Problem 1: Smith & XYZ Corp . XYZ Corp. needed the services of a strategic busin
ID: 449216 • Letter: P
Question
Problem 1: Smith & XYZ Corp.
XYZ Corp. needed the services of a strategic business consultant to help with the launch of a new product. Smith has the skills needed by XYZ, so they offered him a position. The arrangement requires Smith to work 40 hours per week on the new product launch, but he can complete the work any time during the week. Smith works from home but is expected to travel to XYZ’s headquarters twice each week (on days that Smith picks) to meet with the XYZ executive management team to provide updates on the product launch. At these meetings, the executive management team often provides Smith with their thoughts and advice as to what he needs to be doing in order to meet XYZ’s desired goals with respect to the product launch, and Smith occasionally (but not always) incorporates their ideas into his strategic plan. When he goes to XYZ’s headquarters, Smith is given a private office to use and he has free use of XYZ’s copiers, phones and supplies. XYZ often provides free lunches and snacks to its employees, and Smith is always invited to participate in these events whenever he is in the office. Smith invoices XYZ monthly for services rendered at his hourly rate but does not get any other benefits from XYZ.
True or False and why
1. The IRS three-prong test would likely require Smith to be classified as an “Employee” of XYZ Corp.
2. XYZ Corp. has incentive to argue that Smith should be classified as an “Employee” rather than an “Independent Contractor” because the Employee classification would be more beneficial to XYZ Corp.
3. One day Smith decided he needed to visit one of XYZ’s customers to get data for the project launch. On his way to the customer’s office, Smith stopped by the grocery store to stock up for the weekend, and made a second stop to get his hair cut. As he pulled out of the parking lot, he hit a pedestrian. The pedestrian can recover from XYZ Corp based on the doctrine of respondeat superior.
4. XYZ made Smith an authorized user of the company credit card. Smith used the card to purchase a laptop for his son. XYZ must pay the credit card company for that purchase even though it was a personal purchase by Smith and clearly outside of the scope of his engagement.
5. During the course of his consulting project, XYZ received an IRS subpoena in connection with an IRS audit of XYZ’s business. XYZ’s President asked Smith to only provide the data that was favorable to XYZ’s position. Smith knew the President’s request was illegal, so he ignored it and provided all the data required by the subpoena. Based on this, Smith violated the duty of obedience he owed to XYZ.
1. The IRS three-prong test would likely require Smith to be classified as an “Employee” of XYZ Corp.
2. XYZ Corp. has incentive to argue that Smith should be classified as an “Employee” rather than an “Independent Contractor” because the Employee classification would be more beneficial to XYZ Corp.
3. One day Smith decided he needed to visit one of XYZ’s customers to get data for the project launch. On his way to the customer’s office, Smith stopped by the grocery store to stock up for the weekend, and made a second stop to get his hair cut. As he pulled out of the parking lot, he hit a pedestrian. The pedestrian can recover from XYZ Corp based on the doctrine of respondeat superior.
4. XYZ made Smith an authorized user of the company credit card. Smith used the card to purchase a laptop for his son. XYZ must pay the credit card company for that purchase even though it was a personal purchase by Smith and clearly outside of the scope of his engagement.
5. During the course of his consulting project, XYZ received an IRS subpoena in connection with an IRS audit of XYZ’s business. XYZ’s President asked Smith to only provide the data that was favorable to XYZ’s position. Smith knew the President’s request was illegal, so he ignored it and provided all the data required by the subpoena. Based on this, Smith violated the duty of obedience he owed to XYZ.
Explanation / Answer
1. The IRS three-prong test would likely require Smith to be classified as an “Employee” of XYZ Corp.
False, IRS three prong tests covers the financial control, behavior control and the type of relationship. XYZ does not exercise finance or behavior control on Smith.
2. XYZ Corp. has incentive to argue that Smith should be classified as an “Employee” rather than an “Independent Contractor” because the Employee classification would be more beneficial to XYZ Corp.
False, It’s a temporary position and XYZ has no incentive to add to the head-count after the completion of the project.
3. One day Smith decided he needed to visit one of XYZ’s customers to get data for the project launch. On his way to the customer’s office, Smith stopped by the grocery store to stock up for the weekend, and made a second stop to get his hair cut. As he pulled out of the parking lot, he hit a pedestrian. The pedestrian can recover from XYZ Corp based on the doctrine of respondeat superior.
False, As Smith is not an employee of XYZ. Smith invoices to XYZ for his hourly work only. The pedestrian cannot recover the damages from ZYX.
4. XYZ made Smith an authorized user of the company credit card. Smith used the card to purchase a laptop for his son. XYZ must pay the credit card company for that purchase even though it was a personal purchase by Smith and clearly outside of the scope of his engagement.
True, although on moral and ethical grounds, Smith should pay for his personal purchases done using the company credit card.
5. During the course of his consulting project, XYZ received an IRS subpoena in connection with an IRS audit of XYZ’s business. XYZ’s President asked Smith to only provide the data that was favorable to XYZ’s position. Smith knew the President’s request was illegal, so he ignored it and provided all the data required by the subpoena. Based on this, Smith violated the duty of obedience he owed to XYZ.
True, bound by the contracts of NDA, Smith, in the first place, is restricted to share confidential data on behalf of the company, beyond the scope of work as a consultant for the project.
1. The IRS three-prong test would likely require Smith to be classified as an “Employee” of XYZ Corp.
False, IRS three prong tests covers the financial control, behavior control and the type of relationship. XYZ does not exercise finance or behavior control on Smith.
2. XYZ Corp. has incentive to argue that Smith should be classified as an “Employee” rather than an “Independent Contractor” because the Employee classification would be more beneficial to XYZ Corp.
False, It’s a temporary position and XYZ has no incentive to add to the head-count after the completion of the project.
3. One day Smith decided he needed to visit one of XYZ’s customers to get data for the project launch. On his way to the customer’s office, Smith stopped by the grocery store to stock up for the weekend, and made a second stop to get his hair cut. As he pulled out of the parking lot, he hit a pedestrian. The pedestrian can recover from XYZ Corp based on the doctrine of respondeat superior.
False, As Smith is not an employee of XYZ. Smith invoices to XYZ for his hourly work only. The pedestrian cannot recover the damages from ZYX.
4. XYZ made Smith an authorized user of the company credit card. Smith used the card to purchase a laptop for his son. XYZ must pay the credit card company for that purchase even though it was a personal purchase by Smith and clearly outside of the scope of his engagement.
True, although on moral and ethical grounds, Smith should pay for his personal purchases done using the company credit card.
5. During the course of his consulting project, XYZ received an IRS subpoena in connection with an IRS audit of XYZ’s business. XYZ’s President asked Smith to only provide the data that was favorable to XYZ’s position. Smith knew the President’s request was illegal, so he ignored it and provided all the data required by the subpoena. Based on this, Smith violated the duty of obedience he owed to XYZ.
True, bound by the contracts of NDA, Smith, in the first place, is restricted to share confidential data on behalf of the company, beyond the scope of work as a consultant for the project.