United States: U.S. Labor Department Awards $10.2 Million To 19 States To Help Finance Their Crackdown On Independent Contractor Misclassification; Four States Get "Bonus" Awards For Improved Detection Results

Last Updated: September 17 2014
Article by Richard J. Reibstein, Lisa B. Petkun and Andrew J. Rudolph

The news from Washington, D.C. yesterday is that the U.S. Department of Labor is funding 19 states' efforts to crack down on businesses that unwittingly or intentionally fail to make unemployment contributions for individuals misclassified as independent contractors. While class actions in court continue to receive the most attention, unemployment proceedings continue to plague many businesses that use independent contractors to supplement their workforce or carry out their business objectives – and the Obama Administration, supported by Congressional funding, is keeping its headlights focused on unemployment challenges to detect and deter independent contractor misclassification.

Labor Secretary Thomas Perez issued a press release on September 15, 2014 that carried out the Obama Administration's continuing efforts to crack down on independent contractor misclassification. As noted in our March 4, 2014 blog post, the President has maintained his Administration's commitment to "[i]ncreasing support for [state] agencies that protect workers' wages and overtime pay, benefits, health and safety, and invest in preventing and detecting the misclassification of employees as independent contractors."  To that end, Congress passed the Consolidated Appropriations Act of 2014 authorizing grant funding of no less than $10 million for "activities to address the misclassification of workers."

Which States Received Grants?

The 19 states that received grants totaling $10.2 million were California, Delaware, Florida, Hawaii, Idaho, Indiana, Maryland, Massachusetts, New Hampshire, New Jersey, New Mexico, New York, Oregon, South Dakota, Tennessee, Texas, Utah, Vermont, and Wisconsin. According to the press release, the funds will be used to increase the ability of state unemployment insurance tax programs to identify instances where employers improperly classify employees as independent contractors or fail to report the wages paid to workers. The states selected for grants will reportedly use the funds for a variety of improvements and initiatives, including enhancing employer audit programs and conducting employer education initiatives.

Four states received "high-performance bonuses" totaling over $2 million: Maryland, New Jersey, Texas, and Utah. According to Secretary Perez, this innovative program rewards states with additional grant funds "due to their high performance or most improved performance in detecting incidents of work misclassification."

What Does This Mean to Businesses Using Independent Contractors?

In February 2013, we published a blog post that focused on how a single claim by one worker can lead to the administrative equivalent of a class action for independent contractor misclassification. Any business using independent contractors to supplement its workforce or to carry out its business model bears the risk that one or more individuals it classifies as 1099ers will file for unemployment benefits or that a state where one of those 1099ers resides will commence an audit of its unemployment and payroll taxes.

Use of independent contractors remains a highly risky business for those companies that do little more than hand those individuals an independent contractor agreement when they commence providing services and a Form 1099 shortly after year's end. Even large and legally savvy companies have tripped over their own feet in the past few years, most notably FedEx Ground, which was the subject of an adverse federal appellate ruling only last month where it was found to have misclassified its drivers as independent contractors.  As noted in an earlier blog post, that courier company's IC agreement was used against the company by the appellate court to conclude that FedEx sufficiently directed and controlled the work by its Ground Division drivers to turn them into employees.

The likelihood that these types of agreements will survive judicial or administrative scrutiny is low – unless the business takes affirmative and comprehensive steps to structure, document, and implement an independent contractor relationship in a state-of-the-at manner that not only serves the company's business objectives but also can withstand a challenge under one of the many federal or state laws governing independent contractor status. While some independent contractor relationships may comply with federal tax or employee benefit laws, they may stand little chance of complying with a crazy quilt of state laws, which can differ greatly from state to state.

Many companies have begun to use IC DiagnosticsTM to restructure, re-document, and re-implement their independent contractor relationships before they receive a summons for a class action lawsuit, a notice for a federal or state administrative audit, or an inquiry from the local unemployment office about an individual who is seeking benefits.  Both an audit and an unemployment claim can lead to the equivalent of an administrative class action, where an unemployment agency finds a single individual to be an employee instead of an independent contractor and orders the business to remit contributions for the employee "and all similarly situated employees."  These proceedings can, in turn, lead to follow-up regulatory challenges by state workers' compensation agencies, state tax commissioners, state wage and hour divisions, and of course the IRS and the U.S. Department of Labor – or a plaintiffs' class action lawyer seeking an array of damages.

As described in our White Paper describing ways that companies can minimize the risks of misclassification liability, there are a number of alternatives that businesses can consider, including re-structuring, re-documenting, and re-implementing their business models, embarking on a voluntary or government-sponsored reclassification, or redistributing independent contractors through the use of a knowledgeable workforce management or staffing firm.

Increasingly, businesses are also making use of IC DiagnosticsTM after they have received a summons, audit notice, or unemployment inquiry.  While pro-active steps are far more likely to produce positive results, a belated start to enhancing independent contractor compliance can serve to considerably mitigate legal exposure and substantially reduce or eliminate risks going forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Lisa B. Petkun
Andrew J. Rudolph
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions