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Comment by a-dub | Hacker News Reader

"The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done."

independent contractors are free to sub out work. this is the law. they also probably should not be on your slack unless you're considering the whole thing a consulting arrangement.

i understand where you're coming from, especially in trying to make use of upwork in some actually useful way for your business. but you should also be aware of the law.

https://www.irs.gov/businesses/small-businesses-self-employe...

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> independent contractors are free to sub out work. this is the law.

I’ve never seen a contracting agreement that didn’t specifically prohibit subcontracting without the explicit written consent of the client. It’s not that it wouldn’t be federally legal, it’s that it would violate the specific contract with the client.

You can put anything you want in a contract, the question is, is it enforceable?

There isn’t a jurisdiction on the planet that would reject a contract clause that the person hired to do a job cannot covertly outsource the work by providing their credentials to a third party. That’d likely be breaking multiple clauses of any sane contracting agreement.

The important caveat that is that in many jurisdictions, there’s a significant difference in the tax treatment of contractors vs. employees, and so by producing such a contract (that forbids subcontracting) you are plausibly creating an employment arrangement and are on the hook for tax consequences.

Here in the UK, for example, if you wrote such a contract, it would be enforceable… but you would be considered (by the tax authority) to be trying to evade employment taxes, and hit with something starting in the range of a low 5-figure financial consequence (assuming the contract was a few months at current average rate for tech workers).

All of my contracts explicitly allow subcontracting in order to comply with tax law.

> you are plausibly creating an employment arrangement and are on the hook for tax consequences.

I realize this thread is full of armchair lawyers, but that is definitely not the case in the US.

Most importantly, there are plenty of valid business reasons to prevent subcontracting that don't have to do with "locus of control" issues that would warrant someone being a full-time employee.

There is a difference between "allowing it" and "allowing it secretly without your knowledge". There are issues of confidentiality (and potentially NDAs and therefore IP issues) and possibly issues of export depending what you're working on.

There's also an issue of 'what you bought' - this isn't necessarily a contractual thing. I work for a consultancy, if we sell you a project based on the skills and knowledge of a few of our experts and then when the project starts we actually staff the project with a few grads, you'd be annoyed right? Very carefully our contracts don't name individuals to allow us flexibility (e.g. someone gets ill, goes on leave etc.) so we're fine legally but you'd be understandably upset and might want to end the contract. [this by the way, is exactly what Accenture does quite a lot]

here's upwork's suggested contract:

3. RESPONSIBILITY FOR EMPLOYEES AND SUBCONTRACTORS, INCLUDING AGENCY MEMBERS If a User subcontracts with or employs third parties to perform Freelancer Services on behalf of the User for any Engagement, the User represents and warrants that it does so as a legally recognized entity or person and in compliance with all applicable laws and regulations. Further, at all times a User that agreed to perform services under a Services Contract remains responsible for the quality of the services and represents and warrants that User has entered into agreements with any such employees and subcontractors on confidentiality and intellectual property at least as strong as those in these Optional Service Terms.

it's a business to business agreement. a contractor is free to sub.

https://www.upwork.com/legal#optional-service-contract-terms

You're not countering the parent's point. Of course you can agree to allow it if you choose.

No a contract is a contract and the contract defines what the agreement is. The IRS might have a view of the tax implications of contract law but it doesn't control anything.

At the very least you're probably breaking the NDA.

Yes, it is!

They can also include clauses that the company's code and other materials won't be shared with 3rd parties, aka an NDA. These are standard and well-accepted practice.

The contract will also be very clear that access to the systems is only granted to the person signing the contract. They don't get to grant access to other people just because they have contractor status.

> independent contractors are free to sub out work. this is the law.

Practically speaking, there is no way a software contractor can sub out work without violating a litany of contractual obligations in the contracting agreement. Even minimalistic contracting boilerplate agreements will have clauses that cover these situations.

For example, if you sign an NDA with a company covering the work and then turn around and send the codebase to a contractor in Romania to work on it, you've very clearly violated the terms of the NDA.

