INDEPENDENT CONTRACTORS, YOU SAY?

Employers are sometimes too easily tempted to categorize people working for them as independent contractors.  This avoids paying unemployment and other payroll taxes, and contractors are not entitled to minimum wage or overtime.  In turn, predictably, the DOL, the IRS, and the contractors themselves may be tempted to sue employers who mischaracterize employees as independent contractors.

The IRS has developed an 11-part test to help determine who is an employee and who is a contractor.  Courts in civil suits have applied varying versions of it, often with fewer but broader prongs.  The gist of the matter revolves around such things as the level of control exercised by the employer (after all, there is “independent” in “independent contractor”), the mode of compensation, ownership of the tools, etc…

Some industries are more scrutinized than others.  Salons are frequently in the legal news in this category.  Stylists often do not qualify as independent contractors but are paid as such.  Trucking, freight, express mail, and moving companies struggle on how to characterize truck drivers.  FedEx recently lost several massive cases after its drivers, which the company treated as independent contractors, sued to be reclassified as employees.  Some Uber drivers have followed suit.  There has been a string of lawsuits by strippers against strip clubs, for overtime.

Cases of this nature are not limited to specific industries.  A few months ago, a small Florida business installing window coverings was sued by a seamstress it had categorized as an independent contractor.  It lost on liability already and is waiting to see how much this mistake will cost.  It will undoubtedly be significant, especially if the Court tags on penalties or the plaintiff’s attorneys’ fees, which it may do under the applicable statute.

In these as in many other areas, an ounce of prevention is often worth a pound of cure.  The cost of legal advice to help determine who should be an employee and who an independent contractor will be a fraction of the cost of defending a lawsuit.