Posts Tagged 'independent contractors'
Employee Misclassification: The Beat Goes On And On And On And…
Wednesday, July 8th, 2015
Bill Clinton used to say that (fill in the blank) would last "until the last dog dies." Well, friends, today's topic is all about a dog that won't die, absolutely refuses to die, will outlive us all, cannot be killed. You get the point.
Eleven years ago (I almost feel like writing "in a galaxy far away"), the Insider started to track the illegal practice of misclassifying employees. We found that, while it was almost ubiquitous in the construction industry, its tentacles reached into other industries as well. We saw it as widespread right in our backyard of Massachusetts. We found a 2005 paper addressing the issue in the Maine construction industry published by the Labor and Worklife Program, Harvard Law School and the Harvard School of Public Health. We conducted employer seminars on it in many states.
At the time, we thought it was a pretty egregious practice that would be hard for state Attorneys General to ignore, so it would probably get fixed lickety split. We were half right. It was egregious, and Ags from the majority of states published stern regulations, as did state Departments of Insurance. But "fixed?" Nope.
Then, in 2005, a national class-action lawsuit with hundreds of plaintiffs from 30 states was filed against FedEx Ground alleging that workers were misclassified as independent contractors. This was mother's milk to us. We had our bogeyman, and his name was Fedex. Since then, we've written about this Dorian Grey issue ten times. Here's an example from 2006
FedEx loses contractor battle in Mass – Last year, my colleague Jon Coppelman blogged that FedEx should beware of Massachusetts when calling drivers "independent contractors." Last week, the Massachusetts Department of Workforce Development ruled that a FedEx ground driver was not an independent contractor, and was therefore illegally denied unemployment benefits. Of course, this opens a can of worms about the denial of other statutory benefits, like workers comp. This is not the end of the lawsuits by any means. FedEx faces ongoing challenges in multiple states. The moral of the story: if you work with independent contractors, be sure they meet state and federal criteria to qualify as such.
Fast forward to now. Specifically, to Wall Street Journal writer Laura Weber's 30 June story "Bosses Reclassify Workers To Cut Costs." Ms. Weber's story manages to be both objective reporting and poignant at the same time. Here's an exccerpt:
Employers have long shifted work from employees to independent contractors, often relabeling the workers and slightly altering the conditions of their work, court documents and settlements indicate. Now, businesses are turning to other kinds of employment relationships, such as setting up workers as franchisees or owners of limited liability companies, which helps to shield businesses from tax and labor statutes.
In response, some state and federal agencies are aggressively clamping down on such arrangements, passing local legislation, filing briefs in workers' own lawsuits, and closely tracking the spread of what they see as questionable employment models.
All this is happening against the backdrop of a broader shifting of risk from employers to workers, who shoulder an increasing share of responsibility for everything from health-insurance premiums to retirement income to job security. Alleged misclassification of workers has been one of the primary battlegrounds of this shift, leading to high-profile lawsuits against Uber Technologies Inc. and FedEx Corp., among others. Both have recently lost or settled big cases. Uber is appealing one decision, and FedEx settled in California for $228 million but is continuing to challenge classification lawsuits in other states.
Today I'm an employee; tomorrow I'm an Independent Contractor; the next day a Franchisee, or, oh, I don't know, CEO of my own one-person LLC. Not only will the dog not die, his bark is really loud.
Very smart people are cooking up these schemes. I ask you – Do you think they are:
Bettering the lives of America's workers?
Enhancing American productivity?
Propelling more workers into the ranks of the dwindling middle class?
Growing shareholder value?
I'd like to know what you think. Write me at tomlynch@lynchryan.com.
Tags: Employee Misclassification, FedEx, independent contractors, workers comp
Posted in Business, fraud, Law, State News | No Comments »
"Calling a dog's tail a leg does not make it a leg": Big court loss for FedEx
Over the years, we've devoted a few dozen posts to the issue of FedEx and its drivers. Here's the issue in a nutshell: FedEx thinks its Ground drivers are independent contractors and the drivers generally disagree.
