Do Independent Contractors Require a Break in Service? | DCR Workforce Blog

Do Independent Contractors Require a Break in Service?

Companies believe in imposing the 12-Month Rule which limits the use of contingent workers, especially Independent Contractors, in a rolling 18 month period. If the person wants another assignment, it is possible only after a 6-Month Break! The question is if this is really necessary or is it just the result of a misinterpretation causing unnecessary trouble all around …

How does it help?

Providing a break-in-service to able, willing and experienced workers seems a very counter-productive move if we consider that the company is losing out on the services of a worker who knows the ropes and can really deliver productivity without any further investment in induction and training activities. This prescription of a term limit also results in the termination of a worker automatically terminating an experienced employee and to get an inexperienced new recruit as a replacement. The intention behind these rules is an anxiety to avoid getting caught in any compliance violation issues, but they are not really grounded in well-defined legal rules. This gets reflected in the lack of consistency with which different companies lay down the break-in service requirement in different ways, some specifying days and others specifying hours (ranging from 1000 to a little above 4000) while there are many who specify 1, 2 or 3 year terms. The same inconsistency rules the policies around getting them to come back to work too.

Where is the Catch?

While certain long term relationships are scrutinized by federal and state agencies to see if the relationship is established in an exploitative manner, there is no dictum limiting the duration of a relationship. The most acceptable reason is that this policy gets adopted so as to avoid the application of benefits plans and Family and Medical Leave Act, which are enforced based on the duration of employment (as in number of hours worked or the period of service). By automatic contract termination, these claims alone may be limited or eliminated. Other employment claims remain wide open to contention in spite of implementing this restriction.

These abrupt terminations are very unpopular and generally hated by one and all, for the way the work loses an experienced worker and would need to pay for recruiting and training a new worker for that job itself. The reasons provided seem illogical and unfair – and almost get discredited.

Is it Reasoned Enough?

Against this scenario, there is a palpable fear of litigation – read, class action for the bigger players a la Microsoft vs. Vizcaino with a $97 m. settlement – which may involve retro-benefits, almost becoming a disincentive to the use of contingent workers itself. Many people miss out on the fact that Microsoft won the point where it excluded the contingents from its retirement and welfare plans and lost out on excluding them from its stock purchase plan.

Rattled, many staffing clients started resorting to using term limit policies, though in actual fact liability questions get determined more on the basis of the level of control exercised to identify the de-facto employer – not the term of duration of the employment.

Facts of the Matter:

The plaintiff in a retro-benefits case has to prove that the contingent workers are the common law employees of the client and that the client’s benefit plans cover them. If the staffing company and its client have taken due care in formulating the contracts and defining policies and adhered to the stipulated methods to ensure day-to-day control, it will be very difficult for someone to prove that they were common law employees. Some staffing clients actually harbor a baseless apprehension that not having term limits would actually entitle workers with a right to permanent employment with them!

Let us discuss ways to reduce exposure to retro-benefit claims in our next post.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.