Wage and Hour Lawsuit: NLRB v. E. Bay Taxi Drivers Ass\\\\\\\’n et al.

Classifying Employees As Contractors Is No End Run Around Wage and Hour Laws

Posted on 11-Jan-08 by The Timekeeper

Think you can just classify your employees as “independent contractors” and avoid all that wage and hour compliance nonsense? I came across this nice analysis in the Sheppard Mullin Labor Employment Law Blog, of a recent California lawsuit (NLRB v. E. Bay Taxi Drivers Ass’n et al.), where the employer apparently thought the very same thing.

Unfortunately for them, as the blog explains, the Ninth Circuit court disagreed.

“Independent contractor” vs. “employee” classification is one of the stickiest issues many employers face. Lots of gray areas, lots of conflicting advice. The IRS has one set of criteria, the DOL has another.

The recordkeeping requirements and tax burden related to independent contractors are much lighter, so many employers would like to classify as many as they possibly can of the people working on their behalf as contractors.

Totally understandable. But when you classify someone who should be considered an employee as a contractor, you open yourself up to all sorts of liabilities.

My husband used to work as a mobile DJ for an entertainment company that operated in a very similar fashion to the taxi association. They told the DJs what clothing they could wear to gigs (even supplied “company color” cummerbunds and bow ties to wear with their required black tuxedos), prohibited them from handing out personal business cards when on a company gig, required attendance at monthly meetings at company headquarters, and limited DJs’ options for outside employment. In fact, my husband and three of his friends had all their pending gig “contracts” with the entertainment company suddently canceled when the company owner found out they were also booking gigs for themselves on their own.

I know of at least one “contractor” (no, not my husband!) who reported the company to the IRS, accusing the company of misclassifying employees as contractors to avoid paying employement taxes.

Now, granted, that company had other issues going on besides a possible IRS audit. But in any case, just a few years after my husband was “fired” for doing what he should have been allowed to do as a so-called ”independent contractor,” the company’s remaining assets were absorbed by an out-of-state competitor and the company owner was tossed out on his ear.

You don’t want this to happen to you. (At least, I don’t think you do!) Nor do you want to wind up in court, being ordered to pay taxes, back overtime pay and/or penalties for misclassification of employees as contractors.

So it just makes sense to make sure when you classify someone as an “independent contractor,” the work rules you apply to that “contractor” are compatible with that designation. If you already have people classified as contractors, a thorough wage and hour audit might be in order, to ensure your classifications are appropriate.

And, of course, your best bet (as always) is to consult with a qualified legal professional for advice.