To be an employer, or not to be an employer? You would think that you could decide your company’s identity as an employer — or not — by entering into a proper independent contractor agreement with folks you bring on board. Not true. While there are certain measures you can take to protect your business form meritless unemployment filings, there is no bright line rule and the Department of Labor (“DOL”) has the final word. This, in our view, is not good.
We should know. We recently had the pleasure of defending a start up ad agency against a meritless unemployment claim in front of New York DOL Insurance Appeal Board. In the case, the agency had: entered into an independent contractor arrangement with the claimant, paid the claimant as a 1099 contractor, and did not require the claimant to come into the office. The claimant even admitted on the record that he agreed to be an independent contractor, and that he understood what that meant. Slam dunk case, right? Wrong. The DOL initially found the agency to be an employer. We had to appeal the finding and are now awaiting the decision. There is no bright line rule here because neither the contract you sign with an independent contractor, or the contractor’s use of a 1099 to file taxes, are dispositive in the DOL’s eyes. As such, you need to ensure that you don’t control the “means used to achieve the results,” which means many things under the case law, including that you: don’t require the independent contractor to come into the office, allow the contractor to hold other jobs, don’t provide any benefits (including free use of the office printer and other machinery), and that you pay by fixed fee. Even then, the DOL can find that you are an employer. We think that this is precisely why many companies are concerned about bringing on independent contractors in this tight economy — they are afraid that the independent contractor will go to the DOL for unemployment. In so doing, these folks abuse the system, give a bad name to unemployment, and stifle the economic recovery by creating uncertainty.
While we were rooting for the Yankees this past weekend, we were nonetheless impressed with how the victorious Red Sox (“Sox”) improved Fenway (the “Green Monster”) instead of destroying it, as the Yankees did with the old Yankee stadium. In so doing, the Sox saved taxpayer money, as Mr. Mark Yost rightly points out in The Green Monster Goes it Alone. Yankee fans (and businesses) can learn from Boston’s conservative approach to growth and, obviously, from their playing.
At times, a business will need to increase capacity in order to satisfy growing demand. This can be done in many ways. The most cost efficient way is often to improve existing facilities rather than reinvent them from scratch. Of course, technological advances can shift the supply curve so much that existing facilities become obsolete. However, that was not the case with the Green Monster. And so the Sox improved the small stadium rather than demolishing it. Their revenues weren’t hurt: the Sox, whose players include Mr. Dustin Pedroia, pictured left, are the third highest revenue generating team in baseball. Other teams often demand taxpayer financed loans or incentives from their local municipalities, and often threaten to leave if they don’t get what they ask for. For example, Los Angeles did not give into Raider demands and, as a result, the team relocated to Oakland. While we appreciate the new Yankee stadium, we also think that the Sox more conservative approach to growth is apt, especially in these tight economic times where states and municipalities are scarce on funds.
“Luckily for us, surfing isn’t an organized sport,” Travis Ferre explains in the May 2011 issue of Surfing Magazine. That is a good thing because it has kept the surfing industry diverse and authentic. Google, which has gotten so bureaucratic that good ideas come to market too slowly, can learn from the surfing industry’s more disorganized and yet innovative ethos.
As Mr. Ferre explains in his article, surfing is not an “Ocean Pacific ad anymore,” since the waves are now full of “tight denim modsters, dreadlocked carvers, trained competitors, soloists who wander alone, flannel-clad grizzly bears that love the cold, sandy groms, ex-cons, teachers, chicks.” There has been press lately that Google has gotten so big and organized that it now takes too long to innovate. A good idea has to be passed through several layers of committees, like in the picture to the left, before the idea comes to market. The problem is, by the time the idea comes to market, a competitor has already beaten Google to the punch. Of course, Google, and others companies like it, are too big to be as disorganized as the surfing industry — or Mr. Jeff Spicoli, the surfer played by Mr. Sean Penn in Fast Times at Ridgemont High. But being too organized can be maladaptive, too. As evidence: Larry Page, one of Google’s founders, has taken the reins from former CEO Eric Schmidt in order to “streamline decision making.” In so doing, Mr. Page wants to bring some cutting edge ethos back to the spirit of the giant company. As such, Google can learn from Mr. Spicoli. Because he didn’t have a committee to govern each step of his behavior, he was the only student to think of having a pizza delivered to class.
Peter J. Wallison, a scholar at the American Enterprise Institute, wrote Dodd-Frank’s Threat to Financial Stability, in which he argues that the Financial Stability Oversight Council (“FSOC”) ruins the competitive landscape by picking those companies that are too big too fail. In so doing, the FSOC also picks those that are too small to succeed. Adam Smith would also not likely approve.
