Every year, employees bring thousands of cases alleging misclassification under the Fair Labor Standards Act. Under the FLSA, contractors and employees are given different legal status. Employers who misclassify workers as “Independent Contractors” rather than employees can evade certain responsibilities, including benefits, workers compensation, and other compliance issues. Workers as well as business owners must be aware of the legal differences so that employees are properly classified and compensated.
While an employee performs duties controlled by the employer, is provided training, and only works for one employer, independent contractors maintain an independent status. This can be demonstrated through an independent business name, having a business checking account, invoicing for completed work, having more than one client, setting his or her own hours and maintaining business records. Businesses can benefit by classifying workers as independent contractors because they can reduce labor costs, prevent liabilities, and have flexibility in training and hiring.
Unfortunately, misclassification of employees has become an increasing problem, leaving legitimate employees unprotected and creating unintended legal consequences for businesses. Employers who misclassify an employee can be held liable. As a result of Fair Labor Standards Act misclassification, employers may be forced to:
- Pay workers’ compensation benefits for misclassified employees
- Provide benefits for health insurance and retirement
- Reimburse employees for overtime and minimum wage
- Pay back taxes, including penalties for federal and state income, Social Security, Medicare and unemployment
The legal test for independent contractor can be complicated, and there is no single rule. There are some guidelines, but primarily courts will evaluate the amount of control an employer exercised over the completion of work. Some considerations include the permanency of the relationship, the contractor’s opportunities for profit and loss, the extent to which the services rendered are an integral part of employer’s business, and the amount of alleged contractor’s investment in facilities and equipment.
In Ross v. Jack Rabbit Services, LLC (W.D. Ky March 14, 2014), a roadside assistance technician alleged that the Defendant-Employer wrongfully classified him and other technicians as independent contractors. Because of this misclassification, the employer failed to pay proper compensation to technicians. The technician sought conditional class certification, requiring that he make a modest factual showing that the class is similarly situated, which was granted by the court. The court also granted approval to notify potential class members. This case could potentially recover hundreds of thousands of dollars in lost compensation to members of the class.
If you suspect that you have been misclassified or you want more information about independent contractor versus employee status, please contact Wanta Thome PLC. Our lawyers are committed to helping workers protect their rights in any employment legal dispute. For more information or to speak with one of our attorneys about misclassification, please call 612-252-3570.