For the eleven years we've been blogging, this issue has been wending its way through state courts, with a win for the company here, a win for the drivers there. On August 27, FedEx suffered a massive one-two punch at hands of the Ninth U.S. Circuit Court of Appeals in San Francisco, who overturned a lower court's decision in Alexander v. FedEx, ruling that 2,300 drivers were indeed employees. Within a few days, the same court ruled that some 360 Oregon drivers were also employees (Slayman v. FedEx.) In making the ruling, the Court found that when the rubber hit the road, the lower court had overstated the entrepreneurial opportunities factor that benefited the so-called independent contractors. It apparently wasn't enough of a benefit to sway the court.
To paraphrase our illustrious VP, "…this is a big effing deal."
Contractors and small business are being chased down aggressively by state authorities (and rightly so, we think) to make them shoulder responsibility for employment obligations that other businesses carry. But in the land of the giant employers, many use independent contractor and subcontractor mechanisms to shield themselves from workers comp, Social Security, unemployment insurance, the provision of benefits like healthcare and paid vacation, and the obligation to protect workers in a variety of ways.
For your further edification on this important issue, we defer to business and legal experts. We've gathered opinions and analyses from a variety of sources and offer excerpts.
What court rulings against FedEx mean for workers
"It seems likely FedEx will want to appeal the 9th Circuit decisions to the Supreme Court. But it may face some difficulty in doing so, because — even though made at the federal level — the two decisions concern matters of state law rather than federal. Their reach is similarly limited; they apply only to FedEx drivers in California and Oregon. But there's a decent chance the 9th Circuit's decisions will influence future decisions in other jurisdictions. At the very least, they are shining more light on corporations' maddening reluctance to take responsibility for the folks who represent them most directly to the public."
FedEx Latest Company Slammed Over 'Independent' Employees
"What the 9th Circuit did was to apply the more traditional measure. Judge Stephen Trott, a Reagan appointee in a concurring opinion, quoted Abraham Lincoln: "'If you call a dog's tail a leg, how many legs does a dog have?' His answer was, 'Four. Calling a dog's tail a leg does not make it a leg.'" Trott also admonished FedEx for presenting some information out of context and told the company's lawyers that they "would be well advised not to elide the truth, the whole truth, and nothing but the truth."
Reagan Appointee 'Unravels FedEx's Business Model' In Court Ruling
"FedEx is largely credited with having pioneered the "independent contractor" work model in the logistics industry. Under this system, workers function as self-employed drivers with their own routes, covering the costs of their own trucks, gasoline, uniforms and so forth.
While corporations claim the contractor system gives drivers flexibility and strong incentives as "small businesses," critics say it's simply a way to shift the costs of employment onto workers and avoid payroll taxes and workers'-compensation costs.
The basic question in lawsuits involving the independent contractor model is whether or not a company like FedEx still maintains control over the work itself. In Wednesday's ruling, the judges asserted that it does."
Employment Law Summer Recap 2014: Part 1 of 11 – FedEx sings Nico & Vinz's "Am I Wrong"…to Classify Our Drivers as Independent Contractors?
"The decision will likely upend FedEx's driver business model in part because it makes it more expensive for FedEx to operate its business – an added expense that we can expect it will pass along to us, the consumers. Why more expensive? Because, among other things, FedEx will now have to (i) make the required employer contributions on behalf of these individuals (i.e. to Social Security and unemployment benefit funds); (ii) take out new insurance policies (i.e. for workers' compensation insurance); (iii) offer them health insurance and (possibly) pension benefits along with other benefits like paid vacation; (iv) incur the administrative and operational costs associated with treating these individuals as employees (i.e. additional training and development, compliance, etc.); and (v) potentially pay them back for millions in lost wages. Further, these individuals can now sue FedEx under many of the employment laws that did not previously cover them (i.e. Title VII) – yet another potential expense for FedEx."
Who's the Boss
"It has become harder and harder for workers to tell who their employer is. Companies have engaged in vertical dis-integration as franchised businesses have become increasingly prominent and contracting out of operations by traditional firms has increased. The expanded reach of private equity funds as owners of Main Street companies has also undermined the traditional employment relationship.
In both cases, a complex web of legally distinct entities has been put in place whose aim is to separate a business's actual owners and managers from responsibility for the effects of their decisions on workers."
