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ARE YOU MIS-CLASSIFIED AS AN INDEPENDENT CONTRACTOR WHEN REALLY YOU ARE AN EMPLOYEE?

Added on 07/08/2016 by kalsonlaw

Throughout the years there has been a significant shift in how Courts view the employer/independent contractor relationship. The relationship is now viewed more appropriately, in my opinion, as employer-employee. In NLRB vs Hearst Publications, a 1944 U.S. Supreme Court case, the Court said “a few problems in the law have given greater variety of application and conflict in results than the cases arising in the border land between what is clearly an employer-employee relationship and what is clearly one of independent entrepreneurial dealings. The laws and regulations defining an independent contractor remain complex with mixed judicial and legislative developments in New Jersey and across the nation as a whole. Employers need to pay careful attention to this issue as the potential liabilities are significant. Making it more difficult to understand is that there are at least three tests for determining whether a person is really an employee or an independent contractor. There is the common law test, the economic legalities test and the myriad remedial legislation test.

To try to simplify it, let me go through a few of the criteria that the Courts do consider when determining whether you are an independent contractor or really an employee in disguise. The Courts will consider the relationship the parties believe they have created. The Court will also consider the extent of control exercisable by the person receiving the services . Other factors include whether the service being provided requires a special training or skill, the duration of the relationship between the parties, and whether the person rendering the services has a risk of loss.

Independent Contractors are frequently engaged in an established trade or profession. In essence, they work for themselves and contract services to numerous other businesses. A person in his own business is considered to be an Independent Contractor. Independent Contractors more likely have their own business cards, their own Workers’ Compensation insurance and bill for work performed. Independent Contractors generally use their own equipment and set their own schedules. Independent Contractors frequently do business with other entities other than the payer. What this means is that the Independent Contractor is not just working for one company. If you are working for one company that controls your hours of work and supervises your duties, you probably are an employee and not an Independent Contractor.

Companies frequently classify workers as Independent Contractors to avoid payment of taxes. When you are an employee, the employer must pay into your taxes and social security. You receive a W-2 at the end of the year. When you are an Independent Contractor, no taxes are withheld from your pay. You have to pay taxes to the government at the end of the year. You are not receiving a pay stub. You are actually submitting a bill of work.

In the Philadelphia Newspaper case, the Superior Court of New Jersey had to determine a workers claim for unemployment benefits. If you are an Independent Contractor, you are not entitled to unemployment benefits. However, just because the company calls you an Independent Contractor does not mean you are not entitled to unemployment. It may not matter whether you had to sign an Independent Contractor agreement as a condition of hire. In the Philadelphia Newspaper case, the claimant was a home delivery newspaper person and terminated. The person worked exclusively for Philadelphia Newspapers, Inc. Pursuant to the Independent Contractors agreement in that case, the person was paid a fixed rate for each newspaper delivered, not a salary. There was also a written agreement that the worker would be responsible for all his own taxes. Notwithstanding these conditions, the Appeal Tribunal of Unemployment, applying the ABC test concluded that substantial evidence indicated that the claimant was under the direction and control of the above employer. The contention that the claimant was an Independent Contractor because he deducted his fuel costs and some other expenses on his tax return was rejected by the Tribunal. The fact that this claimant was paid on a 1099 form is not dis-positive under N.J.S.A. 43:21-19 (i)(6). The carrier was deemed an employee and entitled to unemployment benefits.

The Independent Contractor issue is also relevant under numerous other labor and employment laws such as the New Jersey Conscientious Employee Protection Act (CEPA), the Whistleblower law and the New Jersey Law Against Discrimination (LAD). In the D’Annunzio case, a New Jersey licensed Chiropractor entered into a one year agreement with Prudential Property Insurance to work as a Chiropractic Medical Director in the company’s Personal Injury Protection (PIP) department. The contract between the parties expressly stated that he was an Independent Contractor, required to work twenty hours a week and that the parties did not intend to create an employer-employee relationship. Notwithstanding the above, the New Jersey Supreme Court held that although D’Annunzio was designated as an Independent Contractor in his agreement with Prudential, he presented enough evidence to demonstrate the day to day activities were, in fact, controlled and directed by Prudential thus creating an employment relationship for the CEPA purposes or the Whistleblowing law. Accordingly, the Court held he was able to proceed against Prudential on his whistleblowing claims.

In the case of Hogue vs Brown, the New Jersey Appellate Division considered the case of a licensed clinical Social Worker who was employed by Correctional Medical Services. The State had argued that the worker was not an “employee”. To determine whether there was an employment relationship in this case, the Appellate Division applied the 12 factor test set forth in the Pukowsky case. Based on the overall economic realities of the relationship between the worker and CMS and the Department of Corrections, the Appellate Division concluded that the relationship could be considered an employer-employee relationship and permitted the discrimination claim under the LAD to continue.

Recently, in the case of Hargrove vs. Sleepys, LLC, the Court had to consider whether the plaintiffs who delivered the mattresses ordered by customers from Sleepys were, in fact, employees or Independent Contractors. Each of the workers had signed an independent driver agreement. This was really a ruse by the company to avoid payment of employee benefits. The Court had to consider which test it should apply in determining whether the workers were Independent Contractors or employees for purposes of the New Jersey Wage Payment Law. The Court held that the ABC test derived from the New Jersey Unemployment Compensation Act would govern whether the plaintiff was an employee or Independent Contractor for purposes of resolving a wage payment or wage and hour claim.

The moral of the story is that an employee by any other name is still an employee. In 2007, the Governor announced an initiative to crack down on employers who mis-classified workers as Independent Contractors. He stated “employers who willfully mis-classify workers as Independent Contractors realize an unfair competitive advantage over employees to properly identify their workers as employees. By mis-classifying their staff, these employers often fail to pay wages and related payroll taxes properly and fairly, do not carry Workers’ Compensation insurance and pay insufficient attention to protecting the safety and health of their employees.”

There have been numerous cases in the Court of Workers’ Compensation where Judges have held that injured persons really are employees and must be covered by the Workers’ Compensation system. Recently, I am defending a small employer at a Department of Labor Hearing regarding whether a worker is really an employee versus an Independent Contractor. In addition to any wages determined to be owed, the employer may also face significant fines and penalties for mis-classification of the worker as Independent Contractor and not an employee. My tip to small companies is to have an attorney review the relationship and duties of any workers to determine whether they are really an Independent Contractor or an employee. For the worker, just because you are called an Independent Contractor, does not mean it’s true.