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Employee or Independent Contractor - Which Test to Use?

Recently, I have received numerous questions from clients about whether particular workers are employees or independent contractors.  This issue is on the minds of many people, because the U.S. Departments of Labor and Treasury last year announced a joint initiative to “crack down” on companies that misclassify employees as independent contractors.  Some state governments have undertaken similar initiatives.  The penalties for misclassification can be severe – back payroll taxes, overtime wages, unemployment compensation and workers compensation premiums, and other penalties.

But, whether a worker is an independent contractor or an employee is not always an easy call to make.  Each situation turns on the facts.  Further complicating matters is the fact that different governmental agencies use different tests to determine the correct classification.  While all of the tests are similar, it is important to note that there are some differences between them. Notwithstanding that fact, most people utilize the IRS test when making a classification decision.

The potential problem with this approach was illustrated in the recent 1st DCA case, Brayshaw v. Agency for Workforce Innovation.  There, the Agency for Workforce Innovation, the Florida state agency that handles unemployment compensation appeals, decided that the workers at issue were independent contractors.  In making that decision, the Agency relied on the Florida common law test developed in the 1950’s and  1960’s.  The appellants, workers who were seeking unemployment compensation benefits, appealed, and argued that the Agency should have applied the IRS test.  The 1st DCA decided that the Agency had used the correct test, because the Florida unemployment compensation statute makes specific reference to the common-law test.

The lesson here is that classification problems can be difficult to evaluate, not just for companies, but also for their employment and tax lawyers.  If a company has any doubt about its decision to classify a particular worker as an independent contractor, it should contact outside counsel to assist with the complicated analysis. 


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« February 2011 »
Michael W. Casey III, Kevin E. Vance, Mark J. Beutler, and Teresa M. Maestrelli practice labor and employment law, with a particular focus on labor and employment litigation, including Title VII, ADEA, ADA, Florida Civil Rights Act, and whistleblower claims, as well as non-compete litigation, in state and federal trial and appellate courts in Florida and throughout the United States. They also represent employers before the National Labor Relations Board (NLRB), the National Mediation Board (NMB), the U.S. Department of Labor, including the Wage and Hour Division and the Occupational Safety and Health Administration (OSHA), the Equal Employment Opportunity Commission (EEOC), and various state and local agencies, as well as in arbitrations, collective-bargaining negotiations and union representation elections. Hector A. Chichoni practices in the area of US and global immigration law. He chairs Duane Morris's Florida Immigration Practice. The editors of Chambers USA 2010 also selected Mr. Chichoni as a "Leader in the Immigration Field." He has represented a vast number of corporate and individual clients throughout his career ranging from premier US health care organizations, Fortune 100 and Fortune 500 companies, multinational corporations and universities to doctors, professors, researchers and students. His international experience includes handling matters relating to export controls and global corporate compliance and business transactions. He has represented clients in a wide variety of cases before the US Immigration Court.
© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.
The opinions expressed on this blog are those of the author and are not to be construed as legal advice.