Employee Or Independent Contractor? Avoiding Misclassification Of Worker Status — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Employee Or Independent Contractor? Avoiding Misclassification Of Worker Status

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Last week, New York Governor Eliot Spitzer announced a new Executive Order to address the problem of employee misclassification. Effective immediately, the Executive Order creates a Joint Enforcement Task Force that will work to strengthen enforcement and avoid duplication of efforts by sharing relevant information and coordinating investigations and enforcement actions. The Task Force will issue a report to the Governor annually on February 1, detailing its actions and suggesting potential legislative or regulatory changes in this area.

The Governor's press release cited a recent study by the School of Industrial and Labor Relations at Cornell University that estimates that approximately 10% of workers in New York are misclassified (15% in the construction industry).

All employers should be vigilant about the use of the independent contractor label. Misclassifying employees is detrimental to the employees, to other business, and also to the company itself. Businesses that are caught with misclassified workers may be held liable for damages.

Late last month, a Southern California company was ordered to pay over $4.5 million in back wages and damages to 385 current and former employees that it had misclassified as independent contractors. The federal Department of Labor had filed an FLSA lawsuit alleging that the misclassification resulted in minimum wage and overtime violations, and that the company failed to keep accurate records of the employees and the hours they worked.

Also last month, FedEx lost an appeal of a California trial court decision that ruled that its drivers were employees, rather than independent contractors. Total damages: Approximately $11 million. Working against the company: The work performed by the drivers was wholly integrated into FedEx's operations. The drivers had to use specific scanners and forms that were distributed by the company and had the company's logo on them. The drivers were required to work full-time on regular schedules and regular routes, and FedEx managers could unilaterally change drivers' routes without regard to the drivers' loss of income. The appeals court commented on the control FedEx had "over every exquisite detail of the drivers' performance," including sock color, hairstyle, and uniforms.

The amount of control employers exert over workers is just one factor that determines whether a worker is an FLSA-covered employee or a true independent contractor.

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