Document Drafting

Articles Tagged with: Document Drafting

Independent Contractor Agreements

Legally speaking, there is a big difference in Alabama between workers who are “employees” and those who are “independent contractors”. This distinction is critical when it comes to things such as determining eligibility for pensions and workers’ compensation benefits. Therefore, how your workers are classified can make a big difference to your business. But be warned, simply having a worker sign an independent contractor agreement does not make them an independent contractor. This article describes how courts in Alabama determine whether a worker is an employee or an independent contractor, and then discusses some pros and cons associated with employing independent contractors.

How to Tell if a Worker is an Employee or an Independent Contractor

According to Workerclassification.com, courts in Alabama determine whether a worker is an employee or an independent contractor based on a common law right to control test. This means that a worker should be legally classified as an independent contractor if he or she has the right to control the means and methods by which their work is performed. It is important to note that the worker does not actually need to exercise this right, they just have to be entitled to it.

Courts determine whether a worker has the right to control the means and manner in which they do their job on a case-by-case basis. Courts often consider a variety of different factors including the following:

Amount of instruction that the company provides to the worker,
Whether the worker is responsible for hiring, paying, and firing their assistants,
Whether the employer dictates the worker’s schedule,
If the employer provides the worker with tools and materials, and
Whether the worker is paid based on the time that they work or per project.

Pros and Cons Associated With Employing an Independent Contractor

While there are a variety of pros and cons associated with employing independent contractors, a helpful article from AOL lists some of the most important, including the following.

The upsides associated with employing independent contractors often include:

Tax Benefits: Employers must pay half of their employees’ Social Security and Medicare taxes, however, employers are not required to pay these taxes for their independent contractors.
No Need to Provide Equipment and Supplies: Independent contractors generally provide their own equipment and supplies, thereby saving your business money.
Provide Fewer Benefits: Employees generally receive many more employment benefits than independent contractors do. For example, employers generally do not provide health insurance, sick days, or pensions for independent contractors.
Staffing Flexibility: Independent contractors can be employed for a specific amount of time, or for a specific project. This can be very helpful for businesses with fluctuating workloads.
Reduced Legal Risk: Employees generally have more legal rights in the workplace than independent contractors do. While independent contractors certainly still have rights and are able to sue their employers, they have fewer rights than employees do and so employing them can help reduce your business’ risk of being sued.

The downsides associated with employing independent contractors often include:

High Fees: Independent contractors are often highly skilled and in many instances you have to pay more for their services than you would for an employee to perform the same job.
Intellectual Property: Independent contractors sometimes have a legal claim to the intellectual property that they create. However, this often depends on the terms of the independent contractor’s agreement.
Less Control: Employers have more control over employees than independent contractors when it comes to determining how and when work is completed.

Need Legal Advice?

If your business is located in Alabama and you are interested in drafting binding employment and independent contractor agreements, contact the experienced Birmingham business attorneys at Cloud Willis & Ellis, LLC today.

Buy-Sell Agreements in Alabama

If you are a co-owner of a business, or are considering starting a business with a partner in Alabama, developing a buy-sell agreement is a very important step to take. A buy-sell agreement (BSA) is an agreement between business partners outlining what will happen to an owner’s share in the business if they leave for some reason. Owners leave their businesses for a variety of different reasons including death, disability, retirement, or the desire to pursue a different career. Because these departures are sometimes sudden, it is very important to have a buy-sell agreement in place that dictates the terms and conditions under which the remaining owners will be allowed to purchase the leaving owner’s share of the business. Working out a buy-sell agreement when a business is first formed is a very prudent thing to do because this can help the parties involved negotiate rationally in anticipation of issues rather than emotionally after issues arise. Involving an impartial corporate law attorney who can draft the agreement and help estimate the value of the company is also a great idea. You can also achieve some of the same results within the company’s operating agreement.

Why Create a Buy-Sell Agreement?

According to USLegal.com buy-sell agreements are generally created for three different reasons:

To establish the business’ value for death tax purposes.
To avoid continuing the business with a deceased co-owner’s heirs.
To prevent partial ownership of the business from falling into an “outsider’s” hands.

In order to realize these various objectives, buy-sell agreements come in several different forms. For example, a buy-sell agreement can take any of the following shapes:

Stock Redemption Agreements or Stock Retirement Plans: These buy-out agreements are formed between the business and the individual owners.
Criss-Cross Agreements: A buy-sell agreement between the owners of the business.
Third Party Business Buy-Out Agreement: These buy-out agreements are formed between the business’ owners and another key person, such as a family member.
A Combination: A buy-out agreement can also be a combination of the forms listed above.

Mistakes Commonly Made When Drafting Buy-Sell Agreements

Although buy-sell agreements are very commonly developed by closely held business owners, according to the Cannon Financial Institute there are several mistakes that are commonly made when drafting these agreements. A few of these mistakes include:

Waiting Too Long to Draft the Agreement: It is important to draft your buy-sell agreement well before it is needed. In fact, it’s never too early for your business to develop a buy-sell plan. However, it is important to remember that a business’ needs change over time and that you may need to change provisions in the agreement at some later date.
Using a Fixed Valuation: Buy-sell agreements often contain a fixed dollar amount that operates as a purchase price in the event that a triggering event occurs. This fixed amount will probably need to be updated every couple years as the business grows, and can be problematic as many business never actually update their buy-sell agreement.
Inadequate Funding: New business are often low on cash, and therefore buy-sell agreements are often not funded appropriately. While life insurance policies are often used to fund buy-sell agreements, it is important to make sure that the insurance coverage is sufficient, even after the business has grown.

What Can We Do to Help?

Drafting a buy-sell agreement that meets the individual needs of your business is critical to the long-term health of your organization. Employing a law firm that has experience drafting corporate documents, such as Cloud Willis & Ellis, LLC, will help ease your mind and ensure that the future of your company is safely in order. Our corporate law attorneys are happy to assist you and can be reached at our office in Birmingham (205-322-6060) or in Mobile (251-545-4844).

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