August 2019 Volume 1

OPERATIONS & MANAGEMENT

But, not all “ABC states” follow this exact formula. Some use “or” instead of “and.” Some focus Factor B on where the work is performed, e.g., Ms. Smith looks more like an independent contractor if she performs work away from your place of business. And still other states focus Factor B on whether Ms. Smith is required to have a license to perform her work for you. So, it’s a mess, right? It certainly can be, but here are some key takeaways: 1. Meeting the independent contractor status under one test does not guarantee meeting it across the board. In other words, the IRS may agree with you that Ms. Smith is an independent contractor, but a court may disagree. And courts and/or state agencies in states that have adopted at least some version of the ABC test are more likely to disagree with you. 2. Every independent contractor, as a threshold requirement, needs an agreement identifying that status, and how that individual will have control and direction over the work she is doing for you. And you should make sure that the agreement addresses other factors. For example, the contract should be clear that Ms. Smith is an independent contractor, controls her work, is responsible for her own taxes and expenses, and should be required to procure her own insurance (and insurance for anyone who works with her). The contract also should avoid putting unnecessary limitations onMs. Smith’s work. For example, havingMs. Smith agree to protect your confidential and proprietary information should not raise concerns about her status. But, limiting her ability to do other work may be looked at differently. 3. If you have Ms. Smith performing something that you think of as a core business function, and/or if you have her and your employees performing the same work, the independent contractor status may be (or, really, likely will be) called into question by someone. And to the extent you do have some true contractors mixed in with others having more questionable status, you could negatively impact the whole group. Of course, as a lawyer, I have to tell you that these are only guidelines

and not a legal opinion about your specific situation. Each of these situations depends on the particular facts, but all are definitely worth a closer look. We are seeing more and more claims brought by one individual (like Ms. Smith) -- on behalf of a class or collective group -- alleging that she was really an employee. And, as an employee, she (and the group) should have been paid overtime, and/or received employment benefits. These wage claims can come with liquidated damages, penalty awards and fees to the prevailing party and, of course, your own litigation expenses! In short, misclassification can have far-reaching -- and expensive -- effects. P.S. Relatedly, you should be aware of obligations you do have about your independent contractors. In other words, even if Ms. Smith truly is an independent contractor, you still may have to treat her in a comparable manner to employees in certain respects. The most significant may be your obligations to provide a workplace free of discrimination and harassment. For example, New York state recently passed a new law concerning sexual harassment, and required employer policies and training. The model policy there specifically recognizes that independent contractors can be targets of harassment. California also protects non-employees under its anti harassment law. And even more generally, an employer can be held responsible for the harassing actions of its independent contractors. In other words, if you know about it -- even if not your employee -- you have to address it. And practically speaking, you should address it at the outset, setting your workplace expectations (in terms of what is, and is not, appropriate behavior) for both employees and contractors.

Johanna Fabrizio Parker is a partner in Benesch's labor and employment group. Her practice involves representing and counseling management clients in a wide range of complex employment matters, including claims of discrimination, harassment, and retaliation brought under federal and state law, as well as wage and hour claims, and matters involving noncompetition agreements and trade secrets. She can be reached at jparker@beneschlaw.com.

1 They include: (1) instruction; (2) training; (3) integration; (4) services rendered personally; (5) hiring, supervising and paying assistants; (6) continuing relationship; (7) set hours of work; (8) full time required; (9) doing work on employer’s premises; (10) order or sequence set; (11) oral or written reports; (12) payment by hour, week, month; (13) payment of business and/or traveling expenses; (14) furnishing of tools or materials; (15) significant investment; (16) realization of profit or loss; (17) working for more than one firm at a time; (18) making service available to general public; (19) right to discharge; and (20) right to terminate. IRS Rev. Rul. 87-41 (1987-1 CB 296). 2 E.g., McFeeley v. Jackson Street Entertainment, No. 15-1583 (4th Cir. Court of Appeals 2016). 3 “ABC on the Books and in the Courts: An Analysis of Recent Independent Contractor and Misclassification Statutes,” 18 U. Pa. J.L. & Soc. Changes 53, 58 (2015). 4 E.g., Dynamex Operations v. Superior Court, 4 Cal. 5th 903 (Supreme Court of Cal. 2018).

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