April 25 Tip of the Week

“Why Status Matters…”

Much like the chicken and the egg question, employers and businesses have long struggled with the question of employee status – is it an employee or an independent contractor?  When looking at this issue, tax treatment is often the primary consideration for employers and individuals alike; however, there is more to the question of status that simply Uncle Sam and how he will get paid. 

The National Labor Relations Board has recently revisited the issue of independent contractor vs. employee for the purposes of organizing.  In December 2021, the Board was presented with a case involving makeup artists, wig artists and hair stylists at the Atlanta Opera.  This case noted two differing standards imposed by the Board, whose membership and philosophical makeup changes when the political affiliation in the White House changes, and sought to decide whether the individuals in these roles were independent contractors, as the Atlanta Opera claimed, or employees.  The determination of the Board will be important, as the status of these individuals will dictate whether they can unionize.  A decision has not been issued as yet, but the Board has signaled its willingness to act in ways that encourage union activities. 

In another arena, a Florida court just ruled in favor of an individual who was suing their employer over what they claimed was an incorrect classification as an independent contractor. The employee, who worked as a home health aide providing around the clock care for adults with disabilities, prevailed in her summary judgment motion.  In ruling in Mason’s favor, the court found that the individual met the “economic realities” standard used by the Fair Labor Standards Act.  Under that six-part test, the court looked at the following factors: 

  1. the nature and degree of the alleged employer’s control over the alleged employee’s work;
  2. the alleged employee’s opportunity for profit or loss depending on her managerial skill;
  3. the alleged employee’s investment in equipment or materials and employment of other workers;
  4. whether the alleged employee’s services required a special skill;
  5. the permanency and duration of the working relationship; and
  6. the extent to which the service rendered is an integral part of the alleged employer’s business.

See, Mason v. Pathfinders for Independence, Inc., Case No. 8:19-cv-307-WFJ-TGW, United States District Court, M.D. Florida, Tampa Division, April 12, 2022.  The court’s decision resulted in an award of back pay equal to the unpaid overtime that the individual should have received while working for the agency.  Mason also received liquidated damages because the agency had been previously audited by the Department of Labor and was told by the DOL that they had misclassified their home healthcare workers as independent contractors.  Despite the results of the audit, the employer persisted in using the improper classification and the court ordered them to pay liquidated damages, finding that their violation was willful. 

What does this mean for employers?  In today’s new “gig” workforce, where it is difficult to find workers, employers and prospective employees may be more likely to want to engage in independent contractor relationships.  Beware, however, just because the individual is willing to accept the status of an independent contractor, that does not define the relationship.  Employers must consider the standards used by the Internal Revenue Service, the 6-factor test used by the Fair Labor Standards Act, and whatever standards the NLRB finally arrives at in the Atlanta Opera case.  As the recent Florida case has demonstrated, misclassifying workers can result in steep backpay and awards of punitive damages.  When in doubt about the status of one of your workers, myHRcounsel can assist you in properly classifying your workforce.