Have you Been 1099d? Issues with Employee Misclassification Continue to Grow

Image of 1099 form

Federal authorities work to curb growing problem of employee misclassification

The United States is undergoing a shift in the way business operates. Some call it the rise of the “1099 economy,” named for the tax form freelancers receive.

Instead of classifying their workers as traditional “employees,” companies such as Uber, Lyft, and Homejoy have classified their workforce as “independent contractors.” Many companies find they can profit from this strategy, as it can be a way to evade labor laws and worker benefits, such as having to pay unemployment insurance, Social Security benefits, and minimum wage.

But just because these companies say they are employing independent contractors doesn’t mean it’s so. Courts often look to other factors, including whether the employer had control over the worker, the skill required, the duration of the relationship, the extent of the worker’s discretion over when and how long to work, and the payment relationship

According to the Internal Revenue Service, “anyone who performs services for you is your employee if you can control what will be done and how it will be done.”

Two recent decisions weigh in favor of employees:

For one, on July 15, the U.S. Department of Labor’s Wage and Hour Division issued an Administrator’s Interpretation meant to curb the misclassification of employees as independent contractors. Most workers are considered employees — not contractors — under the Fair Labor Standards Act, which mandates a minimum wage, overtime, and other provisions, the department stated.

When classifying, the ultimate question is whether the worker is “economically dependent on the employer or truly in business for him or herself, the department declared.

Secondly, FedEx recently settled a lawsuit on this issue for $228 million. That suit claimed FedEx did not properly pay or give benefits to 2,300 drivers in California by improperly classifying them as independent contractors.

That case could be bad news for other companies like Uber and Lyft but good news for employees who may find they need the benefits that employees are entitled to, such as workers’ compensation.

Employees are entitled to minimum wages and overtime pay, per the Fair Labor Standards Act. They get compensation for workplace injuries through workers’ compensation. And they are protected against discrimination via state and federal laws. They also can join a union and collectively bargain. Many get health care and other benefits.

Recently, an Uber driver based in Miami was classified by a Florida agency as an “employee” of the ride-sharing company. According to the Miami Herald, driver Darrin McGillis filed an unemployment claim, and the Florida Department of Economic Opportunity determined that he was indeed an employee, not an independent contractor.

Still, many are focused on the bigger issue: Policy reform that restores corporate responsibility for workers. The National Employment Law Project has made employee misclassification the center of one of its campaigns. And recently, Massachusetts Sen. Elizabeth Warren responded to a BuzzFeed News reporter’s question about whether contract workers for on-demand services such as Uber and Lyft should be classified as employees.

While she didn’t answer the question directly, according to BuzzFeed News, she said: “I think there is evidence that increasingly employers use independent contractors not in ways that were originally intended, but in ways that let them treat employment laws differently than they otherwise would be responsible for.

I think that’s a real problem and I think the Department of Labor is looking into this and I think they’re right to do that.”

Lots of money is at stake. An article on Fortune.com points out the connection between the “on-demand” economy and corporate wealth:

These companies “have adopted business models that pass the costs of doing business onto workers themselves and move the wealth their service provides upwards. The on-demand economy has already created its share of billionaires — Uber’s co-founders are worth around $5 billion each, while those who drive for Uber receive meager pay.”

The attorneys at Wenzel Fenton Cabassa, P.A. are experienced in handling minimum wage violations and other issues stemming from employee misclassification, and they are up-to-date on the latest court decisions on this constantly evolving topic.

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