March 22, 2013

Contractor misclassifications continue to put employers at risk

Posted in Independent Contractors tagged , , , , , at 9:06 am by Tom Jacobson

employee-vs-independent-contractorIn a story published today, Employees misclassified as contractors can cost firms a bundle, Minnesota Public Radio reports that contractor misclassifications continue to put employers at risk.  It describes the problem very well, so independent contractors and the companies using them should read it.

For more information on this topic, see my previous articles on independent contractor issues, or contact me at alexandriamnlaw.com or taj@alexandriamnlaw.com.

The comments posted in this blog are for general informational purposes only. They are not to be considered as legal advice, and they do not establish an attorney-client relationship. For legal advice regarding your specific situation, please consult your attorney.

Copyright 2013 Swenson Lervick Syverson Trosvig Jacobson Schultz, PA

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September 28, 2011

Minnesota to cooperate with Feds in contractor misclassification enforcement

Posted in Fair Labor Standards Act, Independent Contractors, Independent Contractors tagged , , , , , at 9:05 am by Tom Jacobson

In memorandum of understanding (MOU) between the Minnesota Department of Labor and Industry (DOLI) and the United States Department of Labor (DOL), the State of Minnesota agreed on September 19, 2011 to coordinate with DOL and the IRS in their efforts to end the problem of employers misclassifying employees as independent contractors (see Labor secretary, IRS commissioner sign memorandum of understanding to improve agencies’ coordination on employee misclassification compliance and education).

The problem is that when an employee is improperly classified as an independent contractor, the consequences are wide-ranging.  For example, unpaid overtime, taxes, eligibility for unemployment benefits, protection under various equal employment opportunity laws, eligibility for leaves of absence, personnel record retention, etc., all come into play.  Because of these intertwined laws (which are all enforced by different state and federal agencies), the DOL spearheaded this attempt to coordinate efforts.  Regarding the MOU, DOL Secretary Hilda Solis said,”We’re here today to sign a series of agreements that together send a coordinated message: We’re standing united to end the practice of misclassifying employees…. We are taking important steps toward making sure that the American dream is still available for all employees and responsible employers alike.”

Other participants in this coordinated effort are DOL’s Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor.  The states of Connecticut, Maryland, Massachusetts, Missouri, Utah and Washington also signed the MOU.  It appears that Hawaii, Illinois, Montana and New York will follow suit.

It’s too early to tell whether this means Minnesota’s DOLI will become more aggressive in enforcing misclassification cases.   However, the MOU certainly confirms that if DOLI finds employees who were improperly classified as independent contractors, the news will likely spread to numerous other agencies, thus compounding the consequences for any violators.  To reduce the risk of liability, employers should carefully examine any existing or proposed independent contractor relationships to determine whether true independence exists under the law.

For more information about this article, please contact me at taj@alexandriamnlaw.com.

The comments posted in this blog are for general informational purposes only. They are not to be considered as legal advice, and they do not establish an attorney-client relationship. For legal advice regarding your specific situation, please consult your attorney.

Copyright 2011 Swenson Lervick Syverson Trosvig Jacobson Schultz, PA

July 27, 2011

When it quacks like a duck, it’s a duck: why independent contractor titles don’t matter much

Posted in Discrimination, Fair Labor Standards Act, Independent Contractors, Independent Contractors, Leaves of Absence, Personnel Records, Unemployment Benefits tagged , , at 10:29 am by Tom Jacobson

I often hear employers and employees describe their relationship as an “independent contractor” arrangement, as opposed to an employer/employee relationship.  When I ask why they believe that, a typical response is that they have agreed to call it that.  A recent Minnesota Court of Appeals decision re-affirms that when it comes to independent contractor status, titles don’t matter much.

The case is Haugtvedt v. FJF Enterprises of Ramsey, Inc.  FJF is a tax preparation and accounting services firm, and Cara Haugtvedt was a CPA for the firm from 2005 until 2009.  At the beginning of their relationship Haugtvedt and FJF agreed that she would be considered an independent contractor.  Haugtvedt was terminated when negotiations for her to buy the business failed.  Haugtvedt applied for unemployment benefits.  The Minnesota Department of Employment and Economic Development (DEED) then performed and audit of FJF and concluded that despite her “independent contractor” title, Haugtvedt was an employee of FJF, and an unemployment law judge (ULJ) ultimately awarded unemployment benefits to Haugtvedt.

FJF appealed the ULJ’s decision to the Minnesota Court of Appeals, which affirmed the ULJ’s decision.  In its review of the ULJ’s decision, the appellate court went through a detailed analysis of the actual working relationship between FJF and Haugtvedt.  The court specifically reiterated that “The nature of the relationship of the parties is to be determined from the consequences which the law attaches to their arrangement and conduct rather than the label they might place on it.”  The court then applied the following five factors to the FJF/Haugtvedt relationship:  (1) FJF’s right to control the means and manner of Haugtvedt’s performance; (2) the mode of payment; (3) FJF’s furnishing of materials or tools; (4) FJF’s control over the premises where Haugtvedt’s work was done; and (5) FJF’s right to discharge Haugtvedt.  The court also applied a laundry list of other criteria found in the Minnesota rules for unemployment claims.  After applying all of these factors, the court agreed that despite her independent contractor title, Haugtvedt was indeed an employee of FJF.