'Seismic' 9th Cir. rulings nix FedEx claim its drivers aren't employees, could cost company millions
"By retaining independent contractors to perform work instead of employees, companies can potentially save a lot of money that would go toward overtime pay and other benefits such as social security. FedEx also has reportedly required its drivers to pay for their own uniforms and trucks. But if companies are determined to have misclassified employees as independent contractors, they can wind up paying not only the original employee costs they avoided but substantial penalties, as an earlier ABAJournal.com post about the FedEx litigation details."
Is this the end of the independent contractor as we know it?
"This case also confirms that if you exercise any control over how workers perform services for you, it is likely that they should be classified as employees, not independent contractors. This distinction is important, because, unlike contractors, employee are subject to a host of employment laws, including the anti-discrimination laws, workers' comp laws, and wage-and-hour (minimum wage and overtime) laws.
While this case only covers employers governed by California law in the 9th Circuit, I would expect the filing of copycat lawsuits under the laws of different states in different courts. In other words, this case is not the final word on this issue. Thus, to answer the specific question I posed in the title to this post, while this case does not necessarily spell the end of the independent contractor, it very well could be the beginning of trend of cases leading down this path."
FedEx Refuses to Treat Your Friendly Delivery Guy Like a Real Employee And an important new court ruling could change that
"This is a classic example of employee misclassification, but such employer malfeasance is not limited to FedEx. It's a nationwide problem that shifts significant costs to workers, eliminates employment-related protections, deprives the government of billions of dollars in revenue and prevents workers from unionizing. On Wednesday, labor earned a big victory when the Ninth Circuit Court of Appeals ruled in two cases that the shipping company misclassified the employment status of 2,300 California drivers and 363 Oregon drivers. It's an important, if limited, step towards rectifying this widespread problem."
Court rejects FedEx Ground's driver business model
"Ross said that FedEx now requires its contractors based in California to hire a secondary workforce of FedEx drivers, who do the same work as the plaintiffs under the same contract. She said the Alexander decision "calls into question FedEx's strategy of making plaintiffs the middle men" between the secondary workforce of drivers and FedEx. "We have heard of many instances where the secondary drivers are earning such low wages that they have to rely on public assistance to make ends meet."
Tags: FedEx, independent contractors, misclassification
Posted in Law | No Comments »
South Carolina: The Bare Essentials of Independent Contractors, Revisited
Friday, September 21st, 2012
Back in 2009 we blogged the fate of strippers at the ironically named King Arthur lounge in Chelsea MA. The club treated the women as independent contractors, but the court found that they were employees and ordered the lounge to pay back wages to the strippers. (I wonder if they were able to collect.) Today we examine a similar situation with a dramatically different outcome: the saga of LeAndra Lewis, a free-lance stripper in the Carolinas.
The 19 year old Lewis worked a network of strip clubs in North and South Carolina. She traveled from one club to another, bringing her own (skimpy) costumes and working on her own schedule. She would approach a given club, uninvited and unannounced, and ask for access to the stage. She would pay an enrollment fee (about $70) and then dance as she wished to dance, collecting tips from the customers. If a given customer really liked her work, he might "make it rain" with dollar bills. At the end of the evening, she would pay a portion of her tips to the club owner. Lewis grossed an estimated $82,000 a year, but no one knows for sure, as she did not bother filing a tax form.
In June of 2008 she found herself working in L.B. Dynasty, DBA Boom Boom Room Studio 54 – you have to love the Studio 54 tag, adding a touch of New York glamour – and some white powder? – to an otherwise marginal venue. A fight broke out while Lewis was in the club. A random bullet hit her in the stomach, causing severe internal injuries. She filed for workers comp benefits; the club did not carry insurance (surely no surprise), so the claim reverted to the South Carolina Uninsured Fund. Her claim was denied on the basis that she was an independent contractor, not an employee of the club.
The Usual Criteria in an Unusual Setting
In its ruling on Lewis's claim, the South Carolina Appeals Court upheld the denial. They used the typical four pronged analysis for independent contractors to determine her work status:
1. The right or exercise of control: Lewis was free to come and go and free to dance as she chose; there were rules of behavior, but these did not constitute an employment relationship;
2. Furnishing of equipment: the court observed that the provision of a stage, a pole and music were practical matters, as a traveling stripper would not be able to bring these to each venue;
3. Method payment: the club did not actually pay Lewis anything, as she herself paid a fee to dance and a portion of her earnings to the club.
