This morning, one news station was reporting on the rise in freelancers. In the piece, the reporter interviewed a young entrepreneur whose previous employer went bust. He formed his own company, bringing all former co-workers onboard as “freelancers”. As he talked further about the new company’s operating model, he clearly described a situation in which his “freelancers” were actually misclassified employees!
Over the past three years, the Department of Labor (DOL) has repeatedly discussed its increased efforts to pursue employers and recovers back wages for misclassified workers. However, new cases keep emerging and new class action suits are being filed as misclassification appears to continue unchecked (or unclarified). One would think that the stringent nature of the penalties associated with misclassification is a sufficient deterrent to willful misclassification. But is it?
Let us look at some of the recent rulings and cases awaiting a decision.
While many employers effectively classify individuals working in traditional environments by applying IRS guidelines, a new facet to the issue has emerged that further increases the complexity of independent contractor classification. The massive, open and online collaboration made possible by the World Wide Web creates a new model for conducting work and for retaining services. The web gave rise to the open source movement, in which individuals around the globe would contribute their ideas and efforts to create software and products that would be “in the public domain”. Unfortunately, not all such efforts continued to remain non-profit affairs à la Wikipedia. When these collaborative efforts resulted in the creation of a new “for profit” business opportunity, they have been closely followed by complications. In our blog, we have cautioned employers to ensure that programs which are completely or partially developed using independent contractors or through online crowdsourcing are compliant with intellectual property laws.
Employers everywhere need to consider this as a wake-up call and review their processes. Understand the potential risks of utilizing workers retained through online talent market exchanges or sourced directly. Contracts should explicitly state that the worker is not an employee. The IRS guidelines should be applied. Of course, the strongest protection comes from using temporary workers sourced by staffing agencies who serve as the employer of record.
Mail (will not be published) (required)
nine × = 63
Thanks for Subscribing to DCR Blog.