this list to solicit clients for himself after the contract with Beatz Productionz ends.
This article is provided for general informational purposes only and should not be construed as legal advice. This article shall not be construed as creating an attorney-client relationship, and an attorney or other professional specializing in the field should be consulted.