Employee or Independent Contractor? The Implications of Microsoft III
by By Dennis D. Grant of Arter & Hadden LLP
Overview
Would you like to accomplish some of your company's tasks with workers where you don't have to verify eligibility for U.S. employment or collect I-9 forms? Where you don't have to collect W-4's, issue W-2's or withhold income taxes? Where you don't have to collect the employee's share of FICA or pay the employer's contribution to either FICA or FUTA? Where you don't have to allow the workers to participate in ERISA-qualified employee benefit plans? Where you don't have to worry about compliance with Title VII, the Pregnancy Discrimination Act, the Equal Pay Act, the ADA, the ADEA, COBRA, the FMLA or WARN? Where you are not liable under the doctrine of Respondeat Superior for the worker's injuring of a third party in the course of his work? Most companies would say: "Sure, where can we get these low-maintenance/low-cost workers?"
The attributes described above are only some of the legal, practical and economic advantages associated with the proper use of independent contractors. Unfortunately, some employers find these advantages too good to resist and mischaracterize de facto "employees" as so-called independent contractors.
Implications
One might ask: "Who cares?" Until recently, the answer was: "The Internal Revenue Service cares." Obviously, an employer's report of an employee's earnings is presumed to be more accurate than an employee's individual return (if any). Further, withholding by the employer creates a more steady cash flow for the government than does the worker's annual return, even if quarterly estimated payments are made. More recently, however, the answer has been: "The misclassified employees care and so do their lawyers." This is because, due to the misclassification, the so-called independent contractors are deprived of lucrative fringe benefits enjoyed by the company's acknowledged "employees."Speaking of lucrative, the Plaintiff's Employment Bar hopes class actions based on such misclassification will be exactly that. Presumptively, the plaintiff attorneys will be compensated with some percentage of the denied benefits recovered. And, depending on the statute of limitations in the state where the employment occurs, liability for the benefits can stretch back for a substantial number of years, assuming the so-called independent contractors were de facto employees during the time period.