In these economic times, employers are classifying more workers as independent contractors in an effort to save costs, but employers should be warned that companies adopting this strategy may be abusing classification rules-and State and Federal entities are noticing.
In June, eight attorneys general sent a letter to FedEx Corp. expressing concern about the company’s practice of classifying drivers as independent contractors. This warning follows the 2008 misclassification ruling by the California Supreme Court that cost the company $26.8 million.
The Montana Supreme Court also recently ruled against a company for misclassifying its staff of exotic dancers. In May, the court held in Smith v. TCAD Inc. that the dancers were employees and were entitled to wages for all hours worked, plus overtime.
Similarly, the U.S. Court of Appeals for the Second Circuit, addressed the issue in the 2008 ruling Salamon v. Our Lady of Victory Hospital. In this case, the doctor plaintiff had presented a genuine issue of material fact as to her employment status. The court vacated summary judgment in favor of the hospital, which had argued that the doctor was an independent contractor, not an employee, and could not therefore make a claim for sex discrimination under Title VII.
Even Congress is weighing in. According to Rep. James McDermott, Congress is introducing a bill that would amend the Internal Revenue Code of 1986 “to modify the rules relating to the treatment of individuals as independent contractors or employees.”
All this scrutiny means it’s paramount for employers to ensure that they are properly classifying their workers.