[NOTE: As we noted above, Lewis paid no taxes on her earnings, and it goes without saying the club paid no benefits on her behalf.]
4. The right to fire: the court determined that the right to throw Lewis out for violation of club rules did not make her an employee.
Judge Short dissented from the majority opinion, noting instances in other states where strippers were determined to be employees – he did not site the King Arthur Lounge case. But sad as Lewis's story is, and tragic as the results for her have been, the court probably got this one right. Lewis worked as an itinerant stripper, with no real base of operations. She walked into clubs, offered her services, and was given a stage on which to perform. She moved on when she felt like it. Had she been a regular at the Boom Boom Room, she could have made a stronger case. But this 19 year old woman was very much on her own. The money was good while it lasted, but she now finds herself unable to have children and, due her scars, unable to perform her chosen work. Like all truly independent contractors, Lewis was on her own that fateful day in 2008 and she must live with the consequences for the rest of her life.
Tags: Compensability, independent contractors
Posted in Business, Compensability, Disability, State News | No Comments »
Franchisees: Independent Contractors or Employees?
We have been tracking the fate of the FedEx business model in state courts as it collides with increasingly stringent definitions of "employee." FedEx operates under a sophisticated and ingenious contract designed to transform their drivers into "independent contractors." It's been a tough haul. For the most part, FedEx has been losing the argument in courts, state by state, and then delaying any ultimate resolution by filing appeals. Today we examine a similar business model: cleaning operations that are classified as franchises.
Coverall North America is one of the largest franchise cleaning operations in the world, with 9,000 franchise owners, 50 support centers and 50,000 customers. Franchise owners are trained by Coverall, wear Coverall uniforms, use Coverall mandated supplies and receive payment for their work through Coverall. Coverall bills customers and then pays the franchise owners, after deducting management and royalty fees plus any other incurred expenses.
The Massachusetts Standard
Unfortunately for Coverall, they have the burden of demonstrating franchisee "independence" in Massachusetts, which has a very tough, three-pronged standard for independent contracting [Ch. 149, Sec 148B]:
1. The contractor operates free from control or direction
2. The work of the contractor is fundamentally different from the work of the general contractor/owner
3. The contractor operates an independent business and is free to offer services to anyone
Under the MA requirements, independent contractors must meet all three criteria. Coverall first encountered the problem when out-of-work franchisees filed for unemployment benefits. The MA Division of Employment & Training focused on the third prong, determining that franchisees were indeed employees of Coverall, as their work was limited to that secured through Coverall.
In a case brought in Federal Court, franchise owners sought summary judgment against Coverall for the deceptive and unfair labor practice of calling them "independent contractors." U.S. District Court Judge William Young got the case. He focused on the second prong: Coverall had to demonstrate that they were in a fundamentally different business than their franchisees.
Coverall fashioned a clever but ultimately unsuccessful defense: Coverall corporate is not in the cleaning business, but in the franchising business. Coverall corporate trains people who clean offices and Coverall manages the finances of franchisees, but no one in Coverall actually cleans. Judge Young did not buy that argument. He determined that Coverall provides the administration for the franchisees, who provide the cleaning services. One cannot exist without the other. He granted summary judgment to the plaintiffs.
Who Works for Whom?
We are by no means at the end of this seemingly endless attempt to separate independent contractors from employees. What is at stake is pretty obvious: work performed by employees is a lot more expensive than that performed by independent contractors. The lives of most people working as "independent contractors" are difficult; the hours are long, the pay is marginal, the benefits non-existent. And if injured, these folks are usually on their own.
Listen to the names of some of the plaintiffs in this particular case: Aldivar Brandao, Denisse Peneda, Jai Prem, Pius Awuah, Benecira Cavalcante, Nilton Dos Santos. Can you hear exotic music in the names of people born in other lands? And can you hear something more ominous: the dissonence and dislocation of immigration, the struggle to survive in a new land that seemed full of promise from afar, but which has proven to be harsh, stingy and relentlessly demanding?
