Five years ago today, we issued a White Paper entitled “Independent Contractor Misclassification: How Companies Can Minimize the Risks,” which we updated in May 2012. During those five years, the White Paper has been the most widely viewed publication written by lawyers representing management on the subject of misclassification of employees as independent contractors. This 2015 Update is a comprehensive expansion of the White Paper – over 12,000 words including 115 endnotes providing over 100 links to content available on the Internet, including new laws, recent judicial decisions, academic studies, government reports, legal publications and cross-references to many of our 125 blog posts on the subject of independent contractor compliance and misclassification.
Our White Paper continues to detail three ways by which companies that use independent contractors can minimize or avoid future independent contractor misclassification exposure:
- Bona fide restructuring and re-documentation, using IC Diagnostics™.
- Reclassification, either under a government program or voluntarily.
- Redistribution of independent contractors, using a workforce management or staffing company.
These alternatives work for virtually all companies that use independent contractors – whether to supplement their workforce or to refer or offer qualified service providers to customers or clients as part of their business model. The same proprietary tool used to minimize independent contractor misclassification liability – IC Diagnostics™ – can be used to defend against misclassification claims brought in the courts and before administrative agencies.
The three years since the last update of our White Paper coincides with the period when independent contractors have become an integral resource in the sharing economy, where organizations such as Uber and other tech start-ups have avoided or limited their use of employees in favor of on-demand contract workers. While on the one hand, new companies may wish to emulate the most successful on-demand business models, yet on the other hand they do not want to become a defendant like Uber, which was recently unable to dismiss a class action challenge to the allegedly imperfect structure, documentation and implementation of its driver relationships and is now scheduled to face scrutiny by a jury.
The 2015 Update of the White Paper also provides detailed insights into six related topics:
- How independent contractor misclassification has arisen, including the economic and business advantages of using independent contractors, a period of lax enforcement prior to the recent crackdown by federal and state regulators and legislators, and the difficulty experienced by companies trying to comply with various legal tests for independent contractor status – all of which has led to the increased use of independent contractors and a rise in intentional and unintentional misclassification.
- The costly consequences of misclassification, including unpaid overtime, minimum wages, employee expenses and other employee payments, as well as claims for employee benefits and exposure under the Affordable Care Act (Obamacare).
- Federal and state regulatory enforcement initiatives by the U.S. Department of Labor, the IRS, and state workforce agencies.
- Legislative initiatives, including more than two dozen states that have passed laws designed to curtail independent contractor misclassification and a dozen federal bills that have not been enacted but have spurred state legislative actions.
- The proliferation of class action lawsuits resulting in multi-million dollar settlements and judgments.
- The impact unions have played in the crackdown on independent contractor misclassification and the potential for unionization of workers re-characterized as employees by the courts or administrative agencies.
The 2015 Update of our White Paper can be accessed here.