You're required at most places I've gone to/heard of, to sign a waiver saying that you'll pay for any maimed sheep. It has happened.
My dogs were both put on lines, the shepherd with her gloves on handled them and had a paddle stick as well that she swatted Frag with a few times for getting too interested.
Here's a video of Frag's first time on sheep.
eta; they're looking for the type of interest, how easily they change pace and direction primarily, from what I was told.