Welcome to America, employees of Coverall!
Tags: Coverall, FedEx, independent contractors, Massachusetts
Posted in Business, State News | Comments Off on Franchisees: Independent Contractors or Employees?
Amish Roofers: The Coverage is Simply Divine
On a recent drive through rural Ohio, I was startled by an unusual image: a horse and buggy crossing over the interstate on a bridge. Later, at a rest stop, a long line of Amish folks, dressed as if from central casting, stood patiently in line at the Burger King. When they departed, I went up to the counter and asked what they had ordered. "Burgers and biscuits, mostly." The Amish get biscuits from Burger King?
This memory came to mind when reading at Philly.com of a clash involving roofers in the western suburbs of Philadelphia. It seems that the Amish have an unfair advantage when bidding for roofing jobs against non-Amish contractors. The latter must factor in the costs of social security and workers compensation when bidding for work – and as comp practitioners know, the cost of comp for roofers is, well, through the roof. Under federal law, the Amish are exempt from social security; their religion rejects any form of insurance other than Divine. Under Pennsylvania law, they may opt out of workers compensation as well (though some Amish contractors do not). When you factor the costs of these coverages into the work, it's no surprise that Amish bids are routinely 30% or more lower than non-exempt contractors.
In the good times (remember those?), these differences did not matter much, as there was plenty of work for everyone. Today, however, there is a hard-scrabble search for work. Non-Amish contractors complain that the Amish have an unfair competitive advantage.
Lifestyles of the Not-So-Rich and Famous
The Amish also have a lifestyle advantage. They reject many aspects of modern culture. Many, though not all, refuse to operate machinery. Most do not use electricity. They do not have to worry about flat screened TVs, cable, iPods, iPads, cell phones, etc. They cling to a simple lifestyle that explicitly turns its back on what most people think is essential and necessary.
This brings to mind one more image during my brief encounter with the Amish in Ohio. As I was entering the rest stop, an Amish family was exiting. The father, with his wife a few steps behind, led his six children (their families tend to be large). One of the daughters held the hand of the youngest, a sweet blond 4 year old, who was blind. Bringing up the rear came another daughter, about 16, in a long, plain cotton dress that covered her from neck to ankles, over which she wore big, clunky work boots, laced half way up. Her gaze was indefinite, as if she were oblivious to the prosaic surroundings. She was strikingly beautiful.
I could not help but wonder whether she would remain with the culture that nurtured her, or whether she would yield as most of us do to the temptations of the beckoning world, a world full of greed and gadgets, where insurance is an absolutely necessity …and by no means divine.
Tags: Amish, independent contractors, roofing
Posted in Business, Insurance & Insurers, Law, State News | Comments Off on Amish Roofers: The Coverage is Simply Divine
FedEx in MA: Buying Time
Five years ago we blogged the problem FedEx would inevitably run into in Massachusetts, where the definition of "employee" is so inclusive, it's almost impossible to find a truly "independent contractor." Well, the proverbial chickens have come home to roost.
Attorney General Martha Coakley has announced a settlement with FedEx, wherein the delivery giant has agreed to pay a little more than $3 million relating to the status of 13 "misclassified" delivery drivers. Without admitting liability or wrongdoing, FedEx has agreed to refrain from using the "independent contractor" strategy in response to claims for benefit coverage, including payroll taxes, unemployment insurance, and workers comp. In exchange, Massachusetts will refrain from any further legal action for one year. In other words, for the modest sum of $3 million, FedEx has bought itself a year to clarify its business strategy. Therein lies a tale of attorneys, well worth the telling.
FedEx maintains a steadfast commitment to a business model for its ground delivery system where the work is performed by independent contractors. With a healthy scepticism in our hearts, we have frequently blogged the barriers to independence: the drivers wear FedEx uniforms, drive FedEx trucks, adhere to FedEx dress codes and schedules, etc. FedEx ground does not exist without these drivers and that makes them, in effect, employees. The response to the fundamental query "who controls the work?" has been unambiguously, FedEx.
ISP to the Rescue?
