Improper classification of an employee as an independent contractor can lead to issues under a host of federal and state laws. For example, companies can expose themselves to minimum wage and overtime claims, wage payment claims under state law, benefits claims, liability for unemployment benefits, employment tax issues, workers’ compensation claims, occupational health and safety claims, and unfair labor practice claims.
Moreover, improper classification can lead to allegations that the individual was denied legal rights to medical leave under the Family and Medical Leave Act, disability rights under the Americans with Disabilities Act, and protection from discrimination and retaliation under Title VII of the Civil Rights Act, among other protections. Companies should keep in mind that individuals asserting these claims will be able to choose the laws under which they will challenge their classification.
For example, some individuals are electing to challenge their classification under Section 7 of the National Labor Relations Act, which applies to all non-governmental entities — including non-union companies — and guarantees employees the right to engage in certain protected, concerted activity. Individuals are choosing the NLRA as their vehicle to relief because the National Labor Relations Board can order reinstatement and back pay without the necessity of going to court, providing an inexpensive and quicker route to recovery.
Companies may wonder how the various federal and state bodies responsible for enforcing these laws will learn of potential violations. Often issues are reported by current or former independent contractors claiming misclassification. In addition, the U.S. Department of Labor will likely ask about a company’s independent contractor relationships when otherwise engaging with a company through an audit or investigation. The DOL has made independent contractor misclassification a high priority, as evidenced by its guidance issued in July 2015 concerning the Fair Labor Standards Act’s broad definition of “employ” as “to suffer or permit to work,” which results in most workers being employees. See U.S. Department of Labor, Wage and Hour Division, Administrator’s Interpretation No. 2015-1 (July 15, 2016).
To better achieve the DOL’s enforcement goals concerning independent contractor misclassification, the DOL has entered into partnerships with 37 states to combat misclassification through information sharing and coordinated enforcement. While Indiana has not entered into such a partnership with the DOL, when an individual complains of potential misclassification in Indiana, the complaint is shared with the Indiana Department of Workforce Development, the Indiana Department of Revenue, and the Indiana Worker’s Compensation Board. This means that a complaint of misclassification could have a domino effect, causing more agencies to be involved, more violations to be found and more financial and legal consequences for a company.
Read the full story at Adolay: The consequences of improper employee classification | The Indiana Lawyer