Lowe’s Home Centers agreed to a maximum settlement amount of $6,500,000 plus an additional 25% for attorneys’ fees to settle a class action suit brought by its installation contractors alleging they were misclassified as independent contractors instead of employees. Lowe’s, which offers contractors to install products purchased at its stores in customers’ homes, classified these installers as independent contractors, while at the same time allowing them to wear Lowe’s uniforms, attend Lowe’s training sessions, and identify themselves as installers for Lowe’s. These actions and others blurred the fine line between employee and independent contractor. As employees, they would have been entitled to the benefits offered to other employees, such as medical insurance, vacation leave, disability coverage, and a 401(k) plan, and these benefits added together equaled a large settlement demand.

As the Lowe’s lawsuit demonstrates, drawing the line between independent contractors and employees is very tricky, and if done incorrectly, it can lead to big liability. In addition to the amounts in dispute in the Lowe’s lawsuit, if you misclassify your independent contractor you can face government audits (unemployment social security…), or even worse, a wage and hour lawsuit from your contractors who claim they are owed overtime.  Under federal law overtime liability is generally double damages plus attorney fees, going back two to three years – but state law can increase these amounts.  In Maryland, for example, overtime liability can be up to treble damages plus attorney fees, going back three years!!  Companies need to take careful precautions to correctly structure their relationships with independent contractors, document their relationships by contract, and properly use independent contractors in order to stay in compliance with the law.