Employees labeled as "independent contractors" often are neither independent” nor real “contractors.” Independent contractors must pass a multi-point legal test before the IRS will consider them to be legitimate independent businesses. Yet Congress’ General Accounting Office (GAO) has estimated that 38 percent of employers examined misclassified "independent contractors."
State and federal court decisions (case law) define what is known as "common law" employment. Common law employment hinges on the question of whether an employer controls or supervises an employee who is labeled as an "independent contractor." In addition to control, there are numerous other factors: hiring, training, location of workplace, who supplies tools and equipment, etc.
This common law is the basis for the IRS's recently modified "3-factor" test. For more details, see www.irs.ustreas.gov search phrase "independent contractor," or visit the following IRS web pages:
Because the misclassification of "independent contractors" often determines whether income and Social Security taxes are collected and paid to the IRS, the IRS has an interest in preventing misclassification. The IRS will investigate complaints by employees that misclassification is taking place. Employees who suspect that they are being misclassified should contact a regional IRS office for more details, or fill out Form SS-8, and return it to the IRS.
Court Gives Go-Ahead for Lawsuit Against Wal-Mart
October 2005 - NEWARK, N.J. -- (Newsday) A federal court has given a green light to a group of misclassifed immigrant janitors to proceed with a lawsuit seeking wage claims from Wal-Mart.
The court dismissed a motion from Wal-Mart lawyers to end the janitors class action suit. The janitors were rounded up in immigration raids at Wal-Mart stores two years ago.
The employees were classified by Wal-Mart as independent contractors, were paid below minimum wage and were not paid for overtime, according to the lawsuit. U.S. District Judge Joseph Greenaway did dismiss several other claims against Wal-Mart, including a charge of involuntary servitude.
The court dismissed a RICO federal racketeering charge, but gave the janitors more time to submit evidence. The janitors' lawyer, James Linsey, said he would refile the RICO charges. The lawsuit includes "several hundred" janitors who worked in stores nationwide.
Wal-Mart spokesman Marty Hires declined to comment until attorneys for the company could examine the ruling. Wal-Mart agreed to pay an $11 million fine in May to end a federal investigation into the use of illegal immigrants at stores in 21 states.
FedEx Drivers Found to be Employees, Not Contractors
Nov. 2004 - In a little-noticed decision, a California court recently determined that 80 FedEx Ground delivery drivers, labeled by the company as "independent contractors," were really FedEx Ground
(FEG) employees, and may be entitled to overtime pay and other damages.
Los Angeles County Superior Court Judge Howard J. Schwab ruled that drivers with single routes, which he termed "single work area"
(SWAs), met the common law definition of employees. Schwab ruled:
- The relationship between FEG and the drivers is a "tightly controlled hierarchical employment model", not a "partnership" as FEG maintained.
- The SWA drivers are "totally integrated into the FEG operation...required to wear uniforms and drive trucks with FedEx logos, and are long-term in years of service."
- Most important of all, the court finds that the work of the SWAs is essential for FEG's core operation, the pickup and delivery of parcels. If lightning were to strike so there would be no FEG, there would in fact be nothing left for the SWAs to do and they would suddenly be bereft of business."
The court has yet to determine damages. FedEx says it plans to appeal
Judge Schwab's ruling.
EEOC FILES SECOND LAWSUIT AGAINST ALLSTATE
October 2004 - The Equal Employment Opportunity Commission (EEOC) has filed a discrimination lawsuit against Allstate Insurance for refusing to consider any dismissed agents for other positions in the company for one year after their dismissal.
The company is also the focus of several earlier outstanding lawsuits charging Allstate with illegally terminating more than 6,000 agents (most over the age of 40) in 2000. Allstate gave the agents a "choice" of dismissal or being converted to independent contractor status.
In the latest case, EEOC charges that Allstate made an exception to a hiring ban by hiring a dismissed agent younger than 40, while not hiring any agents over 40 after the mass dismissal.
For more information, background, and updates on the Allstate case, visit www.allstatecase.com.
US Court Finds In Favor of Garbage Worker in Pension Decision
An Ohio federal district court ruled in 2003 that a supervisor of a garbage route was misclassified as an independent contractor by his employer, Rumpke Container Service, Inc., and was entitled to pension benefits since he met the IRS’s common-law employee test.
The Court concluded that the plaintiff was an employee for purposes of federal pension law (ERISA) even though the route supervisors hired their own employees and other supervisors incorporated themselves and established their own 401(k) and health plans.
The district court ruled that the employee status is a question of law and the employer’s pension plan administrator had a vested interest in determining that the employee was not eligible for benefits.
Home Care Workers Win Employee Misclassification Case
A Maryland state court decided in 2004 that a group of home care workers were employees of a large temp agency for purposes of Maryland unemployment insurance law. The Court made its determination after considering the two-party check scheme the temp agency set up. The case is important because many home care workers across the country are misclassified as “independent contractors.”
The home care clients (senior citizens and disabled) were required to issue a joint check to the temp agency and the home care worker, but the worker could not cash the check w/o the agency endorsing the check. Since the state payments are disbursed through the temp agency (who is responsible for providing the workers, and determines who will work and be paid), the Court found the workers to be employees of the agency for purposes of UI law.
The temp agency also required the workers to sign agreements not to accept or solicit work from the agency’s clients for a year after employment or face monetary penalties. The Court stated the agency retained a degree of power over assignment, pay, and future employment of its workers and therefore it could not demand an exemption for unemployment insurance purposes.
NEW YORK DELIVERYMEN SETTLE MISCLASSIFICATION CASE FOR $3 MILLION.
Deliverymen who often earn just $2 an hour lugging bags of groceries to apartments up and down Manhattan for the Food Emporium supermarket chain will receive $3 million in back pay under a NY Court settlement agreement announced in December, 2000.
Some deliverymen -- most of them immigrants from West Africa -- stand to receive more than $30,000, a windfall some say they will use to go to college, bring loved ones from Africa or move out of apartments they share with as many as five people.
The litigation, brought by the National Employment Law Project (NELP), is still pending against other New York grocery stores. For full New York Times story click
"INDEPENDENT CONTRACTOR" HOME CARE WORKERS WIN IN
October 2001 - the Circuit Court for Baltimore City reversed a State Unemployment Insurance Appeal Board and found that a group of home care attendants who were labeled by a temp agency as "independent contractors" were really employees of the temp agency, and the agency was liable for their unemployment insurance payments and benefits. The Court ruled that the temp
agency "retains a degree of control over assignment, pay and future
employment of its workers."