Exclusive Interview with Janette Levey Frisch, Founder, The EmpLAWyerologist Firm

Why Classifying Your Gig Workers As Independent Contractors May Not be Right

 

“If the business is, otherwise, deriving all the other benefits of having an employee, then the worker is still probably an employee and the business is opening itself up to liability for misclassification,” says Janette Levey Frisch, Employment/HR Attorney and the Founder, The EmpLAWyerologist Firm. In an interview with HR.com, Janette talks about new trends in gig economy, consequences of misclassifying a worker as an independent contractor, and more.

Excerpts from the interview:

Q: How has Covid-19 impacted the gig economy? What is going to be the implication of this economy on the future of work and businesses?

Janette: Businesses and consumers alike seem to have increased their reliance on the gig economy during the pandemic. The gig economy tends to include a lot of remote work, which we have shifted to in large part as a way of controlling transmission of the coronavirus. For businesses, using "gig workers" or independent contractors has also been a way of keeping costs down during an economic downturn, largely triggered by the coronavirus. While I do believe many businesses will start requiring their employees to return to the worksite, I also believe that we will see more remote work and gig workers post-pandemic than we did pre-pandemic. We saw first-hand that many jobs can, in fact, be done remotely and many employees prefer the convenience of working from home. 

Q: What sort of new challenges will this work culture bring to the worker classification space?  

Janette: Properly classifying workers was already a significant challenge. I am concerned that employers may now use the fact that an employee works from home as a way of arguing they don't "control" their workers and use that as an excuse to classify them as independent contractors. In truth, worker classification is a much nuanced and very contentious issue. Just because someone does a job remotely, and just because you can't stand over your employers every second of the workday doesn't mean that you are not supervising, directing, and controlling their work (a key factor in determining classification, though by no means the only one). Consequently, those workers are likely still employees and not independent contractors.

Q: What are there risks and responsibilities associated with hiring independent contractors? 

Janette: The biggest risks and responsibilities in my opinion are properly classifying them. So many businesses get that wrong. If you misclassify a worker as an independent contractor, you can end up owing back taxes, (federal and state) along with fines and penalties. Also, if you misclassify a worker, you might end up owing unpaid wages and overtime pay. If you are found to owe wages, then under federal law you can also be assessed liquidated damages in the same amount, plus the employee's attorneys' fees, plus your own legal fees. You can also be fined by the State Dept of Labor in each state where you have employees working for not having workers' compensation coverage for each misclassified worker. The Department of Homeland Security can go after a business for not having I-9 forms completed for each such worker. A worker who gets injured while working (whether remotely or on-site) can sue. Workers' compensation limits an employee's recourse to lost wages and medical costs for work-related illnesses or injuries, but if a worker is an independent contractor, workers' comp will not apply. A business can, therefore, face a lawsuit that can result in multi-million dollar verdicts and legal fees. 

Q: DOL (for the purpose of wage) and IRS's (for the purpose of payroll tax) definition of an employee, the ABC Test and individual state legislations, etc., today there are several policies that govern classifications. What are the key factors that employers be mindful of while classifying employees and independent contractors so that they do not misclassify? 

Janette: I think the biggest factor is control, and how much stake the worker has in the business aspects of his/her work. Who is supervising directing and controlling, the work, the work environment, the work conditions? Who decides what clients or jobs the company actually does? Can the worker hire or fire people? Can the worker take on other clients and do his/her work? If a worker is working full-time for the company and is expected not to perform the same work for other clients, s/he is probably an employee. The real challenge is that there is no one determinative factor. I've seen many employers focus on one factor to the exclusion of all others, and therefore, still end up misclassifying workers. Businesses really need to speak with a knowledgeable employment attorney because it is so easy to get this one wrong--and many businesses do.
 

Q: What sort of changes do you expect from the Biden Administration regarding the Independent Contractor Rule in the future?

Janette: We will probably see a shift toward the way things were under the Obama Administration. 

Q: What are the common mistakes that companies do when it comes to classifying work?

Janette: Many companies assume that if they have a worker form an LLC and if they then pay the LLC that the worker is automatically an independent contractor. If the business is, otherwise, deriving all the other benefits of having an employee, then the worker is still probably an employee and the business is opening itself up to liability for misclassification. If the worker is clearly operating as though s/he is running his/her own business (meaning s/he decides what work s/he will or won't take on, takes on or refuses clients, advertises and makes or has a significant role in making business-related decisions) then s/he is probably an independent contractor. However, federal and state wage and hour laws presume a worker to be an employee. The hiring business, therefore, needs to produce sufficient evidence to rebut that presumption.
 

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