Temporary Worker Misclassification Cases Proliferate Unchecked | DCR Workforce Blog

Temporary Worker Misclassification Cases Proliferate Unchecked

misclassificationThis 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.

  • Robert J Michael incorporated a company RJM Inc., and took up work under a subcontract agreement as an employee of a bona fide corporation. He also signed all contracts with clients on behalf of RJM. But, he later took the customer, Pella Products, to court saying he and other employees of RJM were improperly classified by Pella as independent contractors. The court found against Michael as he was clearly listed as an employee of RJM (along with the others). RJM had withheld state and federal taxes from employee wages and maintained general liability, workers’ compensation and unemployment insurance in its name. RJM also supplied the tools necessary to conduct the work and was paid directly for the labor at the contracted rate. Pella Products had no knowledge of the wage rates of RJM’s employees and no control over their hiring, firing and other management issues. All these facts made Pella come unscathed through the litigation.
  • A class action suit was brought against Antelope Valley Newspapers Inc., when a group of newspaper carriers claimed to be improperly classified as independent contractors, depriving them of wage and hour protections. This case is yet to be decided but hinges on two issues. The court has to decide if the control Antelope Valley wields over the carriers is sufficiently uniform to make this a class action suit and also whether the control held by Antelope Valley includes the right to discharge the carriers without cause.
  • 2300 full-time FedEx delivery drivers claimed that they were improperly classified as independent contractors; a claim which was denied by the district court but upheld by the 9th US Circuit Court of Appeals. FedEx sought more than the timely delivery of packages from these drivers. The company controlled the manner and means by which the workers accomplished the result. FedEx imposed safe driving standards and customer service standards on these drivers. It also required the drivers to dress in FedEx uniforms and drive vehicles which carried the colors, logos, insignias and other marks of FedEx.

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.

  • The landmark case is Yelp, which is facing a lawsuit from thousands of ‘volunteer Yelpers’ who are demanding wages in place of titles under the Fair Labor Standards Act for their writing and editing work.
  • Now, Jacob McPherson, a former Google worker in New York, is charging both Google and online talent exchange Elance-oDesk of misclassifying him and others as independent contractors. They demand unpaid wages and overtime (they worked 45 hours but were paid for 30 per week), damages and attorney’s fees. Google advertised the position on Elance-oDesk, where it contracted McPherson to work for 30 hours per week. McPherson worked at Google’s Chelsea Market offices in New York. He and other freelancers were also assigned to teams that included W-2 employees and attended mandatory meetings and training sessions. Google also issued McPherson a cell phone, tablet and laptop. Google determined the standards for acceptable performance and terminated people when they failed to complete the tasks on time. When McPherson requested informed Google that he was actually working an average of 40+ hours per week, and asked to have his contract modified, Google terminated his services. However, when the plaintiff sought unemployment insurance benefits from the New York State Department of Labor, he was told that for purposes of unemployment insurance, he was an employee!

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.

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.