KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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relationship with independent sales person and contracts
September 7, 2017
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relationship with independent sales person and contracts
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Ken,
    We have a salesperson who is an independent contractor who has his own corporation for his tax reasons. He is paid by us on a commission only basis. Many times when he makes a sale/lease he has the customer make out the deposit payment to his company and takes a credit against his commission. We do use your contracts.
    My question to you is, is this proper and will it interfere with the contract the customer signs either in a legal sense with our insurance carrier or if a collection case is brought at some point in the future. All payments are recorded to the customer account but this does give me some concern.
Please let me know your thoughts.
Anonymous 
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Response
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    Some alarm companies prefer to treat their sales help as independent contractors rather than employees. This arrangement is acceptable, both from an employment and enforcement of contract perspective, but fraught with issues that can complicate both employment and contract legal issues.

Your independent sales person should be truly independent, which means
  • you won't be withholding and paying in taxes
  • the person won't be covered by the company's disability and workers comp policies
  • the person won't be covered under the company's Errors and Omissions policy
  • the person won't be covered under the company's license
  • A truly independent contractor, including an independent sales person,
  • will not be subject to any specific work schedule you impose
  • will not be restricted from engaging in other activities, business or otherwise, though you can impose certain non-compete restrictions
  • should carry all necessary insurance, which will include E&O, unless you can name the independent contractor to your E&O policy by additional insured endorsement
  • should be licensed, registered, documented or certified, depending on what your jurisdiction requires for an alarm sales person.  Even though you treat the relationship as independent contractor your choice may be to either cover the sales person as an employee for license purposes, or require the sales person to get his or her own alarm license.
    The alarm company and independent sales person should have an Independent Sales Affiliate Agreement in place.  This Standard Form Agreement will spell out much of the above, requiring each party to comply.         Since the sales person is being paid on commission it is essential that there be a "commission agreement" [which is part of the Independent Sales Affiliate Agreement] because in some jurisdictions, NY for example, if a commission sales person doesn't have a written agreement, if there is a dispute, only the sales person can testify to the commission agreement.  The company is precluded from testifying, so you can guess how a commission dispute is going to turn out.  All company employees should sign an Employment Agreement.
     The contract with the subscriber that the sales person uses should be the company's form agreement.  In a jurisdiction where an alarm license is needed to sale alarm systems, the independent sales person should have his or her or its license.  Even if the subcontractor does have a license, I think it prudent for the company to treat the sales person as an employee for license registration compliance.  The reason for this is that the licensing agency needs to know that the company is working with the sales person, just like the licensing agency wants to know about employees hired by the company.  
      Some jurisdictions require that the name of the sales person be on the contract, along with the sales person's signature, and that's in addition to the company's name and signature.  In that case it is even more important that the company treat the sales person as an employee for license purposes; register the independent person as you would an employee.  You can continue to pay them as a 1099 independent contractor as long as all the other indicia of independence are met.
    As long as the company is complying with license laws enforcement of the contract will not be affected just because an independent contractor was engaged to make the sale and attend the execution of the contract by the subscriber.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
516 747 6700
www.KirschenbaumEsq.com