Misclassifying Independent Contractors: So Many Legal Ramifications By Kristen L. Brightmire Defining a person as an employee or independent contractor used to be clear. If your company called a plumber, the person was a contractor. If your company had someone onsite doing the books, the person was an employee. Today, companies have “employees” who work remotely and “independent contractors” who are regularly onsite. Should people care whether the person is an employee or a contractor? Absolutely. Why? Money, of course. This is a huge issue for taxing authorities, and it has become a mainstream claim for plaintiffs. Companies and workers often don’t consider the legal ramifications of classification when initially making the determination. Workers may ask to be treated as a contractor, wanting perceived freedom or additional dollars in their pocket. Companies may prefer a contractor relationship to keep headcount low or to maintain a more flexible workforce. Invariably, the company will face potential legal liability. Wage and hour laws. This is a common claim. The contractor sues alleging she was actually a nonexempt employee under the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. Nonexempt employees are entitled to minimum wage and overtime pay. Because the company treated the worker
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as a contractor, it likely did not maintain FLSA-required timekeeping records and will not be well-situated to defend against FLSA claims. Thus, the company’s first line of defense will be to prove the person was not an employee. Under the FLSA, an employee “means any individual employed by an employer.” 29 U.S.C. § 203(e)(1) (exceptions excluded). Despite hundreds of regulations, none provide guidance on that definition. Instead, the Department of Labor (DOL) has issued guidance (and there are court decisions which apply the law and guidance to individual fact patterns). Interestingly, in July 2015, the DOL issued new guidance on this topic unapologetically designed to move more workers to “employees.” However, on June 7, 2017, it withdrew that guidance. Under the DOL’s earlier (and now presumably controlling) guidance, it outlined non-exclusive, non-controlling factors to consider: (i) the extent to which the work performed is an integral part of the employer’s business; (ii) whether the worker’s managerial skills affect his or her opportunity for profit and loss; (iii) the relative investments in facilities and