A bit late to report on this, but anyway I think it is important to note that the Electric Sheep Company does not agree with the US Internal Revenue Service (IRS) about the classification of greeters in Second Life. On the blog Out to Pasture Giff Constable, the VP of Operations and Strategy of the virtual world content creator, says that his company
promptly began a dual path of preparing the necessary paperwork based on the ruling and also seeking the advice of our counsel on the matter. Our counsel decided that given all the facts, we were correct in our original classification of these contractors.
The IRS ruled that the greeters employed by the Electric Sheep Company for the CSI:NY metaverse/television cross promotional event are ESC employees rather than contractors. The Sheep’s position however:
It is the Company’s position that all “greeters” are independent contractors and are not employees of the Company. Greeters are free to (1) accept or reject assignments; (2) utilize substitutes; and (3) work for other companies, including competitors of the Company. Greeters use their own equipment and receive a Form 1099 from the Company.
I think these discussions will become more frequent when companies, whether real world companies, companies working only inworld, hybrid companies or loose associations of professionals use more and more the possibilities of virtual worlds. On the virtual law blog Virtually Blind Dave Elchoness formulated some comments on the ruling. Elchoness is an employment lawyer, the founder of VRWorkplace and the Executive Director of the Association of Virtual Worlds. First of all, why is the distinction between independent contractors and employees important? Elchoness explains:
IRS rules require companies to withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. The same requirements do not apply to independent contractor relationships. The IRS can impose fines, penalties, and back taxes for misclassifying an employee as an independent contractor.
When is a person an employee? It has to do with the relationship between that person and the company, the degree of control:
If the degree of control is high, the relationship is generally considered employment.
We as yet do not know the IRS’ entire rationale in deciding that the workers in this case were actually part-time employees. What is clear however, is that “real life” authorities are no longer ignoring virtual environments. Elchoness:<blockquote>If an activity taking place inside a virtual world looks like real life work e.g. greeting avatars to a sim, or building a facility for someone, courts and agencies may apply real life wage laws, tax laws, and other rules and regulations related to work.</blockquote>
It can be argumented that an activity, even though it looks like work, is actually play and entertainment. Elchoness lists some conditions for this to apply: <blockquote>(1) the business is contained entirely within the virtual world, as opposed to a virtual world extension of a real life business, (2) the business appears to be designed for fun or the game rather than for profit, (3) the ‘work’ activities are unlike or dissimilar from real life work or more like game play or simulation than work, and (4) the individual performing the activities is doing so on his own time, can come and go as he pleases, and is not subject to control by the business.</blockquote>
So maybe the whole dream – or fear – of a Wild West of Globalization may soon be over. Virtual law specialists however will almost certainly benefit from a higher demand for their advice. Unless of course authorities crack down so hard on virtual world businesses that people just give up using virtual environments for business experiments.
Roland Legrand
