How to Avoid Misclassifying Independent Contractors

I just finished preparing an upcoming presentation for the National Business Institute on independent contractors.  To determine whether a worker is an independent contractor, the courts and agencies apply a number of complex tests that focus on different factors.  The consequences of misclassifying an employee as an indpendent contractor can be significant including back taxes, back pay, fines, penalties, interest, attorneys’ fees, and liquidated damages.

I like Kathleen Barrow’s take on the issue in an article she wrote for the Society for Human Resource Management.  She gave an easy-to-apply example that incorporates many of the complex factors that the courts and agencies look at.  She calls it the “Joe the Plumber” test:

A plumber is someone a company calls to fix a unique problem. Assuming the company is not in the plumbing business, the duties the plumber performs are neither central nor critical to the company’s ability to make a profit. The company calls the plumber only when events trigger a need for services. The plumber has a number of clients, the company being one of many that the plumber assists in a similar manner. The plumber advertises his or her services to third parties, drives his or her own truck, and brings his or her own tools to the workplace to perform the required job. The plumber would go out of business, not the company, if the plumber is not good at what he or she does.

The more your situation is like that of “Joe the Plumber” example, the more likely it is that you have a contractor relationship rather than an employer-employee relationship.

Here is my list of Best Practices to consider when structuring a relationship so that it is more likely to be deemed a contractor relationship rather than an employer-employee relationship:

  • Avoid having the independent contractors perform work vital to the company’s core business.
  • Avoid having independent contractors perform the same work as employees.
  • Have a written agreement.
  • Require some type of “cause” for terminating the agreement rather than “at will” agreements.
  • Require the independent contractor to have a business license and any professional licenses and to provide you with a copy.
  • Obtain copies of insurance certificates.
  • Obtain a copy of a signed W-9 form.
  • Create a structure under which the independent contractor has a substantial risk of loss and profit.
  • Require the independent contractor to provide his or her own tools and equipment.
  • Require the independent contractor to pay his or her own expenses.
  • Require the independent contractor to perform services for others as a practical matter and not just as a matter of contract.
  • Avoid training the independent contractor.
  • Avoid directing the independent contractor how to perform the work.
  • Avoid requiring the independent contractor to have constant contact with the company, to regularly come to the company’s location, or to attend meetings.
  • Avoid requiring regular status updates from the independent contractor.
  • Permit the independent contractor to reject work.
  • Do not require the independent contractor to personally perform the work.
  • Require the independent contractor to be responsible for damages caused by its actions.
  • Pay the independent contractors by an invoice with the independent contractor’s federal tax identification number.
  • Pay the independent contractor by the project, a fixed fee, achievement of goals, or some other method other than by the hour.
  • Require the independent contractor to obtain workers’ compensation insurance and provide evidence of the coverage.
  • Use language in communications that is consistent with a contractor relationship and not an employment relationship.
  • Contract for project or other discrete period rather than for regular or continuous services.
  • Allow the independent contractor to set hours of work.
  • Manage for results and avoid giving instructions about how to achieve the result.
  • Keep independent contractor files with other vendor files and away from employee files.
  • Collect evidence indicating independent contractor status such as business cards, yellow page ads, and other marketing material.
  • Do not have independent contractor complete employee application.
  • Do not provide the independent contractor with an employee handbook.
  • Do not provide the independent contractor with employee benefits.

Protecting Employees from Workplace Violence

The horror in Connecticut today reminds us of how real the danger of workplace violence is.  It was not that long ago that a former employee here in Seattle was convicted of killing two coworkers and wounding two others at a local shipyard.