This problem is not limited to claims for unemployment.  A misclassification of an employee as an independent contractor can also result in claims for unpaid wages, overtime, and taxes.  It can also mean that the worker is protected by other laws such as the multitude of laws that provide for leaves of absence, reasonable accommodations for disabilities, maintaining of personnel records, etc.

The Haugtvedt case is another reminder that when it comes to employer/employee relationships, if it quacks like a duck, it’s a duck, even if you call it a goose.  So, make sure you know your ducks from your geese.

For more information about this article, please contact me at taj@alexandriamnlaw.com.

The comments posted in this blog are for general informational purposes only. They are not to be considered as legal advice, and they do not establish an attorney-client relationship. For legal advice regarding your specific situation, please consult your attorney.

Copyright 2011 Swenson Lervick Syverson Trosvig Jacobson, PA

September 7, 2010

DOL targets health care & other industries in FLSA enforcement campaign

Posted in Aggregating Work Hours, Enforcement, Exempt/Non-Exempt Employees, Fair Labor Standards Act, Hours Worked, Independent Contractors, Independent Contractors, Meal Periods, Overtime, Rounding, Travel Time tagged , , , , , , , at 3:35 pm by Tom Jacobson

As a part of its stepped up efforts to enforce the Fair Labor Standards Act, the Department of Labor has taken aim at certain industries.  The health care industry now appears to be one of the DOL’s targets.

In a recent article published in the Workplace Law Bulletin, the Society for Human Resource Management noted that when common FLSA issues permeate an industry, the DOL will target that industry with its enforcement efforts.  In the health care industry, for example, SHRM listed the following common violations:

  • Meal period violations;
  • Rounding time in the employer’s favor;
  • Failing to pay for pre-shift/post-shift time;
  • Mistakes about what is “off the clock” time;
  • Travel time errors;
  • Failure to aggregate work hours;
  • Employee/independent contractor misclassifications;
  • Exempt/non-exempt employee misclassifications.

As a result, some DOL Wage and Hour Division district offices have started local initiatives targeting health care employers.  These initiatives have been costly for non-compliant employers.  For example, the DOL  reported earlier this year that $2.2 million in back wages was awarded to health care workers in New York, while over $2 million was awarded late last year to their colleagues in Connecticut and Rhode Island.

The health care industry is not alone.  SHRM reports that other low-wage industries, such as agriculture, day care, restaurants, garment manufacturing, hotels and motels, janitorial, and temporary help have also been targeted.    Given the DOL’s March, 2010 administrative interpretation that most mortgage loan officers are not exempt from the FLSA’s overtime standards, it appears that the financial services industry is also in the department’s sights.

Although certain industries may be DOL targets, all employers must be aware of what the FLSA requires, for violations can lead to not only DOL enforcement, but also private lawsuits brought by employees or classes of employees.  For these reasons, employment policy development and review, education, training,  and proper record keeping are musts for all employers.

The SHRM article, “Health Care Industry Targeted in FLSA Enforcement,” can be found at http://www.shrm.org/LegalIssues/FederalResources/Pages/HealthCareIndustry.aspx.

The comments posted in this blog are for general informational purposes only. They are not to be considered as legal advice, and they do not establish an attorney-client relationship. For legal advice regarding your specific situation, please consult your attorney.

July 22, 2010

Scent Company Passes Smell Test after DOL Independent Contractor Audit

Posted in Contracts, Independent Contractors tagged , , , , at 11:28 am by Tom Jacobson

St. Croix Sensory, Inc. is a sensory laboratory that specializes in odor testing, training, and sales and rental of sensory equipment. It hires “sensory assessors” to perform odor evaluations. The company enters into a contract with each assessor that states that the assessors are independent contractors and not employees.

These relationships worked well until the Minnesota Department of Labor started sniffing around during a routine audit. After that audit, the DOL determined that the assessors were employees, not independent contractors. The DOL ordered St. Croix to pay unemployment taxes on the wages earned by 37 workers.

Thinking that the DOL’s decision really stunk, St. Croix appealed to the Minnesota Court of Appeals. In its July 20, 2010 decision the COA overturned the DOL’s determination and ruled that the workers were independent contractors.

In its sixteen-page opinion, the COA emphasized that the contracts themselves were not determinative. The COA also stressed that because there is no general rule that covers all situations, each case must be judged upon its own particular facts. The COA then analyzed in detail the five main factors it considered: (1) The right to control the means and manner of performance; (2) the mode of payment; (3) the furnishing of material or tools; (4) the control of the premises where the work is done; and (5) the right of the employer to discharge. The COA also considered thirteen other criteria recognized under Minnesota law.

Ultimately, the COA found that based on the facts in this case, St. Croix’s sensory assessors passed the independent contractor smell test, so St. Croix came out smelling like a rose.

The case is St. Croix Sensory, Inc. v Department of Employment and Economic Development. You can read the COA’s opinion at http://bit.ly/apRUOq.

 

The case highlights how important it is to not rely on just a contract or loose “independent contractor” designations of workers. Rather, the entire working relationship must be considered in light of all of these factors. After all, if workers smell like employees, they are employees even if they are called independent contractors.

The comments posted in this blog are for general informational purposes only. They are not to be considered as legal advice, and they do not establish an attorney-client relationship. For legal advice regarding your specific situation, please consult your attorney.

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