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Nasir and Matt discuss the commercials featuring Ronald McDonalds approving of Taco Bell's breakfast. They also attack the independent contractor misclassification issue from the employee perspective in the question of the day.

Full Podcast Transcript

NASIR: All right, Episode 27 and that’s 2.7 percent of a thousand episodes.

MATT: Yeah, for people listening a couple of episodes ago, I’m glad we got this straight.

NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.

MATT: And this is Matt Staub.

NASIR: And we are starting off the day with a nice little Taco Bell and McDonald’s story.

MATT: Yeah. So, hopefully, you’re having breakfast right now because, even though this is involving Taco Bell and McDonald’s, of course – this is a breakfast story now.
Some of you may have already seen the commercial. I know I’ve seen it a couple of times. Basically, I’ll back up a little.
Everyone knew McDonald’s has breakfast. It’s well-known that it ends at 10:30 because people make jokes about it all the time. So, Taco Bell saw this and said, “Hey! Why don’t we get into this market? We’re Mexican fast food. It only makes sense for us to get into breakfast.” So, they’re running these commercials and I’ll give them credit – these commercials are pretty good. It’s pretty funny. They have all these people that they found around the country named Ronald McDonald to eat the breakfast food that they have and comment on how much they like it. Now, I guess they did pay these people to be in the commercial but they claim all the responses are real – which I find hard to believe because, if you look at some of items that Taco Bell’s breakfast are, they don’t even look appetizing in the pictures so I can’t imagine what it really looks like in real life.

NASIR: I have not tasted it myself though Taco Bell is probably the only fast food restaurant that I tend to eat once in a while – maybe once every couple of months or so – but I thought the commercial was hilarious. It kind of caught me off-guard because I didn’t even know it was a Taco Bell commercial until later.

MATT: It is pretty interesting. A waffle taco? An A.M. Crunchwrap? An A.M. Grilled Taco Breakfast Burrito? That’s pretty standard. Cinnamon Delights?
The main thing in this is, when people watch, they might think, “Is Taco Bell allowed to do this?” because they’re basically taking the name Ronald McDonald which is associated exactly with McDonald’s – the big red-haired clown or whatever he is. They’re using that name – not his likeness but the name – to try this Taco Bell food and approve of it.

NASIR: Yeah. So, we’ve talked about in the past how character names and likenesses of a mascot or a logo or what-have-you or a particular company is protected by trademark and copyright law. But Taco Bell was smart, of course. They deliberately chose to advertise its product featuring real men named Ronald McDonald and also put it in disclaimer – I don’t know if you caught it at the end and I even rewound it on my DVR just to read it again – it said something like, “These Ronald McDonalds are not affiliated with McDonald’s Corporation and were individually selected as paid endorsers of Taco Bell, et cetera.” And so, we’ve talked about fair use, right? But, when an advertiser uses a competitor’s trademarks within their commercial, for example, it usually falls in the nominative fair use doctrine. However, there’s a few factors. The courts review whether the company had a need to use a trademark in order to identify the competing product, whether they went beyond the use necessary in order to make that identification. Classically, it reminds me of I think it was either Verizon or AT&T – I think it was Verizon that would take AT&T’s coverage map next to theirs and use their AT&T logo. The question is, well, how can they use their logo and the brand, well, to identify the differentiation. It’s not like Taco Bell had these guys dressed up in a clown uniform either. It was just them in regular clothing, right?

MATT: Yeah, and that’s the next point I was going to make. What if they went to the next level and had people who were dressed up as Ronald McDonald the clown? Is it a clown? It’s a clown, isn’t it?

NASIR: It’s definitely a clown but I think it’s funny that you’re asking because it’s not as obvious anymore because clowns are not as part of our culture as it used to be, I think.

MATT: Yeah, that’s true.

NASIR: He is a clown, though.

MATT: Yeah, but it would be a little bit different if they did that – if they had people dressed up as Ronald McDonald eating this. I feel like commercials have done something similar to that in the past. I just can’t remember exactly what it is. Oh, no, now I’m thinking of what it is. They’ll have competitors of a store go to another store and pretend like that’s happening. This isn’t to that level – if that made sense to anyone.

NASIR: I understand the concept of this trademark law. The main thing is to protect it so that there’s not confusion in the marketplaces to whether there’s an affiliation or some kind of endorsement. In other words, you can make fun of the competitors all you want and use their marks to do so. That’s not a blanket statement there. There are exceptions to that. But, generally, that’s the rule. But, if there’s no misunderstanding as to whether or not – for example, McDonald’s is affiliated with Taco Bell or McDonald’s is endorsing Taco Bell or if somehow Taco Bell is using McDonald’s trademarks in order to advertise their product in a way that doesn’t confuse the marketplace, then it’s fine.

MATT: Did you see McDonald’s response to this? It looks like it’s through Facebook. They had a Ronald McDonald kind of crouching down, petting a Chihuahua, saying, “Imitation is a serious form of flattery.” You know how Taco Bell has a Chihuahua?

NASIR: Well, that’s about as best comeback you can make. It’s not an easy comeback but I think that works. I’m looking at it now, yeah.

MATT: To me, and you’ll see this pretty frequently, actually – to me, when two competitors get in it back and forth and try to one up each other, I think everybody wins.

NASIR: Oh, yeah.

