DISCLAIMER: First Venture Legal does not intend to endorse any of the companies or organizations mentioned in this article, but offers them for example and discussion purposes only.
Labor is often a business’s biggest expense, so what is a start-up to do when it needs to complete a complex, specialized task but doesn’t have anyone on its team with the skills to complete it, or have a project that is simple and easily divided but will require significant man-hours and doesn’t have very many people on staff? The solution may be crowdsourcing — with crowdsourcing, start-ups can publicly post a project that requires a number of people to complete and find a bunch of people to complete it or requires special skills and find people with those skills, all usually for a much lower cost than would be traditionally spent.
Crowdsourcing companies include ones that focus more on professional services, such as Elance.com and Guru.com, and ones that focus more on menial and/or man-hour intensive tasks such as the iPhone app TaskRabbit.
Entrepreneurs using these services should be aware of the legal issues that may arise. First and foremost is ensuring that all parties are adequately protected in the event of nonperformance by any party. Sites like Elance.com and Guru.com normally have features in place that cover that aspect. However, entrepreneurs should also be careful to set standards for acceptable completion of the project and procedures for when the project is not properly completed; one of the major criticisms against crowdsourcing is that too often tasks are not completed to the satisfaction of the client, which may result in project costs exceeding normal professional costs in order to properly complete the project.
In addition, there are often employment law issues that can arise in crowdsourcing scenarios. Normally, people who work under a crowd sourcing arrangement would be legally classified as an independent contractor. A business that employs crowd sourcing should be careful not to cross the line between independent contractor, who normally exercises control over the details of completing a task, and employee, who normally takes detailed direction from a superior on how to complete a task. Treating an independent contractor like an employee can cause issues with state and federal revenue and labor departments for failure to pay taxes or observe regulations.
In addition, businesses should consider the possible tort, contractual, or even criminal liability issues that may arise in a crowdsourcing task, whether it be an issue of the crowdsourced employee/contractor being injured (physically or financially) and seek to hold the business liable, or an issue of the crowdsourced employee/contractor breaking some law or causing some injury (physical or financial) and the business being held liable under a theory of respondeat superior or another legal theory.
FInally, where a crowdsourcing task involves creativity, businesses should consider the intellectual property issues. Normally, an independent contractor gets to keep intellectual property rights for a project; however, businesses may want to keep those IP rights for themselves (for example, if a business contracts for a unique and innovative website design that is intended to become identifiable to the business, the business should ensure that it keeps the copyright and trademarks, otherwise the designer may use major elements in another project). Whether using a crowdsourcing service or doing crowd sourcing themselves, entrepreneurs should ensure that their IP rights are protected to their satisfaction.