Post by michael burhan scott on Aug 13, 2008 16:54:10 GMT -5
"Losen Up" (7 Comments - Read Comments)
How much control is too much?
That is a question that executives within, and shareholders of WWE, my soon be thinking about as they try to get to sleep at night.
Before I go too far into my perspective on the recent revelation that a number of former WWE contracted performers have filed suit challenging their previous status as independent contractors, allow me to share my thoughts regarding litigation in general:
I despise it.
As I have stated in a previous blog (“Never Say Never”), Shakespeare may have been on to something when he suggested in Henry VI that we “kill all the lawyers”. Don’t get me wrong, I don’t think all lawyers are scumbags, and I don’t believe that all lawsuits are frivolous and without merit.
But unfortunately all too many lawsuits and the tactics of the lawyers/’firms and clients involved, create collateral damage to righteous claims. This damage can range from negative public opinion (and tainted jury pools), to low-rent law firms that troll for potential class action litigants on late night local cable television like hookers on a street corner, to a clogged up judicial system that forces legitimate claims to be dragged into protracted legal battles and are determined not by case law or a jury, but by a plaintiffs or a defendants financial ability to run a legal marathon.
Case in point: The recent lawsuit challenging WWE's independent contractor vs employee designation.
This is a complex issue and it is going to be a very interesting situation to watch un-fold as it may have profound impact on WWE and TNA.
Back in 1998, when the full impact of the Turner/Time Warner merger began to manifest itself as a power grabbing corporate orgy of gamesmanship, one of the issues raised by some executives that tried previously (and unsuccessfully thanks to Ted’s vision and the performance of WCW at the time) to divest the Turner Broadcasting portfolio of the WCW division, was the concern over the independent contractor/employee status of WCW’s talent. The argument as I remember hearing it (I wasn’t invited to the meetings) was that the exposure to Turner/Time Warner due to a potential adverse IRS determination regarding this issue could have resulted in fines, increased cost of business going forward, and a hit to TWX stock as a result.
Fast-forward 10 years later. WWE is now a publicly traded company. It is responsible to its shareholders, and therefore must react to market conditions and influences much differently than when it was a privately held company. While the Chairman can stack the deck with a Board of Directors and executive management team that looks more like a friends and family reunion than anything else, should the IRS determine that WWE’s contracted talent are employees and not independent contractors, there is the potential for significant fines, expenses and cost of doing business on a go-forward basis that could have a serious negative impact on WWE stock.
How bad you ask? I am not an attorney or an employment tax expert, but I did get my ass kicked once by the IRS back in the late 80’s/early 90’s and I do know that they lack anything that resembles a sense of humor.
When the IRS determines that one didn’t pay what one should have paid in taxes, they tend to grab a calculator that has it’s own unique decimal system, a calendar, and a team of lawyers looking for press and attention.
Example?
If, as a result of this recent lawsuit, the IRS determines that WWE’s contract talent are employees and NOT independent contractors, that means that in addition to many other expenses relating to the cost of accounting changes, WWE will be required to contribute approximately 7.5% of the salaries paid to its newly minted talent/employees to OASDI (Old Age and Survivors Disability Insurance).
My guess is that this increased cost of doing business going forward could be easily absorbed.
But what if, the IRS grabs their calculators, calendars, and teams of lawyers looking for press and attention and decides to go back 3, 5, 10 years or whatever the statute of limitations is and calculates monies due plus penalties and interest on the fees paid to former employees?
Scary.
I attempt to write my blogs in such a way that the end hangs on the beginning so I will close with these thoughts:
On one hand, every talent that performed with WWE knew exactly what they were getting into when they signed on. Its not as if there was some master plan that was designed to take advantage of them. My guess is that they are in a desperate financial situation and found some equally desperate lawyer to take a run at this issue in the hopes of collecting a payday.
But on the other, Vince McMahon’s mandate for absolute control of everything from, finishes, the words that he puts in the mouths of his announcers and performers, to dress codes for talent flying to and from an event may come back to haunt him.
I predict that any number of previously contracted talent and scum swilling lawyers will attempt to jump on the bandwagon in the hopes of augmenting their incomes in some way either real or imagined.
And if there is enough free publicity involved, look for Jesse Ventura to lead the charge!
