I received a question from a reader named Andrew about the "independent contractor" status of fighters. Specifically, the reader asked how organizations (for this reader's question it was specific to the UFC) get away with calling a fighter an independent contractor despite all of the restrictions the promotion contract places on the fighters. That is, if the fighter has an exclusive promotion contract with a specific organization (in this case the UFC) and the contract provides that during the term of the agreement the fighter can only fight for the UFC (among other restrictions like UFC getting licensing rights etc.), why isn't the fighter considered an employee of the organization. The reader also asked why the government has not taken action in response to this classification with respect to the UFC.
Before responding, I will point out that I am not a tax lawyer and am not providing specific legal advice of any kind and am instead responding to a general question. In this regard, I point you to my disclaimer.
At the outset, it is worth noting that under either arrangement, the government is getting paid. Either the organization issues a 1099 to the independent contractor and the contractor pays the government OR the employer withholds taxes from the employee. As set forth here, the main difference (and the effect of improper classification) is that "[if you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker (the relief provisions, discussed below, will not apply). See Internal Revenue Code section 3509 for more information." Thus, the IRS would simply audit the organization and collect back taxes etc.
To determine whether independent contractor status or employee status applies, the IRS states as follows:
Facts that provide evidence of the degree of control and independence fall into three categories:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
While this is a fact-intensive inquiry, typically, boxers (and by extension MMA fighters) are classified as independent contractors under the above analysis for a variety of reasons. At 10,000 feet, fighters don't go to the office everyday and don't have daily obligations. Rather, fighters are contacted about potential fights and make a decision about whether or not to accept the fight. Promoters and organizations, of course, have a stable of fighters and they don't provide employee type benefits like insurance or pension plan benefits. In most instances, promotions also do not pay for the fighter's training and don't dictate how a fighter is to prepare for a fight--that is up to the fighter of course (and perhaps his manager). Also, the fighter generally is not representing the organization -- he or she is representing himself or herself.
Nonetheless, and assuming the classification as an independent contractor is correct (or even if it isn't for that matter), this is not really an issue of whether the worker is an employee or an independent contractor, but instead comes down to bargaining power with respect to the contract (and why the contract is so one-sided).
This one-sidedness is really a function of bargaining power between the independent contractor and the organization. With the UFC, for example, fighters don't really have much (if any) leverage as the UFC is the premiere organization and fighters strive to ultimately get to that level. The UFC uses this leverage to get the deal it wants -- the fighter is left to take it or leave it, i.e. the fighter is in no way forced to take the contract with the UFC, but rather must agree to the UFC terms in order to get on the big stage. This is often how contracts work -- one side has superior bargaining power and uses that bargaining power to get a favorable deal. For a bigger name fighter like Dan Henderson (or Fedor), however, the UFC had a little less leverage and ultimately Henderson rejected the deal the UFC was offering and went to Strikeforce for his last fight with Jake Shields. As more (successful) organizations enter the game, the fighters will gain back some leverage.
Ultimately, bargaining power drives the contract negotiation and the UFC, as the top ticket in town, has the power. The fighter can accept or decline the contract. In my opinion, this is all about contract negotiation and not about IRS classification of workers. Thanks for the question Andrew.
Fight Lawyer
