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Independent
Contractor Case Is Cautionary Tale
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Business Finance Magazine, December 9, 2008
Brannen in Brief
Companies that rely heavily on independent contractors to perform
ongoing responsibilities to attain cost savings could find themselves
on the wrong side of a costly lawsuit if a court decides that the
workers are de facto employees, as a California Superior Court recently
determined in Estrada v. FedEx. Appropriate employee classification is
defined by a number of common law factors plus interpretations in court
cases. This high profile case, which continued for nearly a decade,
could create a big ripple effect in cases around the country.
FedEx Ground/Home Delivery agreed to pay a $27 million judgment that
includes payments of $14.5 million to California drivers who the
company misclassified as independent contractors after the judge ruled
that they were legally employees and entitled to reimbursement for such
things as social security taxes, workers' compensation insurance,
liability insurance, purchasing or leasing trucks, and fuel. But the
money FedEx will pay in the California case will pale in comparison to
what they may be forced to pay in a nationwide class action suit
relating to employee misclassification involving some 27,000 drivers
which is pending in Indiana. Some followers of the case say it could
cost the company several billion dollars.
Attorneys specializing in workforce litigation recommend that companies
with a substantial contingent workforce audit the status of each worker
to make sure they're not committing a technical foul -- especially
because now more than ever, cash-strapped governments need to generate
as much revenue from employment-related taxes as possible.
Even though there are some hard and fast rules that separate
independent contractors from employees in the eyes of the law, grey
areas abound where employers walk a fine line. Attorneys suggest that
employers start an audit by addressing questions such as whether or not
the company can control details including workers' breaks, performance,
kind of equipment used, and work schedules. If so, the workers are
probably employees. Do workers offer their services to other businesses
and maintain their own offices? If the answer is yes, they're more
likely to be independent contractors. The most important rule of thumb
may be that if the worker is regularly performing services for the
company over an indefinite period of time, the person is probably an
employee. And if they're not classified as such, the company risks big
penalties.
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