As part of its agreement with the Commonwealth, FedEx has outlined its rationale for the independent contractor model. They propose entering into an Independent Service Agreement (ISP) with driver/managers in each service area. Appended to the MA settlement in draft form, the ISP agreement tries diligently to carve out a middle ground where the work is performed independently, but to FedEx standards.
Here are a few of the details:
The local driver/manager must operate under a corporate entity recognized by the state(s) in which he or she operates.
The driver/manager can hire and fire employees and must provide all mandated benefits to employees, including workers comp
Theoretically at least, the driver/manager can be a sole proprietor without employees; in this case, the issue of workers comp coverage is governed by the state statute on sole proprietors (who usually can opt out)
The agreement states that FedEx Ground has no authority to "direct as to methods, manner or means" the provision of services.
The ISP manager has "exclusive rights" in a specific geographic area
While the ISP has the right to decline service, in such cases this triggers the right of FedEx to ensure services
Drivers are not compelled to wear FedEx uniforms or drive FedEx vehicles, but they are paid a weekly incentive to do so.
As you can see, FedEx is trying to establish independence while still maintaining its identity and its standards. The Attorney General has not made any judgment about the validity of this strategy; she has simply cashed a nice check, in exchange for which she has given FedEx a year to work out the kinks. After the year is up, the FedEx model will likely be challenged once again.
Not Quite Independent?
You have to credit the presumably well-paid FedEx team: they have tackled head on the thorny issue of "free from control and direction." On the surface at least, the ISP approach offers a credible if not totally convincing appearance of independence.
Unfortunately for FedEx, the MA standards have two additional components, neither of which appear to be addressed in the draft ISP agreement: independent contractors must provide a service outside of the general contractor's usual course of business (no way FedEx can do this) and their independence is reflected in their marketing of services beyond a single customer (what would this look like?).
It will be interesting to see how FedEx responds when local driver/managers stretch the rules and standards in an attempt to assert some real independence. That's where the rubber will meet the road in this seemingly endless saga: a company with a ferocious need to control, giving up control in order to preserve their idiosyncratic business model.
And some folks say employment law is boring….Stay tuned.
Tags: drivers, FedEx, independent contractors, Massachusetts
Posted in Business, State News | Comments Off on FedEx in MA: Buying Time
Massachusetts Comp: The Power of "Any 3 Persons"
Massachusetts has been in the forefront of the independent contractor issue. The state has narrowed the definition of "independent contractor" to the point where almost anybody can be defined as an employee. But how do you enforce this? Where is the leverage to confront employers who are avoiding comp premiums by misclassifying their employees as independent contractors?
Under the direct influence of labor unions, the Commonwealth has empowered "any 3 persons" to take action against suspected comp fraud. Governor Deval Patrick recently signed a law that allows any 3 people to file suit against an employer who fails to comply with the workers comp statute. If that sounds pretty broad, well, it is. Here is first section of the new law:
Whenever facts exist showing that an employer has failed to comply with this chapter, then any 3 persons may bring a civil action and that civil action shall be deemed a private attorneys general action….Plaintiffs shall prove a violation of this chapter by a preponderance of the evidence.
I do wonder what those "facts" and the supporting evidence might look like. Beyond that, this language invites lawsuits for any violation of the workers comp statute, a very wide parameter of possibilities, indeed. The focus, however, will be on premium fraud: deliberate misclassification of employees; paying people under the table; and failing to carry workers comp insurance altogether. The plaintiffs can collect up to $25,000 in unpaid premiums and an additional $25,000 in damages, plus "costs and reasonable attorneys fees."
These suits must be filed no sooner than 90 days after a policy ends (how would the "3 persons" know this date?). Then the process will take an additional 90 days. So six months after the policy ends, all hell breaks loose.
Bitter Remedy
Where are the "3 persons" likely to come from? I'm guessing that disappointed bidders on (increasingly rare) construction projects are likely to team up with disgruntled (former) employees of the successful bidder to form a merry band of 3. You might find three laid off employees/independent contractors jumping in to get back at their former bosses. Heck, the standard of "3 persons" is so low, this game is not much more difficult than playing the state lottery.
