Mixed up on Misclassification: Are you sure you’re protected?


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Ryan Kelly

Ryan Kelly
CEO, Openforce





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Webinar Q&A

Nothing written in this Q&A is intended to represent or constitute legal advice. Openforce provides general information and industry guidance related to solutions and services for working with independent contractor workforces. Openforce does not provide legal advice and is not a law firm. While we may have former lawyers and other legal specialists on staff, none of our representatives are licensed lawyers. Although we go to great lengths to ensure our information is accurate and useful, this information is not a substitute for legal advice. Openforce and the author(s) provide no warranty relating to any information herein.

Technically, a part-time or full-time status has no significant bearing on classification. The real question is the type of tests that might be applicable to your jurisdictions and claim exposures/types (e.g., the ABC Test, Economic Realities Test, etc.) and how the worker relationship operates in contract and in fact. As a practical matter, courts do utilize comparisons to see if workers are consistently classified by the nature of the work, the role, etc. Many lawyers will warn companies not to have employees and independent contractors performing the same work/roles—though it is not uncommon in areas like trucking (employee drivers versus owner-operator drivers). Even in these scenarios, it is highly recommended that all worker relationship practices (such as recruiting, onboarding, contracting, work, payment/settlement and beyond) clearly differentiate and reinforce the differentiation between the two roles.

As noted above, it is highly recommended that all worker relationship practices (from recruiting to payment/settlement and beyond) clearly differentiate and reinforce the differentiation between employee roles and independent contractor roles, and this would include bonus practices. If you choose a bonus-like practice for ICs because business reasons dictate doing so (e.g., for IC retention purposes), it may be better to have two different bonus processes and even program names to easily demonstrate the differentiation.

As discussed during the webinar, workers’ compensation is generally not applicable to independent contractors. Many contracting companies require that contracting ICs provide proof of occupational accident insurance coverage—this coverage provides a “similar” type of coverage for contingent workers and, as a result, can extend protection to the contracting company by providing an avenue of relief for the IC in the event of a work-related injury. Most occupational accident coverages will not include coverages for communicable diseases such as COVID-19 or seasonal flu—mainly because it is nearly impossible to definitively prove where the virus was contracted. Workers’ compensation rules related to work-from-home practices do not generally differ from working at the office if the employee is required to be working from home, but this is a question for your employment counsel.

While there are many legal nuances, training is generally inadvisable for independent contractors when possible to avoid. But the word “training” can sometimes be a loaded term in relation to ICs. “Training” may suggest that the company needs to teach the IC how to perform the work or role that the IC is contracted for, and this is inconsistent with the nature of a contractor workforce. If the contracting company is merely conveying information required to execute contractual obligations to a customer (e.g., where packages are required to be dropped at a customer site), the information can be conveyed without labeling this activity training (e.g., “Independent Contractor Best Practices”). Once again, this should be well-thought-out in a comprehensive plan for how your company interacts with ICs, from recruiting to contract termination. Please note that applicable laws sometimes require responsibility for training of IC workforces, and that may provide a different direction in the analysis.

Direction and control is a highly variable concept based upon the nature of the work relationship, the work contracted for, the jurisdiction involved, and the type of claim. Direction and control are at the heart of the legal analysis of misclassification. A common explanation from courts on this concept is that for a contracting company to show that it lacked direction and control over the worker, it must show that it did not control the “manner, method and means” in which the worker performed the services. Courts then examine each of these factors (manner, method and means) in relation to the specific facts of the worker’s relationship to the contracting company, the work performed, the pay, and all related details. Helpful hint: You can click on the following case link to read exactly how a court examines these concepts: Circle Health Partners, Inc. v. Unemployment Ins. Appeals of Indiana Dep’t of Workforce Dev., 47 N.E.3d 1239, 1243 (Ind. Ct. App. 2015).

Independent contractor pay should be based upon accomplishing a result, performing a specific job or completing a project. ICs are, in essence, vendors to your company, and their pay arrangements should reflect this. For example, if you contract with a residential landscaping service, you would typically pay the service for completing a “job”—e.g., biweekly yard maintenance or a specific tree trimming project. Your IC arrangements should reflect this same approach. Employees are typically paid for their time and effort without regard to success or completion (though bonuses may accrue for such success). ICs are paid to achieve an end or complete a result. Notably, a larger project can often be broken down into smaller projects or jobs to help break up the overall process and pay cadence. Monthly invoicing from the IC to the contracting company can be helpful in establishing a vendor-type relationship friendly to the IC misclassification evaluation process.

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