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Independent contractor misclassification can result in big fines

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in Centerpiece,Employment Law,Human Resources

A recent settlement shows just how much the U.S. Department of Labor dislikes seeing employers game the system by trying to classify employees as independent contractors. In late November, a federal judge in Oregon approved an agreement that pays out a $3.2 million settlement, to be split among 120 courier drivers who were unlawfully classified as contractors.

It’s a sign that DOL isn’t backing down from aggressively pursuing employers who skirt the Fair Labor Standards Act.

The case involved three Portland delivery companies—Driver Resources, Senvoy and ZoAn Management—all owned by a single individual. The DOL accused him of violating the FLSA’s minimum wage and overtime requirements by creating the companies to skirt the law and requiring drivers to become independent contractors.

The drivers all signed on as independent contractors with Driver Resources, which then assigned them to drive for Senvoy or ZoAn. Once they began working, they were charged for expenses such as gas and vehicle maintenance while using their own vehicles to deliver for Senvoy.

In addition to back pay for minimum-wage and overtime violations, the court-supervised settlement requires the companies to immediately classify all drivers as employees. A third party will audit their employment practices in the future.

In announcing the settlement, the DOL noted unscrupulous employers that misclassify employees as contractors put honest competitors at a disadvantage. It also noted that misclassifying employees as independent contractors makes it harder for states and the IRS to collect appropriate tax payments.

Final note: It is possible to convert employees into independent contractors if they are truly going to be independent contractors. That means, among other things, that the former employees are free to work for other entities, truly run their own businesses and are able to perform services with minimal supervision.

But simply calling workers independent contractors and then shifting costs to them isn’t going to work. Always get legal expert help when converting existing employees into independent contractors or signing on new workers to be independent contractors.

{ 1 comment… read it below or add one }

Kari L Collins February 4, 2019 at 2:09 pm

I recently worked for a short time, 2 months give or take a week, part time at a convenient store. I never had to fill out any paperwork . Brought my drivers license and SS card with my daily and asked if I could copy them for him so I wouldn’t get pushed back a payday. On day 5 he said, exasperated “Fine! You want me to have it? Go ahead and tell me your SS # and I will put it in the system right now. So I did and he typed something at the computer but could not see what he was doing. I did get paid just like the other two employees, and then I understood why he didn’t want my info. We were given a print out of our log in and out times along with any purchase slips of items we bought on credit attached. time worked minus what we owed. I am 54 and want to retire someday with a SS check so I want to pay taxes. Plus we clock in and out on the computer. If ever audited, we all face fines. I tried to talk to him about it to learn that if it was wrong, I’d have better luck talking to the lamp post. Then I had a mild heart attack and could go back to work after 3 or 4 days. But he no longer needed me because the employee I replaced was back home from rehab and was put back to work. He told me to take a full week off to make sure I was ok. I did but was then told he had already done the schedule for the following week, he would put me back in the next week, the next week he told me the same thing. Each time I had to go in and catch him there in person as he quit taking my calls or replying to my text msgs. Broke, hungry, needed meds, I stop to get a can of dog food on credit and the girl working says, “Boss told me not to give you credit that you wont be working til Summer when it gets busy. Nothing I can do about it because I was a “Contractor” and not an “Employee”. Turns out he doesn’t do 1099’s either! As far as the IRS knows, we don’t even exist. Only workers are he and his partner who runs their other store. I don’t want to get in trouble. I have my print outs from paydays. Can I use them to pay what I’m supposed for the money I made there?

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