Presented by: How to Avoid the Pitfall of Worker Misclassification 2012 NILG Annual Conference...

Presented by:

How to Avoid the Pitfall of Worker Misclassification

2012 NILG Annual ConferenceWaikoloa, HawaiiAugust 29, 2012

David S. Fortney, Esq.Shareholder, Fortney & Scott, LLC

Jill M. SmithExecutive Director, WorkPlace HR

Naomi J. HackenbergHR Consultant, WorkPlace HR

© FortneyScott & WorkPlace HR 2012

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Important Legal NoticeThis presentation is to provide general information and updates. These materials are not intended to provide legal advice.

Federal contractors’ representatives should consult either with their in-house counsel or, as directed, with an experienced employment attorney for legal advice about whether, based on their specific facts and circumstances, their company complies with the applicable federal and state laws and regulations.


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What Is Worker Misclassification? Classifying an “employee” to a status of

“non-employee,” typically as a Consultant or Independent Contractor (and sometimes a Temp who never leaves!). Generally, if a worker looks like an employee,

is treated like an employee, and acts like an employee then he/she is an employee…


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Plethora of Legal Considerations

NLRA

Title VII ERIS

A

Unempl.

Insurance

IRC

Worker’s

Comp

FLSA

Federal Contrac

tor Obligati

ons

WorkerMisclassifica

tion


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So…How Is Employee Status Determined? The Supreme Court has ruled that the

determination depends on the totality of the circumstances.

Fact-specific tests are used to determine whether a person is an employee or an independent contractor.

DOL’s “Economic Realities” Test1. Extent to which services rendered are an

integral part of the principal’s business.2. Permanency of the relationship. 3. Amount of the alleged contractor’s

investment in facilities and equipment. 4. Nature and degree of control by the

principal. 5. Alleged contractor’s opportunities for profit

and loss. 6. Amount of initiative, judgment or foresight

in open market competition with others required for the success of the claimed independent contractor.

7. Degree of independent business organization and operation.


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DOL’s “Economic Realities” Test (cont.) Immaterial factors:

Place where work is performed. Absence of formal employment agreement. Whether the worker is licensed by a state or

local government. Time and mode of pay.


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Penalties for Misclassification Potential penalties depend on the law(s)

implicated in a misclassification finding: Back wages: minimum wages and overtime. Liquidated damages: back wages x 2, and monetary

penalties. Injunctive relief. State law penalties. Individual and class-action lawsuits:

• Wages; • Employer-provided benefits; and• Government-mandated benefits.

Loss or suspension of government contracts. Civil and criminal actions.

Attorneys’ fees, expert fees and court costs. Negative publicity—always.


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Misclassification Case Examples FedEx Ground misclassification litigation

under various state laws: California: Ruling that 203 California drivers

were misclassified as independent contractors. In 2005, driver misclassification actions were

filed in 31 states involving 27,000 drivers; consolidated into multi-district action in N.D. Indiana.• Judge in the MDL granted summary judgment against

FedEx for Illinois drivers, but in favor of FedEx as to Kansas drivers.

Vizcaino v. Microsoft Corp.


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Activity: Are These Workers Employees?

THIS ONE?

THIS ONE?

THIS ONE?

THIS ONE?

The Situation ABC Widget Co. is a manufacturing

company that has been proudly supplying widgets to the government since 1976. In 2005, ABC Widget began to supplement its R&D team with independent contractors (“ICs”).

You’ve been tasked to participate as part of an internal audit team to determine whether there are any misclassified workers at ABC Widget.


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Your Assignment: Part 1 Review the next slide (“The Stage is Set”). Break into groups of 5-6. Collectively determine if there are red

flags; if so, what are they? In five minutes, be prepared to report on

your findings.


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The Stage is Set Jacob Spangler started working as an IC for

the Company in 2009. Originally, he was performing work for two companies simultaneously, but in 2011, he began working for ABC Widget exclusively. He works from home, 8:30 a.m. - 5:30 p.m., Monday through Friday, and regularly sends reports of his work to the R&D Team Leader—an ABC Widget employee. He recently negotiated a 10% increase to his hourly rate and participates in weekly staff meetings.


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Your Assignment: Part 2 We’ve identified the red flags. Now in your group, collectively determine

the questions you should ask (and documents you may want to review) to help your team decide if the worker is appropriately classified as an IC.

In five minutes, be prepared to report on your findings.


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Now What? You’ve completed your audit of non-

employee workers at ABC Widget. Congratulations!

In your self-audit, you identified some workers that were misclassified as independent contractors, while some workers are properly classified as independent contractors.

Always work with counsel to devise and implement the best reclassification strategy under privilege.


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Retaining IC Classification Take steps to:

Document support for independent contractor classification and retain records to defend in an audit or lawsuit.

If necessary: Make changes based on factors reviewed to

support an independent contractor classification (e.g., less supervision/control, remove non-compete restrictions, etc.).

Reassess arrangements, written agreements, indemnification provisions with staffing agencies/contingent workforce providers.

Reclassifying ICs as Employees Evaluate the best time to make

classification changes to minimize disruption and risk. The longer misclassification continues, the

more risk an employer incurs. Evaluate the best way to make

classification changes. Notification process. Determination of accompanying back pay, if

applicable.