It will be fascinating to watch this new statute roll out. Simmering rivalries are going to boil over. The frictional cost of doing business in the Bay State is about to go up. The ultimate question, of course, is how effective this new weapon against premium fraud will be. To the extent it exposes unfair business practices, it will help level the playing field for all Massachusetts employers. But given the broad and ultimately vague language of the enabling statute, there is plenty of opportunity for abuse in this cure for abuse. From a blogger's perspective, of course, it's just about perfect.
Tags: construction, independent contractors, Massachusetts, misclassification
Posted in Business, State News | 2 Comments »
Independent Contractors and the (Deadly) Spirit of 1706
Monday, February 22nd, 2010
Joseph Stack set his house on fire and then piloted a small plane into a building housing the IRS in Austin, Texas. His daughter calls him a hero. Most of us would call him a terrorist. But whatever you call him, he was motivated in part by section 1706 of the 1986 Tax Reforms. Stack was a software engineer, and thus was directly impacted by the following language in the statute, which forbids the hiring of software engineers as independent contractors:
(d) EXCEPTION. – This section shall not apply in the case of an individual who pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work.
As a result of this unusual and highly specific language, programmers are almost always compelled to work as employees. Unlike the situation for most workers – who may or may not meet the criteria for independence – there is virtually no wriggle room for engineers.
Stack's self-identity as a tax protester goes deeper and taps a rich pathological vein. Envious of the tax exempt status granted to religious organizations, he tried to establish his own church, in his own home. Ten years and $40,000 in tax liabilities later, he gave it up. But he surely did not forget, nor did his daughter, Samantha Bell, who appears to be the last remaining worshipper at the defunct church.
Bell concedes that her father's actions were "inappropriate." Nonetheless, she considers him a hero for taking a stand for "justice." Some stand, some notion of justice! In addition to his own life, Stack's violent act took the life of IRS manager Vernon Hunter and had the potential for killing many more innocent people.
Ironically, the national consensus building around independent contractors is quite the opposite of what Stack envisioned. There is a concerted effort at the federal and state levels to view most working relationships as employer/employee. The burden of proof has shifted onto the companies (most notoriously, FedEx) that try to avoid taxes by calling people "independent contractors."
Joseph Stack might have thought himself a martyr for the cause of tax reform. He is surely something else: a symbol of the violence, fanaticism and rage that threatens to destabilize the most enduring democracy the world has ever known. Not exactly my idea of a hero.
Tags: independent contractors, Texas, violence
Posted in Business | 1 Comment »
"Exclusive Remedy" for Losing Your Face?
Usually employers try to prove that someone is not an employee, in order to avoid the workers comp liability. (Think "independent contractor.") Today we examine a truly horrific case where the employer is desperate to establish compensability under workers comp, so that a grieviously injured employee can only collect comp benefits. By using the "exclusive remedy" provision of comp, the employer wants to avoid liability for pain and suffering. Some pain, some suffering!
Sandra Herold runs a towing company out of her house in Stamford, Connecticut. The company had a mascot – a 200 pound chimpanzee named Travis, who lived with Herold. I do mean lived with her: according to reports, they shared wine at candle lit dinners and shared a bed as well (no further comment possible).
Charla Nash occasionally worked for Herold, in an unspecified capacity. In February 2009, Herold called Nash and asked her to come by, as she was having trouble controlling Travis. As soon as Nash arrived, Travis attacked her, ripping off her face (literally). She lost her eyes, nose and mouth in the horrendous attack. (While images of her ravaged face are available on the internet, I do not recommend viewing them.) Police eventually were able to shoot the chimp.
Nash somehow survived the attack and is suing Herold for $50 million; a second suit against the state of Connecticut seeks an even larger amount, alleging negligence in allowing Herold to keep the animal in her home. (It is worth noting that no criminal charges have been brought against Herold.)
Exclusive Remedy?
Herold's first line of defense is establishing workers comp as the "exclusive remedy." She claims that Nash is an employee and thus is prohibited from suing her "employer." While it may be premature to judge this particular strategy, it seems highly unlikely that Herold will prevail. Even if she can show that Nash was on the payroll, it is clear that Nash was not working on the day of the attack; Herold had called her and asked her to come over to help with Travis. And even if it can be proven that Nash occasionally helped out with Travis, it is unlikely that her job description included the duties of an animal trainer (for which she is not qualified).
