Employment Status And Contingent Workers Task Force
Whether a worker is an employee of a particular company—as opposed to an independent contractor or an employee of another entity—is often hotly contested, and the answer can have major implications. The Labor & Employment Team at Hunton & Williams LLP regularly deals with such questions and helps clients reduce or minimize their risk and exposure with respect to workers whose employment status may be contested.
Many companies today rely not only on regular employees, but also on alternative staffing or “contingent workers” who are compensated and treated differently from regular employees. Such workers can include independent contractors, “freelancers,” leased employees, temporary staffers, and others in non-traditional roles. In addition, many companies work together with other entities to accomplish mutually beneficial objectives, with their respective employees performing roles that perhaps serve other organizations in addition to their own employers. These types of arrangements can have many benefits, but also can carry significant risks, including the risk of unwanted liability based on a determination that workers are employees when they were intended to be non-employees.
Disputes over the employment status of workers can arise under a variety of circumstances. A government audit might challenge a company’s position that workers are independent contractors and seek to collect back taxes and penalties based on an argument that the workers are employees. A group of workers might claim entitlement to overtime or employment benefits and seek back wages and other damages. Claimants might invoke the “joint employer doctrine” and assert that they are simultaneously employed by two or more entities (such as a business and a temporary agency). Others might assert that two or more affiliated companies constitute an “integrated enterprise” and bring claims against a parent or sister company.
There are also potential implications for corporate officers or business owners. A group of claimants might argue that the business is the “alter ego” of such individuals and bring claims for back wages and other damages against the individuals. In federal wage and hour cases, for example, corporate officers or business owners can be sued directly if they fall within the definition of “any person acting directly or indirectly in the interest of an employer in relation to an employee . . . .”
Scrutiny of the employment status of workers is intensifying not only as a result of civil lawsuits, but also due to efforts by federal and state legislative bodies and enforcement agencies. Federal and state agencies, including the Department of Labor and the Internal Revenue Service, are stepping up their investigative and enforcement efforts with respect to failure to pay overtime or to withhold taxes due to alleged misclassification. A significant number of employers face legal challenges sponsored by organized labor, which also is active in promoting legislation—state and federal—to make it more difficult to establish independent contractor relationships, to increase the penalties in the event of misclassification, and to discourage the use of contingent workers generally.
There are a number of tests that are used to determine if a worker is an employee. These tests are similar but not identical, and can vary depending on the legal theory pursued by the worker or government agency. Thus, an individual might be an employee for one purpose but not for another. The inconsistencies among state laws increase the complexity for an employer with operations in various states attempting to ensure that it has properly classified its workforce.
Our Labor and Employment Team regularly works with companies to address the risks and to provide guidance and counsel with respect to the employment status of contingent workers and other types of potential claimants. We have formed an Employment Status Task Force to coordinate our knowledge and experience and ensure that clients remain abreast of issues and solutions associated with alternative work arrangements. We help clients achieve their business and legal objectives through proactive planning, guidance on contracts with staffing and employee leasing companies and other entities, audits of current engagements, litigation and advocacy before state and federal agencies or courts, and numerous other possible solutions. Our experience and familiarity with such issues provides clients with important leverage in maximizing business opportunities and minimizing risk.
Contact
Fraser A. McAlpine | fmcalpine@hunton.com | (415) 975-3726