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Connecting the Dots

What does this have to

do with me???

“DOL and IRS Join

Forces to Crack

Down on Employee

Misclassification”


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The DOL/IRS Partnership

“U.S. Labor Department and IRS Sign Pacts to Coordinate….”

“DOL and IRS to Share Data on Employers Who Commit Payroll Fraud”


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DOL/IRS Memorandum of Understanding (MOU) MOU signed September 19, 2011. DOL and IRS will share information with

each other. More than 10 states have signed similar

agreements with the DOL and IRS.

“We’re standing united to end the practice of misclassifying

employees.”- Secretary Hilda Solis


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Key MOU Content DOL will:

Refer information that may raise IRS employment tax compliance issues related to misclassification.

IRS will: Evaluate and classify DOL referrals and conduct

examinations to determine compliance as appropriate…referrals will be shared with state and municipal taxing agencies at its discretion.

Provide DOL with information (not taxpayer return information) that may constitute evidence of any Federal criminal law that the DOL enforces.

The New OFCCP Scheduling Letter Proposed Scheduling Letter submitted to

the Office of Management and Budget on September 29, 2011.

For compensation submission, the definition of “employee” is greatly expanded…


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The New OFCCP Scheduling Letter (cont.) Item 12 of the proposed scheduling letter

states: “Employee level compensation data for all

employees (including but not limited to full-time, part-time, contract, per diem or day labor, temporary… Provide gender and race/ethnicity information and hire date for each employee by job title, EEO-1 Category and job group in a single file.” (Emphasis added.)


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Remember: Information produced in an OFCCP audit may be shared with Wage and Hour; you could find yourself facing an FLSA audit!

The Complexities Non-employee data:

How to gather? Where to maintain? How to report?

What is the impact on joint employer relationships? Who defends potential violations? Who is responsible for potential remedies?

What is the impact of reclassification on selection processes?


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What’s Next?

Will this open the door to expanding the definition of “employee” for all EEO and affirmative action-related obligations?


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Your “To-Do” List Audit your non-employee workforce. Identify possible worker

misclassifications. Develop and implement corrective

actions. Redesign related policies and processes

as needed. Train your leadership and HR team

accordingly.

Reminder: Consult with legal counsel before embarking on this adventure…this project should be performed at the direction of your employment attorney.


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Questions or comments?


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David S. Fortney, Esq. [email protected]

David S. Fortney is a co-founder of Fortney & Scott, LLC, a Washington, DC-based law firm counseling and advising clients on the full spectrum of workplace-related matters, including employment discrimination and labor matters, compliance programs, government contracting, international dispute resolution and counseling matters, and developing strategies for avoiding or responding to workplace-related crises. Mr. Fortney’s OFCCP practice includes representing and counseling federal contractors nationwide on complying with contractors’ nondiscrimination and affirmative action obligations enforced by OFCCP, advising and representing clients facing audits by OFCCP, including corporate management reviews, compensation audits, on-site audits, desk audits, Functional Affirmative Action Program audits, and audits performed to assess new federal contractors’ compliance. Mr. Fortney is a Fellow with the College of Labor and Employment Lawyers and has been recognized for many years as a leading employment lawyer in Washington, DC by numerous surveys and organizations, including CHAMBERS USA and Washington, DC Super Lawyers.


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Jill M. Smith [email protected]

Jill Smith is the Executive Director for Workplace HR, LLC, specializing in equal employment opportunity and affirmative action matters for federal contractors nationwide. Ms. Smith has over 25 years of experience in Human Resources with specific emphasis in the strategic development and effective deployment of programs that result in improved compliance with the non discrimination and affirmative action obligations of federal contractors that are enforced by OFCCP. Ms. Smith is known for identifying potential problem areas and designing corrective actions that work: from the design of applicant record keeping processes to the development and facilitation of training programs. Her experience covers a wide spectrum of businesses in various stages of development and her expertise includes the development of self-audit programs that assist in effectively monitoring compliance.


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Naomi J. Hackenberg [email protected]

Naomi Hackenberg is a Human Resources Consultant for Workplace HR, LLC, specializing in equal employment opportunity and affirmative action matters for federal contractors nationwide. Ms. Hackenberg’s expertise spans the fields of affirmative action programs, construction, staffing, industrial organization, and diversity. She assists federal contractors in developing affirmative action programs and meeting their federal contract compliance obligations. Ms. Hackenberg has developed and led training programs for supervisors and managers in meeting their federal contractor compliance obligations and assisted service and supply and construction clients in implementing workplace policies and programs. Additionally, she has presented webinars on OFCCP compliance for national audiences.

Easy Way to Stay Up to Date…. Visit our blog, Workplace FYI, where we

discuss these and other developments:

www.workplacefyi.com


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WorkPlace HR WorkPlace HR. Problem Solved.

Fortney & Scott, LLCWorkplace solutions. Legal excellence.

Contact Information

Fortney & Scott, LLCWashington, DC

www.fortneyscott.com

WorkPlace HR, LLCWashington, DC

www.workplacehr.com


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Presented by: How to Avoid the Pitfall of Worker Misclassification 2012 NILG Annual Conference...

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