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Major Developments in Independent Contractor Law and Enforcement

4/5/2015 By Cynthia Waddell

Although we are still suffering severe drought here in California, 2015 may be a watershed year when it comes to independent contractor issues. We’ve summarized some of the developments we’re following at the federal and state levels.

Federal :

  • Federal budget – The Obama administration continues to focus on enforcement. The FY 2016 budget submitted to Congress proposed an IRS budget of $12.9 billion in fiscal 2016 (roughly an 18% increase) and  $13.2 billion to fund the Department of Labor. For more information on the budget proceedings and their potential impact, see our Budget Battle blog post.
  • Department of Labor – The DOL has signed new Memorandums of Understanding (MOU) with Florida and Wisconsin to share information, bringing the total number of MOUs to 20. The focus of the DOL is expected to be on energy, hospitality, and construction industries.

State:

  • Task Force results – On February 1st the New York Joint Enforcement Task Force on Employee Misclassification (JETF) released the results of their 2014 efforts and also indicated efforts for 2015: identified nearly 26,000 instances of employee misclassification; discovered nearly $316 million in unreported wages; and assessed nearly $8.8 million in unemployment insurance contributions. The report also stated: “Since August 2007 enforcement and data sharing activities have identified nearly 140,000 instances of employee misclassification and discovered nearly $2.1 billion in unreported wages.” Tennessee and North Carolina also released their results in January, both touting success in their efforts to curb worker misclassification.
  • Vermont – Senate Bill (SB82) – Seeks to establish the Vermont Commission on Employee Misclassification to determine the effect of worker misclassification on workers’ compensation rates, unemployment insurance contributions, and state tax revenues. It is currently referred to the Senate Committee on Economic Development, Housing & General Affairs.
  • Iowa – House Bill 72 has been introduced to double the penalty employers would pay for willfully failing to properly classify a worker from 50% of the required contribution to 100% of the required contribution. The bill is currently under consideration by the Labor Committee.
  • Kentucky – 15 RS BR 819 was introduced in the Kentucky House in January. The bill is aimed at curtailing misclassification of workers in the construction industry and imposes a civil penalty of up to $1,000 for the first violation, and penalties of up to $5,000 per occurrence for each subsequent violation within a five year period.
  • Ohio. Senate Bill (SB25) –  A new bill introduced in the Ohio Senate by Senator Kenny Yuko which would raise the minimum wage from $8.05 to $10.10, expand the overtime compensation threshold from $23,000 to $50,000 in first year, then to $69,000 in following years, and would “create a uniform standard to determine whether an individual performing services for an employer is an employee of that employer.”  The bill is currently referred to the Transportation, Commerce and Labor Committee.

Cases:

  • Cotter v. Lyft and O’Connor  v. Uber – On March 11, 2015 the Northern District Court denied motions to dismiss two separate cases involving rideshare firms Lyft and Uber. The plaintiffs alleged they were improperly classified as independent contractors and should be entitled to wage protections and benefits of employees. Judges Vince Chhabria and Edward Chen reached similar conclusions that given the laws involving the engagement of independent contractors are complex and the facts of the case could support a finding of either employee or independent contractor the cases must go to a jury trial. These cases will be closely watched as they may have a bearing on how well the independent contractor business model holds up for firms who make their revenue from the new “sharing economy.” You can also view our blog post Not so Uber Fast for more details.
  • McPherson v. Google et al. –  Jacob McPherson who was hired as a Site Merchandiser at Google through an Odesk (now Elance) platform. McPherson accepted a position that was capped at 30 hours per week and Odesk paid McPherson as an independent contractor. When his workload increased to the point he could not accomplish his tasks within the 30 hours, he attempted to bill Google for the additional time worked. The complaint alleges he was not properly paid for time worked and was filed as a class action suit alleging that he and other workers were not correctly classified as independent contactors and are due unpaid wages, liquidated damages, pre-and post-judgment interest, and reasonable attorneys' fees and costs. (McPherson v. Google et al., 14-9026, S.D. N.Y., filed Nov. 12, 2014).
  • Awuah v. Coverall North America – Pepper Hamilton has reported that Coverall settled a misclassification case with a class of 166 custodians who Coverall treated as franchisees and were found to be misclassified under Massachusetts’ strict independent contractor laws. The custodians won in federal district court. Coverall appealed, but settled the case one week prior to the date arguments were to be heard in the First Circuit Court of Appeals. Awuah v. Coverall North America, Nos. 13-2190, 13-2274 (1st Cir. Jan. 2, 2015).
  • Shepherd v. Lowes – This was a California case where workers performing installation services for Lowes were found to be incorrectly classified as independent contractors. In January, the U.S. District Court for the Northern District of California approved a $6.5 million dollar settlement, plus attorney’s fees and costs. Shepard v. Lowe’s HIW, Inc., No. 12-CV-03893-JSW (N.D. Cal. Jan. 12, 2015).
  • Hargrove v. Sleepy’s, LLC – In January, the New Jersey Supreme Court unanimously agreed that the test for whether a worker is an independent contractor for the New Jersey Wage & Hour Law (“WHL”) and the Wage Payment Law (“WPL”) is the three-part “ABC test as set forth in New Jersey unemployment compensation law. Failure to meet any prong of the test means the worker should not be classified as an independent contractor. Hargrove v. Sleepy’s, LLC, No. A-70-12 (072742) (N.J. Jan. 14, 2015).

Summary:

  1. Workers are becoming more aware of their rights to overtime wages, benefits, workers’ compensation and unemployment and have scored numerous successes in the courts to assert these rights. 
  2. Federal and state governments are continuing to share audit information, set aside funds to identify non-compliance, and to introduce legislation to help curb the incidences of worker misclassification. 

It is always more cost-effective for employers to correctly classify workers at the beginning of their engagement rather than face the prospect of unpaid taxes, penalties, and costly litigation. 

Cynthia Waddell
Cynthia Waddell

Get to know Cynthia:
Cynthia is a Senior Compliance Specialist at Populus Group. She has over a decade of experience with the 1099 independent contractor issue, including support of Fortune 500 clients.

Cynthia resides in San Mateo, California with her husband Allen, and a very spoiled poodle named Jackson. Like most stereotypical California transplants, she enjoys good wine, great friends, and likes to “do brunch.”

Questions, comments, brunch? Contact Cynthia at [email protected]