There are many important differences between employees and independent contractors that businesses must consider before contracting to hire one or the other. Some of these differences include, but are not limited to, the following:
1. Independent contractors are not subject to federal or state labor and employment laws like employees are;
2. The procedure for hiring independent contractors is different from employee hiring practices;
3. For tax purposes, independent contractors receive a 1099-MISC while employees receive a W-2;
4. Tax reporting requirements for businesses are different;
5. Employees earn an hourly rate or salary while the manner in which an independent contractor is compensated may vary depending on the terms of the contract or agreement entered into with the employer;
To determine whether an individual falls into the category of employee or independent contractor, the Eleventh Circuit’s decision in Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311 (11th Cir. 2013), states that court’s look at the “economic reality” of an employment relationship. However, during the employment relationship, an individual’s status can change from employee to independent contractor. Some may think that an individual’s change in status from employee to independent contractor relieves the individual of any obligations they owed to their employer as an employee, including any covenants not to compete executed as part of the individual’s hiring as an employee. Peter Mavrick is a Fort Lauderdale non-compete attorney who has successfully argued on several occasions, this is not the case under Florida law.
First, despite popular belief, independent contractors are subject to covenants not to compete just like employees are. Florida’s Non-Competition Covenant Statute, § 542.335, states at subsection (d):
In determining the reasonableness in time of a postterm restrictive covenant not predicated upon the protection of trade secrets, a court shall apply the following rebuttable presumptions:
1. In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, and not associated with the sale of all or a part of:
a. The assets of a business or professional practice, or
b. The shares of a corporation, or
c. A partnership interest, or
d. A limited liability company membership, or
e. An equity interest, of any other type, in a business or professional practice,
a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration.
Second, in Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. 4th DCA 2012), the Florida Fourth District Court of Appeal held that a change in status from employee to independent contractor does not affect the validity of a covenant not to compete where the underlying agreement provides that any subsequent change or changes in duties, salary, or compensation will not affect the validity or scope of the restrictive covenant. Thus, if you are considering changing the status of some of your employees to independent contracts, you can be at ease knowing that any non-compete agreements initially signed by the employee will still be effective, so long as the non-compete covers such a change in status or duties.
Peter Mavrick is a Fort Lauderdale non-compete lawyer who has successfully represented many businesses in Florida non-competition covenant litigation in the Broward, Miami-Dade, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeal. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.