For the sake of discussion, and as a frame of reference, here is an example of a list of guidelines that the IRS uses to attempt to determine employee/independent contractor status:
1. Instructions
Employees comply with instructions about when, where, and how work is to be performed.
Contractors set their own hours and do the job in their own way.
2. Training
Employees are trained to perform services in a particular way. They are required to take correspondence courses and attend meetings. Other methods also indicate that the employer wants the services performed in a particular way.
Contractors use their own methods and receive no training from the purchaser of their services
.
3. Integration
Services of an employee are merged into the business. Success and continuation of the business depends upon these services. The employer coordinates work with that of others.
The success and continuation of the business aren’t dependent on services provided by a contractor.
4. Services Rendered Personally
Services must be rendered personally. An employee does not engage other people to do the work.
Contractors are able to assign their own workers to do the job.
5. Hiring, Supervising, Paying
An employee hires, supervises and pays workers at the direction of the employer (i.e.: acts as foreman or representative of the employer).
Contractors hire, supervise and pay the other workers as the result of a contract. A contractor agrees to provide materials and labor and is responsible for the results.
6. Continuing Relationship
An employee continues to work for the same person year after year.
Contractors are hired to do one job. There is no continuous relationship
.
7. Set Hours of Work
The employer sets an employee’s hours and days.
Contractors are masters of their own time.
8. Full Time Required
An employee normally works full time for an employer.
Contractors are free to work when and for whom they choose.
9. Doing Work on Employer’s Premises
Employees work on the premises of an employer; or on a route, or at a site, designated by the employer.
Contractors work off an employer’s premises and use their own offices, desks, and telephones.
10. Order or Sequence Set
An employee performs services in the order or sequence set by the employer. Salespersons report to the office at specified times, follow-up on leads, and perform certain tasks at certain times.
Services are performed at a contractor’s own pace. Salespersons work their own schedules and usually have their own offices.
11. Oral or Written Reports
Employees are required to submit regular oral or written reports to the employer.
Contractors submit no reports.
12. Payment by Hour, Week, Month
Employees are paid by the employer in regular amounts at stated intervals.
A contractor is paid by the job on a straight commission.
13. Payment of Business and/or Travel Expenses
The employer pays employees’ business and/or travel expenses.
Contractors take care of their own expenses and are accountable only to themselves for expenses.
14. Furnishing of Tools, Materials
An employer furnishes tools, materials, etc.
Contractors furnish their own tools, etc.
15. Significant Investment
An employee has no significant investment in the facilities used to perform services.
A contractor has a real, essential and significant investment.
16. Realization of Profit or Loss
An employee cannot realize a profit or loss by making good or bad decisions.
Contractors can realize a profit or suffer a loss as a result of their services or decisions.
17. Working for More than One Firm at a Time
An employee usually works for one employer at a time.
An independent contractor works for a number of persons or firms at the same time.
18. Making Services Available to the General Public
An employee does not make services available to the general public.
Contractors have their own offices and assistants. The hold businesses licenses are listed in business directories, maintain business telephones, and otherwise generally make their services available to the public.
19. Right to Fire
An employee can be discharged at any time.
Contractors cannot be fired so long as product results meet contract specifications.
20. Right to Quit
Employees can quit their jobs at any time without incurring liability.
Contractors agree to complete a specific job and are responsible for satisfactory completion; or they are legally obligated to make good for any failure.
Above Summary is reprinted from IRS Tax Facts, January 1992
As you can see, its not a cut and dry issue on all points, and it is possible that this list has been amended since published. Either way, there are more than enough fine lines to be interpreted and argued that I would be surprised if this does not become a major issue.
For those who dont know or have been hiding under a rock, the wwe is under fire by a union of wrestlers who will be taking them on in regards to the lawsuit stating that wrestlers should be governed as employees and not contractors, the funny situation about this case is it will not only set the tone for the WWE but any multi Billion Dollar (Pound) Business that operates with the same contractual obligations, and may also effect Others if this rule comes into effect, the wwe may suffer with fines but it also means that each contractor if they become an employee will be evaluated within company rules and structure, and even guidlines that may stop them from getting prevous contractual benefits within the company.
So to all i ask whats your opinion?, is this valid?, or do you think that the current structure works?
Discuss