So no, the law doesn't automatically allow engineering contractors to do whatever they want with the work.

> For example, if you sign an NDA with a company covering the work and then turn around and send the codebase to a contractor in Romania to work on it, you've very clearly violated the terms of the NDA.

I find that unlikely. What if you were instead handing it to an employee?

(Also, different NDAs are... different, it's pretty tough to talk about them all in general and expect a statement to be true.)

> So no, the law doesn't automatically allow engineering contractors to do whatever they want with the work.

Yes, it does. Just because you might have terms in a contract prohibiting it doesn't mean the law prohibits it.

> I find that unlikely. What if you were instead handing it to an employee?

> (Also, different NDAs are... different, it's pretty tough to talk about them all in general and expect a statement to be true.)

If you sign a contract that says you're not going to share the company's code and then you share the company's code, you've violated the NDA. It's as simple as that.

Being a contractor doesn't grant someone magical immunity to the contracts they've signed. At most, the employee could argue that the contract made them a full-time employee and sue for benefits and such. They can't, however, simply ignore contractual obligations that they've agreed to.

Contractual obligations that go against the law are void. And it means that indeed, you are supposed to just ignore them.

Are you claiming that this specific contractual obligation is against the law?

The original commenter didn't say what happened as a result, just that he caught the contractor subbing out work.

If it were me, I would not renew a contract with someone who sub-contracted work out to someone I don't know and didn't approve without informing me. Whether it is or not, it certainly seems shady, and I don't want to work with people who have violated my trust.

When I was a contractor, our clients usually had a number of clauses in the contract that would have allowed them to end the engagement early for pulling something like that.

And, of course, in the end they could always just have said "go to hell, we're not working with you anymore," and it would come down to who wants to go to court the least.

> When I was a contractor, our clients usually had a number of clauses in the contract that would have allowed them to end the engagement early for pulling something like that.

At minimum, any NDA would have been violated by sharing the company's code and/or access with a third party.

Being a contractor doesn't give someone carte blanche authority to pull random people into confidential work. Any reasonable contracting agreement will make it clear that the materials are not to be shared with anyone outside of the contract.

Yeah I get this and it doesn't apply here. The payer in this case did not have the right to control only the result of the work which is the crux of the situation.

The law, nor the linked resource, stipulates that any 1099 relationship can be subcontracted out by anyone, let alone without disclosure. If that were the case the explicit option to hire onshore vs offshore on sites like Upwork would be meaningless, or a matter of arbitrage.

Not having the right to control only the result makes them an employee which in turn makes them eligible for benefits and so on. This is the specific difference between a contractor and an employee.

The problem is that you can't just have what are effectively employees but on a contract basis under law. It opens you up to liabilities, as Uber has been experiencing.

The closest I think you could get is actually contracting a PEO that takes the individual under employee status and assigns them specifically to your company under contract. Being an employee of the PEO means that they can in fact control these aspects of the job, and you aren't contracting them, you are contracting the PEO who subs out to them.

> Not having the right to control only the result makes them an employee which in turn makes them eligible for benefits and so on. This is the specific difference between a contractor and an employee.

This isn't actually even the root issue.

The contractor almost certainly violated their contract by sharing NDA-covered materials with an unauthorized third party.

The contractor also shared access credentials to the company's systems with someone else and then facilitated fraudulent interactions wherein one person claimed to be someone else.

Being a contractor doesn't give someone carte blanche authority to do whatever they want with the company's materials (codebase, design documents) and secured systems.

It seems intuitively like you can't just ghost in someone who didnt even sign the copyright assignment stuff with the right party, ndas, or undergo a possible background check.

there's a whole industry that does this. they're called agencies. taking responsibility for quality and ensuring no subs or staff do anything sketchy is expensive and hard, as such they typically add a 100% cut to what gets billed out to the client.

They don't secretly ghost them in, and they do get them to sign over copyrights etc.

The legality of it does not really matter here. If I'm paying top dollar to someone in the US I expect them to actually do the work themselves.

Correct. This is the law in the United States. But would it apply to someone working outside of the United States?

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