In the unlikely scenario that this case is limited to workers comp, the claim will run in the multiple millions: comp will have to pay for Nash's humongous medical bills – including a face transplant – and support her astronomical living expenses. This is a permanent total injury, so the indemnity portion may also be substantial. (If I were Herold's comp carrier, I would aggressively deny this claim as not being work related.)
Herold is banking on a judicial process that finds having your face ripped off by a 200 pound beast is simply part of the job, part of the "assumption of risk" we all accept simply by showing up for work. (If that were the case, how many of us would be willing to report to work?) Herold's house-of-cards defense will collapse with the most humble of gestures: Nash revealing her destroyed face to a jury.
Exclusive remedy is an important concept, one well worth preserving, but in this situation, it has no place. Herold must be held accountable for the actions of her late companion, Travis – anything less would be a travesty.
Tags: animals, Connecticut, exclusive remedy, independent contractors, wildlife
Posted in Compensability | 3 Comments »
A Matter of Time: Independent Contractors Morph into Employees
We turn yet again to the ever-troubling issue of independent contractors. In today's case we examine a situation where two individuals, beginning as legitimate independent contractors, morph over time into employees. It's a cautionary tale that demonstrates what is true today may no longer be true tomorrow.
Fred Cromwell and Jeff Bankston became involved in the restoration of damaged telecommunication lines along the Mississippi Gulf Coast in the wake of Hurricane Katrina. They were hired as independent contractors by Driftwood Electrical, a subcontractor of BellSouth. Cromwell and Bankston provided their own trucks, testing equipment, connection equipment, insulation equipment and hand tools – a total personal investment of $66,000. BellSouth supplied materials, including cables.
Each day Cromwell and Bankston reported to BellSouth's location to receive their assignments. They worked 12 hours a day for thirteen days and then had one day off. (Tough working conditions, indeed.) They were paid a fixed hourly wage for their work and labored under these exhausting conditions for about 11 months.
At issue is the rate of pay: Driftwood paid them a set hourly rate. (They also, we note with interest, provided workers comp coverage.) Cromwell and Bankston sued for overtime pay under the Fair Labor Standards Act (FLSA). A district court granted summary judgment against Cromwell and Bankston on the grounds that they were independent contractors, not employees, and thus exempt from the overtime provisions of the FLSA. The U. S. Fifth Circuit Court took up the appeal.
The court found that Cromwell and Bankston were to a significant degree independent contractors:
– They controlled the work, with no direct supervision from Driftwood
– They provided their own tools
– They could theoretically work for others (although they did not)
The court also found, however, that in comparing this case to others, there were significant differences:
The plaintiffs in this case worked full-time exclusively for the defendants for approximately eleven months…The plaintifs did not have [a] temporary, project-by-project, on-again-off-again relationship with their purported employers.
While the court found "facts pointing in both directions" regarding the issue of employment status, they determined that on balance, and as a matter of economic reality, Cromwell and Bankston were economically dependent upon Driftwood and were not in business for themselves. "The permanency and extent of the relationship [with Driftwood], coupled with Driftwood's…complete control over…schedule and pay, had the effect of severely limiting any opportunity for profit or loss by Cromwell and Bankston."
Thus, even though Cromwell and Bankston controlled the details of the work, were not closely supervised, invested in equipment and tools and used a high level of skill in performing the work, they were not "in business for themselves" during the eleven stressful months of Katrina clean up. The judgment of the district court was vacated and the case was remanded back to that court for reconsideration.
The Lessons of Time
The lessons here are clear: even when virtually all the criteria for independence are met, independent contractors may still be considered employees, especially where they work for a substantial block of time for only one employer. The case serves as a warning to contractors going forward: if your "independent contractors" only work for you over a substantial period of time, they are likely to morph into employees, with all the rights and considerations attached to that fundamental and eternally-perplexing relationship.
NOTE: A special thanks to Michael Maslanka, a Texas attorney blogging at WorkMatters, for highlighting this case. His blog, just celebrating its one year anniversary, is an excellent resource.
Tags: independent contractors
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