Under Mr. Smith’s theory, a highly competitive marketplace is more or less atomistic — small players with no monopoly power compete against one another. The FSOC ruins this picture. By picking certain companies that are too big to fail, the government is essentially underwriting some businesses over others. To make matters worse, these businesses likely already had market power in the first place. The FSOC only increases this power. As Mr. Wallison points out in his article, this gives unfair competitive advantage to those companies who receive the government’s blessing. And those that are too small to succeed? Well, the FSOC is apparently not to concerned with those companies. The marketplace can afford to lose them, in the FSOC’s view. At the same time, such companies are often the lead innovators because they are quicker to respond to marketplace currents. What is more, small businesses are the largest employer in the country, employing 53% of the American workforce. But even if such companies were objectively worthless, which they are not, is it the proper place of the government to pick winners and losers? Mr. Smith would likely say no. Leave that to the marketplace, not elected officials.
There is the old saying that, “if it ain’t broke, don’t fix it.” But Harvard Business School (“HBS”) professors Francesca Gino and Gary P. Pisano rightly point out in their article, Why Leaders Don’t Learn From Success, that successful businesses often appear not to be broken, only to find out that they are when it is too late.
When things are going well with your business, you often let your guard down. You think that things are going well because you are doing something right. But the HBS professors explain in their article that your success may be due to factors including fortuitous market conditions or beginner’s luck, as was the case with the rookie Ducati Corse racing team who won third place in the Grand Prix in 2003. You don’t question your strategy as much when things are going well. The Ducati team changed the design of their racing bike thinking it would improve performance in 2004, but the hasty changes left them in third place. It was only then that they realized the errors of their ways. Like with others, the authors write, the team learned only went things bad. The problem is that when things go bad, it may be too late. Another competitor may have already wooed your major client away. In short, its good to take the time to learn from your successes rather than waiting for a crushing defeat to wake up from what you realize was a slumbering false sense of security.
This is the first blog post on the new website of Ryan E. Long PLLC. We hope you like the new site. We sure do. And that is thanks to Kevin Robbins of Ironclad360, L.L.C., an excellent New York based web design company. We also hope you like our entries, which will cover thought provoking and/or inspiring stories we read about in the press or encounter in our practice. One article that we saw which peaked our interest was Mavericks with Medals on WSJ.com.
The reason why we liked the article is that we thought Mr. Sean White, the subject of the article, is a dying breed of American — independent, creative, and yet highly effective. Through his entrepreneurial zest, Mr. White was able to achieve success “his way.” Mr. Sinatra would be proud. But not only that. Mr. White’s different way of training, which shunned, to some extent, being cast with everyone else, enabled him to make moves nobody else ever saw before. Of course, there is no doubt that efficiencies of scale come about from mass production. And yet sometimes these efficiencies of scale from the Ford style mass production are made possible only be the likes of Mr. White. Take, for example, the Wright Brothers. They beat out the better funded Langley for the first to flight. We think what explains the Wright Brothers success is ingenuity, creativity, and, of course, persistence and bravery. We also think, too, that Mr. White shares these traits. Our clients do, too. Whether you are talking about music, fashion, technology, or hospitality, our clients are in the vanguard of their industries because of their tenacity and willingness to do what it takes to succeed. We applaud them. And we certainly applaud Mr. White.
We are big fans of Patagonia’s products. So when we ran across Yosemite Sams, an article in the Journal, which talks about how Patagonia’s founder went from eating cat food out of cans to running one of the most successful outdoor clothing companies, we were excited.
As the image above shows, being on your own can be scary. This is especially true in today’s world, which is full of turmoil in the Middle East and the horrible events of Japan. And so the story of Mr. Yvon Chouinard going from eating cat food to running one of the most successful outdoor product companies in the world — Patagonia, which is now based in Oxnard, California — is well needed. His story, and those of others like him, is an inspiration to us all — especially those who are striking out on their own in these trying times.
Industrialization has brought us immense wealth and free time. But at what cost? University of Chicago professor John Cacioppo explores the hidden costs in his book, Loneliness, which is featured in The Nature of Loneliness.
As is more fully set forth in the article, we are mammals. We need physical connection with others as much as we need oxygen. And yet while we have become more virtually connected in today’s globalized economy, we have also become more physically isolated. People date online, do business online, and virtually live online. We have moved from the country, to the city, to the internet. Mr. Cacioppo has some very provoking thoughts about the costs of such virtual connectivity — and isolation — on our health. Workplaces who foster more physical networking and collaboration among the team often increase productivity. Perhaps that is why internet companies — such as Google, Facebook, and the like — are so successful. By collaborating with one other, their members feel more like part of the team that has a common purpose.