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You’re Fired – Terminating Contractors Versus Employees By: Nicholas J. Meinert, Esq.

Most community associations utilize independent contractors to service their property. A general example of an independent contractor is an association’s landscaper who uses its own machinery, works on other properties, and is paid in lump sums. However, some associations hire employees who only work for the association, are paid by the hour, and are subject to more direct instruction from the board. Your service provider’s status as an independent contractor versus employee will determine how, when, and for what reasons the board can terminate the relationship.

Terminating an independent contractor depends on contract terms. As you may recall from our Fall 2016 seminar, when a contractor presents the board with a “proposal,” the contractor is presenting the board with a contract. Often times these proposals fail to include any termination provisions, leaving the board with little to no remedies when the contractor delays performance or fails to perform to the board’s expectations. Boards should always insist that additional contractual rights be included in the proposal, including termination provisions.

Ideally, a termination provision will allow the association to terminate the contractor with or without cause.  However, contractors can be reluctant to agree to such provisions and may insist that the contract only be capable of being terminated for cause. When a agreeing to a “for cause” termination provision, the provision should either clearly define what constitutes “for cause,” or the provision should allow the board to unilaterally determine whether a cause to terminate exists. Furthermore, when sending notice of termination, the board must be certain that it complies with the contract’s “notice” provisions to eliminate the contractor alleging that it never received proper notice of termination, meaning the contract remains valid.

Terminating an employee is an entirely different animal. Ohio is an at-will employment state, meaning that the association can terminate employees for any legal reason, or no reason at all. As such, associations should not enter into contracts with employees that guarantee any length of employment.

On its face, at-will employment appears to make terminating an employee much simpler than terminating an independent contractor. However, if an employee provides evidence to support that they are capable of performing the work associated with the job, and were terminated because they belong to a protected class, the burden shifts to the association to prove that the employee was terminated for a legitimate non-discriminatory reason or that the employee cannot perform the work with reasonable accommodations. Protected classes include all races, colors, national origins, ancestries, religions, sex (including pregnancy, childbirth, and related medical conditions), disabilities, age, military status, and genetic makeups. Being that every human is a member of a “protected class,” shifting the burden of proof to the association is not a difficult task for a terminated employee.

As explained above, when defending itself in an employment discrimination case following terminating an employee, the association must prove there was a legitimate non-discriminatory reason for terminating the employee. The first step to protecting the association from employment discrimination claims is maintaining detailed employee files. Every employee complaint and disciplinary action, including warnings, must be in writing and saved in the employee’s file. Written documentation of annual performance reviews should also be kept in the file. This tangible evidence will support the association’s non-discriminatory reasons for terminating an employee.

The second step is adopting a detailed employee handbook that explains expectations, performance standards, and discipline procedures. Without these standards clearly outlined in the employee handbook, the association will experience difficulties proving what performance standards the employee failed to meet, what policies were violated, and that the association treated all other employees in the same manner according to its discipline procedure. A comprehensive employee handbook will also establish a harassment policy, harassment reporting policy, solicitation policy, equal employment policy, and an accommodation request policy.

Whether utilizing the services of an independent contractor or employee, your association will reduce the likelihood of costly litigation associated with terminating their services by ensuring that either a contract with termination provisions or an employee handbook are agreed to before the service begins.