Dennis Schwartz, himself in Connecticut, provides some valuable insights about workplace violence on his Connecticut Employment Law Blog and suggests steps employers can take to address the danger.   Among his suggestions are:

  • Provide training to employees. Recognizing the signs of potential workplace violence is crucial to any prevention campaign. Teach employees of the “warning signs” to look for and ensure that employees are sensitive to this area.
  • Encourage an “open door” policy. Much like New York Transit’s “If you see something, say something” slogan, the employer should encourage employees to report potential safety risks or unusual behavior.
  • Don’t be afraid to contact the police. Some employers take the view that they can handle a matter “internally”.  Resist the urge. Contact law enforcement when appropriate; they may already have information on the subject that would help with an existing case or have knowledge of a prior history.  Obviously, not all incidents rise to that level, but some do.
  • Take incidents seriously.  While some employers have instituted “zero tolerance” policies, a one-size-fits-all policy may not be appropriate. Employers should consider what type of approach they want to take to workplace violence incidents or incidents of lesser severity that still indicate a problem.  Employers should immediately respond to such incidents when they happen.

To his suggestions, I would add considering consultation with someone experienced in threat assessment.  For example, I have worked with James S. Cawood out of San Leandro, California a couple of times.  He did an excellent job of helping realistically assess the specific nature of the risks posed by employees based on our specific circumstances rather than on just a generalized fear.  With his help, our responses were appropriately tailored to match the nature of the actual risks we faced.

Providing Breaks for Nursing Mothers

Buried in the many pages of the Patient Protection and Affordable Care Act signed into law on March 23, 2010, is a provision amending the Fair Labor Standards Act, which covers most employers,  to require employers to provide employees with break time to express milk.  The Department of Labor recently issued a fact sheet that provides guidance on the law.

Under the new law, employers are required to provide “reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk” and “a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.”  The frequency and duration of the breaks is left open-ended;  essentially as much time as needed by the mother is required.

The location for nursing does not have to be dedicated for just nursing, but “it must be made available when needed in order to meet the statutory requirement.  A space temporarily created or converted into a space for expressing milk or made available when needed by the nursing mother is sufficient provided that the space is shielded from view, and free from any intrusion from co-workers and the public.”

The break time can be unpaid, and the requirement applies only to non-exempt employees.   Also,  employers with fewer than 50 employees are not subject to this requirement if providing a break would cause an undue hardship based on factors such as the size, financial resources, nature, and structure of the employer’s business.

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Accommodating Disabilities Affecting the Ability to Commute

Two recent cases show that employers must consider accommodating employees with disabilities affecting the ability to commute.

In Colwell v. Rite Aid, a cashier became blind in one eye, which made it difficult and dangerous for her to drive at night.  Colwell sued for failure to accommodate her disability when Rite Aid refused to schedule her for only day shifts.  The trial court concluded  that Rite Aid had no duty to accommodate Colwell’s limitations concerning her commute because the Americans with Disabilities Act was designed to only cover an employee’s ability to work in the workplace.  The Third Circuit disagreed.  It wrote:

… we hold as a matter of law that changing Colwell’s working schedule to day shifts in order to alleviate her disability-related difficulties in getting to work is a type of accommodation that the ADA contemplates.

On July 21st, the Ninth Circuit Court of Appeals reached the same result in a similar case.  In Livingston v. Fred Meyer Stores, a wine steward with a vision impairment that affected her ability to see after dark asked for a modified schedule during the fall and winter to minimize after dark driving.   She was discharged after she refused to work her scheduled late shift.

Following Colwell, the Ninth Circuit said that an employer has a duty to accommodate an employee’s limitations that affect the ability to get to and from work.

These cases make clear that employers should consider modifying an employee’s schedule when a disability is affecting the employee’s ability to commute.  Just how far the duty to accommodate commuting issues extends, though, is unclear.  For example, what if an employer has multiple locations in an area and the employee has a long commute.  Must the employer consider transferring the employee to a location closer to home if the employee has an impairment that limits the amount of time that can be spent driving?  Does it matter if there is public transportation the employee could use?

We will have to wait for other cases to understand the full scope of an employer’s duty.  For now, employers faced with accommodation requests concerning commuting should consider whether the accommodation is a reasonable one and whether providing it would cause the employer an undue hardship.

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