MATT: Other than maybe the companies. I remember somewhat recently there was a car company that put up a huge billboard and they had to put up a new car and said, “So and so, you’re move!” and then the company that they referenced put up another billboard behind it, saying, “Checkmate!” and it had a much better car and cheaper prices. It was really, really good. They were literally right behind each other. Pretty much everybody wins. Everyone that’s a consumer wins when companies do this. It’s just fun.

NASIR: Yeah. I don’t get Facebook pages sometimes. All these people are commenting on these posts about pictures of food and McDonald’s and stuff but that’s a different story, I think.

MATT: Yeah.

NASIR: 10,000 likes? I mean, geez. A picture of some chicken nuggets?

MATT: Is that what it is? I haven’t even checked that out. I don’t frequent fast food Facebook pages but, yeah, there’s nothing really to get out of that. I don’t know why people would do it. Interesting.

NASIR: I don’t know. Even we have a Facebook page. I personally still don’t get it but…

MATT: Well, we had some fun. So, let’s get into the question of the day where we probably won’t have fun because I know you hate independent contractor questions.

NASIR: You’re right; I do hate it. it’s just that we have to deal with it in our day-to-day legal lives everyday so maybe that’s just the problem with it.

MATT: Yeah, here we go, and this actually comes from not the business but the worker.
“I’m pretty sure I am an employee but my office is saying that I’m an independent contractor. Should I be worried about this?”
This comes from someone in Long Beach, California.

NASIR: I don’t think he or she should be worried. I think the business or the employer should be worried, especially if this employee is correct.

MATT: Yeah, I think this definitely falls more on the business more than the individual, but I’ll first answer the person’s question. I guess the thing to be worried about the most is probably the tax issue because you’re self-employed if you’re an independent contractor. You don’t realize that (1) you’re not having any money taken out of your check so that’s an issue and (2) your tax, in addition to the tax that you have to pay, you have to pay self-employment tax. It’s really kind of two things that you really need to look at that a lot of independent contractors don’t necessarily understand or even know about.
Answering their question, that’d probably be the thing that I’d be worried about the most.

NASIR: Actually, that’s a great point because, from the employee’s perspective, that’s an issue and I think we’ve dealt with that many times. You deal with tax issues more than I but people are always surprised – even with businesses, right? Because, with a small business, you may not be paying yourself a W2 through your entity and you may not be withholding enough taxes or making quarterly estimate payments to get all of this in a pretty big bill at the beginning of the next year.

MATT: From their perspective, I guess that’s what you’d be worried about. I don’t know.

NASIR: But what do you do though? As an employee, let’s say that you know that you’re misclassified, if I was advising them, I’d probably just say, “You know what, just keep quiet for now.” It’s kind of a bad way to say because, yeah, understand the tax consequences of this but, really, you’re not being hurt by it. If there is an issue, if your employee mistreats you for whatever reason, then you have a claim against them which sucks for the employer but this kind of shows you, from an employer’s perspective, that if this employee talks to an attorney, they’re going to tell them, “Well, you have nothing to gain by telling them now that you’ve been misclassified because you can always do that later.” Literally, the law allows them to do that. They have no obligation to have them tell you that they’ve been misclassified.

MATT: Yeah, and it sounds like this person doesn’t want to, I mean, if they really wanted to, they could just leave, I suppose. But it sounds like they wouldn’t want to do that. I’m just trying to think if there’s any liability issues that it would differ.

NASIR: That’s a good point. If, in fact, they actually are an independent contractor, they could be more liable for some of the things that they do and they’re not going to have the benefits. If they get hurt, for example, then there won’t be another worker’s compensation claim. But that’s assuming that you are actually an independent contractor.

MATT: Yeah. Also, you know, you’re not afforded the same sort of labor law protections.

NASIR: Overtime and breaks, lunch.

MATT: I don’t know if that really makes a difference in terms of the question because, if they’re an independent contractor, they’re an independent contractor. I guess, if they think they’re misclassified, then it’s an issue. But, if they’re going to be considered an independent contractor, even if they don’t think they are, then it’s not going to make a huge difference.

NASIR: Yeah, I find that employees, a lot of times, if they are classified as IC, they would prefer that – mainly because they get a better paycheck – bigger paycheck.

MATT: Yeah, and then they owe tons of money come April 15th and they don’t understand why.

NASIR: No, they usually put it in a nice savings bond for the year so that it gains some interest and basically they’re borrowing against the IRS and then they responsibly take that out at the end of the year to pay their tax bill.

MATT: For independent contractors that are listening, you know, you are required to make estimated payments if you owe money. So, you can technically get hit with penalties. The IRS can hit you with penalties for that and that’s usually what does happen. I think you get a year kind of grace – you know, one free chance. And then, if you do it two consecutive years, that’s where they start hitting you with penalties.

NASIR: So, lots to worry about for you; more to worry about for your employer.

MATT: Exactly.

NASIR: Okay. Well, that’s our last episode of the week. I think that nice three-episode week went pretty well.

MATT: Yeah, hopefully.

NASIR: We’ll get the reviews tomorrow, I guess.

MATT: Yeah, and if you have your own opinions, you can write us in to or, if you have something good to say, you can leave us a positive review on iTunes.

NASIR: All right, very good. I appreciate you guys listening. I hope to hear your questions soon!

MATT: Yeah, and keep it sound and keep it smart.

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Legally Sound | Smart Business
A podcast covering business in the news with a legal twist by Pasha Law PC
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Legally Sound | Smart Business covers the top business stories with a legal twist. Hosted by attorneys Nasir N. Pasha and Matt Staub of Pasha Law, Legally Sound | Smart Business is a podcast geared towards small business owners.

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