Employees as my employees in PM Agreement wording?

Question

Is this strange?  
The PM does not have employees, they only have/use independent contractors.  So

A)  there are no employees so none could be my responsibility? or
B)  responsibility could be mine if the independent contractor is determined to be an employee by someone else

so do I have to change the wording, if so, how?

The property management agreement says:
     "The broker shall be entitled to employ, supervise, and discharge all labor required for the operation and maintenance of the property, it being agreed that [b]all employees thereby designated shall be deemed to be the Owner employees."
and then in a later paragraph, 
     "The owner agrees to hold the Broker harmless from any damage suits in connection with the management of the herein described property and from any liability from injury suffered by any employee or other person whatsoever, and to carry, at the Owner's expense, adequate public liability and, if required by law, workmens compensation insurance to name the Broker as co-insured for the life of this management agreement."

the agreement is for 12 months;  the PM company is successful and established and I really like them - I just don't want liability for an injury

how can we get this right and move on quickly?  His agreement has been the same for a number of years and he says he has never had a question about this item - is it just me?

Randy F. · Answer

Seems to me that your PM is treading on thin ice. His attorney likely is simply concerned about his exposure to liability with the wording of his contract. But, if he has a two man crew who are independent and they are maintaining 100 properties, his contract will likely not shield him in the event of a Worker Comp claim.

I dont know the laws of your state, but he must be a one man operation because if he has office staff, he should have WC coverage. I would move on to a PM who has already taken the step into a full fledged legit business that is interested in providing a more comprehensive service to his customers. My apologies if I have him pegged wrong. Just my take based on what Im hearing.

Kerry M. · Answer

Randy F. I agree I think the purpose is to cover property owners who might have a larger number of rentals and do have someone in place to keep down costs.  If there are no employees, (in my case) then I wish we could make that clear.  The PM has a work crew of 2 persons to maintenance 100+ properties and then calls in separate persons to do elec/plumbing/snow removal and yard.  I had planned to bring in my own persons maybe for the yard, maybe for some specific work planned out ahead of time, not the immediate, majority or regularly scheduled kind of work.

I like him because he is low-stress.  His success is not dependent on my success but mine is on his.  He thinks I'm novel and knows how green I am.  I've thought about just signing it as-is (or signing for a short while, until revisions can be agreed on and before a renter found?  Like a statement of intent so that he can list it and interview renters?)

If I need a separate addendum to this first agreement, (if the solution below doesn't seem good,) is there someone here on biggerpockets who could draft it for me (I pay them for it) with a one day turnaround?  Being Christmas nearby, I need a quick solution so we can move on to renting.

J  Scott I am copying and pasting your response so that I will be sure to stay on the right side of the fence.  I asked my insurance agent about buying workers comp ins and he said I can't buy it if I'm not in charge of the payroll.  Yet the contract seems to say it would be my responsibility.  It is required in my state, the agent told me.

Steve Babiak Since he only uses independent contractors (although he owns more than one business and may have workers comp in place somewhere else,)

what if he agreed to cross out "it being further agreed that all employers thereby designated shall be deemed to be the Owner' employees" and in the other paragraph cross out "and if required by law workers compensation"

and then we each initialed next to each place you crossed stuff out.  He submitted my concerns to his lawyer already, but wasn't sure how quickly it could be turned around.  I want to wrap this up by Wednesday if we can.  We need green lights, perhaps more than we need exactness.  I want to do contracts right but did not think this would be a problem and it is taking time I didn't know I needed before.

Thank you Steve Babiak, Randy H. and J Scott

Randy F. · Answer

A smaller PM who doesnt want the overhead and headaches associated with having employees, hires independent contrqctors to do maintenance on the properties they manage. If they manage a large number of properties they need maintenance people who are available to them on an ongoing basis. If the PM is scheduling their time and telling them when to go to work and most or all of the IC's work comes from PM, it is likely they would be found to be employees and by way of this agreement, YOUR employees.

Most of your independent contractors who would be working for a PM are one man operations and may even have gotten licensed and insured for the purpose of working for the PM. As an owner operator of their business, in all states i am familiar with, he would not be required to carry Workers Comp. If they were injured on the job, you would be liable. Its the same as if a General contractor hires a subcontractor who doesnt carry his own workers comp coverage and is injured, the GC is liable for that coverage.

The clause in the contract cited here is likely meant to address an owner with larger multi-family units where an onsite manager and/or maintenance people are required. These would be your employees, managed by the PM. But if you have single family rentals or small multis, you may be better off with a PM who has their own maintenance crew so that the PM has more direct control in taking care of general maintenance and subs out work where licensed plumber, electrician,etc is needed.

A good question when interviewing PMs may be to ask if they have their own crew and what you will be charged for their services. If you will be charged contractor rates while being responsible for the overhead required to carry employees, iis that a good deal?

Steve Babiak · Answer

But that wording seems to say that the owner will indemnify the PM for such hiring - I think that's where this is a bit cumbersome.

Maybe you need some kind of document with this PM establishing how such "hiring" of help will be performed, and the protocols and practices that will be followed.  Things like types of insurance and sub-contracting agreements, for example, could be set in that document.  Then that document is made an addendum to this first agreement.

J Scott · Answer

I can't imagine they would ever be YOUR employees, assuming:

-  You're not paying them directly
-  You're not providing them tools
-  You're not managing them
-  You're not their only client
-  You never contact them directly (just the PM company)

I'm not a tax professional, so don't take my word for it, but given the above, I'd be perfectly comfortable that they weren't employees of mine if this were my situation.

Kerry M. · Answer

(I'm new to the Update feature.) I was saying, it makes me nervous to sign a contract where the workers sent to my property are considered my employees.
Could we add this to the contract:  "PM will only hire independent contractors."?
Thanks for your response