As an agency owner, you work hard to prepare for unforeseen circumstances. You read books, you hold meetings, you buy insurance, you subscribe to this blog . . .  And yet, situations with your contractors can really come out of left field, can’t they?

In this article, we walk through four different scenarios common with independent contractors that can have significant impacts on your agency.

1. Your independent contractor tells you they have been using Artificial Intelligence to generate content.

We will be deep-diving into the topic of AI next month, but we want to touch on this scenario now because it continues to surface. If you find out that your independent contractor has been using AI to generate content for you or your client (and they do not have permission to do so), we recommend the following steps:

1. Tell your independent contractor to stop using AI to complete work until further notice.
2. Review your contract. If your independent contractor has agreed to sign all work product over to you (which is almost certainly the case), remind the contractor that utilization of AI breaches this clause. Why is it a breach? Because nobody owns AI-generated content, and you can’t transfer ownership of something you don’t own!
3. Have your contractor identify all the content that has been generated using AI. Contact clients who are currently using this content, and let them know what has happened. Replace the content with human-generated content as soon as possible.
4. Since the laws surrounding AI are new and complicated, consider educating your contractor instead of penalizing them.
5. On that note, educate all of your contractors – send out a memo notifying them that AI is a no-go until further notice.

Stay tuned for more on this topic. For now, start the conversation with your workforce.

2. Your independent contractor needs access to confidential information and/or secure data.

Frequently, you will utilize contractors who need access to confidential information or secure client data. This can include information as simple as your client’s name and contact information, or it can be as complex as personal or employee data. As an initial step to protect the agency, we recommend a review of (1) your agreement with the contractor and (2) a review of your security procedures.

Contractor Agreement: Review your confidentiality and data security clauses (first and foremost, ensure you have them)! Second, ensure that the contractor will agree to maintain confidentiality and to follow all of your data security procedures, including the return and/or destruction of confidential information after the relationship has ended. Last, check to see if the contractor is indemnifying you (protecting you from) their own mistakes or from third-party cyberattacks with regards to these two clauses.

Security Procedures: As you do with your employees, make sure that you can revoke your contractor’s access to any confidential information after the relationship has ended. When providing your contractor with confidential materials, utilize platforms and procedures that require password-protected log-ins AND allow you to revoke the contractor’s access whenever they have stopped performing services.

3. Your independent contractor tells you that they are only working for you (and they work for you a LOT).

Independent contractors are so convenient that sometimes an agency can find themselves using them a little too much. This may not seem like a problem – after all, they are given a 1099, right?

Unfortunately, the law says otherwise. Even if your contractor is provided a 1099, if they are working for you nearly full time, haven’t taken any other clients, work at your offices, use your equipment, etc., the law may consider them employees. The “employee or contractor?” test varies state-by-state, and we have written a previous article detailing some of the key points to look out for when evaluating your staff to determine whether it might be time to switch someone from a 1099 to a W2.

In general, our recommendation is to routinely audit your contractors to determine whether someone is toeing the line between contracting and employment. Of course, as always, consult your attorneys if you have questions – this can be a complex determination with significant tax consequences.

4. Your independent contractor is competing with you and taking your opportunities away.

You never expected it, but your contractor has learned just a little too much while working with you. Now, they are competing with the agency for the same clients! Can you stop them? How can you stop this from happening in the future?

As you might have guessed, the main place we turn to for protection is your contract. While non-competition clauses are pretty much unenforceable these days (especially with your contractors) there are still two key clauses in your arsenal:

Non-solicitation: This clause prevents a contractor from poaching your clients (and employees) during the course of your relationship and typically for 1-2 years after you have stopped working together. This is an essential component of your independent contractor agreement and protects the clients that you already have on your roster. If you ever find out that your independent contractor has poached a client, contact your attorneys immediately so that they can send over a friendly letter (translated: a rather alarming Cease & Desist).

Confidentiality: While you typically can’t prevent your contractor from opening up shop and competing in your field, you can prevent them from using your confidential information and especially your trade secrets! Your confidentiality clause protects your “secret sauce” so that you can maintain your competitive edge in the market. As with the non-solicitation clause, if you find a contractor has violated their confidentiality obligations and especially if they are using your know-how to compete with you, contact your attorneys immediately.

Don’t have the above clauses in your agreements? You guessed it – reach out to your attorney. Not only will they set you up for future success, but they can review state and “unfair competition” laws to evaluate your options.