Featured Publications 

Contingent Employment Law Manual

January, 2010- 9th Edition 

Contingent Employment Case Law Supplement
January,  2010- 9th Edition

Contingent Workforce Forms Book
 January, 2010- 9th Edition

Making News

EMPLOYEE MISCLASSIFICATION - Employee or Independent Contractor? 

Federal 

February 2010

IRS Launches Nationwide Employee Misclassification Audit Campaign to Find Employers Who are Misclassifying Employees as Independent Contractors, thus Costing the so-called 'Tax      Gap' when Employers Misclassify Contractors to Avoid Paying Employment Taxes to Uncle Sam.

The IRS plans to audit 6000 businesses over the next three years. The IRS says the audit targets will be selected at random.

November 2009

9th Circuit Holds Independent Contractor has a Right to Sue under (is protected by) Federal employment law, the Rehabilitation Act of 1973 (Fleming v. Yuma Regional Medical Center).

The Ninth Circuit Court held that Section 504 of the Rehabilitation Act of 1973, a federal law prohibiting discrimination on the basis of disability by any program or activity receiving federal financial assistance, applies to independent contractors as well as employees.

The National Conference of Insurance Legislators (NCOIL)  has approved model legislation mandating workers’ compensation coverage in the construction industry and setting penalties for those who try to 'game' the system.

It mandates workers’ compensation in the construction industry with the exception of sole proprietors on residential projects and homeowners, and holds primary contractors liable for the uninsured employees of any subcontractor hired. It establishes auditing procedures, provides penalties for insurance fraud and enhances state enforcement authority.

The model also calls for penalties for “[a]ny person that knowingly submits an initial application, renewal application, or certificate of insurance as proof of coverage that is false, forged, misleading or incomplete information for the purpose of avoiding or reducing the amount of premiums for workers’ compensation  coverage....”

The model calls for an additional penalty of two times the amount an employer would have paid in premium, or $750 (whichever is greater) --- in addition to existing fines in any specific state. It focuses on the construction industry due to the widespread amount of employee misclassification abuse nationally in that industry. 

October 20, 2009 - Attorney Generals from New York, Montana and New Jersey announced their intent to sue FedEx Ground Package System, Inc. (“FedEx Ground”) for violating their state labor laws.

AG's alleged that FedEx Ground unlawfully misclassifies its drivers as independent contractors, not employees.

The AGs' investigation found that the level of control that FedEx Ground exercises over its drivers merits employee status under state laws of New York, Montana and New Jersey.  This misclassification deprives the drivers of Workers’ Compensation and other labor and employment legal protections received by FedEx Ground's employees. 

The AGs demanded that FedEx reverse its policies or face legal enforcement by their state offices.

 August 5, 2009  -  Attorney Generals from Montana, Iowa, New Jersey, Kentucky, Missouri, Ohio, Rhode Island and Vermont  notified FedEx Ground that they will protect the interests of their states and drivers from FedEx Ground's misclassification of drivers.  

The group has interests and concerns in  workers compensation, unemployment insurance, wage and hour protections, and civil rights. They join several other states which have questioned FedEx Ground's business model.  

In addition to more than 50 state lawsuits that are consolidated in the national class action in Federal Court in Indiana, they have joined other lawsuits and state agency claims against Fed Ex Ground. 

Mar 31, 2008 - Washington State court (jury) finds that Fed Ex drivers are independent contractors, not employees, thus are not entitled to overtime payments. 

More than 200  drivers filed this class action lawsuit claiming they were misclassified as independent contractors, and treated as employees, and thus should receive overtime payments. The jury in Kings County (Seattle) Washington,  determined they were contractors. (Anfinson v. FedEx Ground, Mar 31, 2009.

Editor's comment  This was the first case to go to trial since the landmark Estrada case in California, which found that  Fed-Ex drivers are employees, not independent contractors (see case summary below).

Independent contractors do not receive overtime. They are not covered by the overtime laws (FLSA or state laws).

January 2008 - FedEx faces $319 Million Federal Tax Liability for 2002, which could reach over $1 Billion, plus possible state tax liabilities; IRS and various State tax authorities also Investigate FedEx's contractor business model.

The IRS challenged the classification of FedEx Ground workers, and imposed fines and penalties of $319 million (for 2002 alone).  FedEx could face over One Billion dollars after the IRS completes its investigation. The IRS and various State taxing agencies are also challenging FedEx's independent contractor business model.

California Supreme Court upheld finding that Fed Ex Drivers are employees, not Independent Contractors, and thus entitled to receive $11 Million in Damages. (Estrada v. FedEx Ground Package System) November 28, 2007)

In this landmark case, the California Supreme Court refused to hear FedEx's final appeal to overturn the trial court's finding that FedEx's drivers are employees, not independent contractors.

This was the first court ruling involving Fed-Ex drivers that held the drivers were employees.

A federal judge in Indiana ruled in a similar case that multiple lawsuits by FedEx Ground drivers seeking to be classified as employees rather than independent contractors can be combined in a class-action suit.

'FedEx Drivers File Misclassification Class Action Lawsuit in Federal Court, Boston, MA, U.S. D. Ct., D. Mass, May 5, 2005 

Plaintiffs representing 17,000  Fed Ex drivers nationwide and in  Canada filed a worker misclassification class action lawsuit in Federal Court in Boston, charging Fed Ex with unlawfully misclassifying its drivers as independent contractors rather than employees.

 Plaintiffs  had signed contracts stating that they were independent contractors, but FedEx treated them like employees by requiring them to comply with FedEx's rules and policies, under its business model

IRS Form

IRS Provides Form 8919: Uncollected Social Security and Medicare Tax on Wages, for Employees Misclassified as Independent Contractors. (See Contingent Workforce Forms Book)

Form 8919  may be used by any employee whose employer did not withhold their share of these taxes, and the employee meets  IRS criteria. The IRS will then credit these taxes to the employee's social security records. Employees using Form 8919 must meet one of several criteria proving employee status.

June 7, 2004 - 10th Circuit Appeals Court held that security guards could not bring their overtime suit against defendant because they were independent contractors, not employees, thus not protected by the Fair Labor Standard Act (FLSA). (Johnson, et. al. v. Unified Government of Wyandotte County/Kansas City, Kansas and Housing Authority of Kansas City, June 7, 2004) (See full case opinion in Case Law Supplement)

The Court based its ruling on five factors in determining employee vs. independent contractor status. It found that the defendant Housing Authority had only a minimal degree of control over plaintiff security guards. (See full text of case in the  Contingent Employment Case Law Supplement. See summary in the Contingent Employment Law Manual).

5th Circuit Held that Contract Employees Placed with Defendant Georgia Gulf were not Common Law Employees, thus not Entitled to Employee Benefits under ERISA (March 8, 2004)

Defendant hired contract workers from various third parties. Plaintiffs claimed they were eligible for employee benefits from Georgia Gulf. They sued defendant  claiming they were common law employees and thus eligible for employee benefits under ERISA. The 5th Circuit affirmed the district court's holding that plaintiffs were not common law employees of defendant based on the traditional common law factors test. Details and analysis in the Contingent Employment Law Manual.

January 26, 2004 - 3rd Circuit Finds Employer Liable to IRS for certain Unpaid Employment Taxes; Court holds that IRS Properly Classified Worker as an Employee. (Nu-Look Design, Inc. v. Commissioner of IRS, 3rd Circuit Court of Appeals.

The 3rd Circuit upheld the IRS's classification of a worker as an employee for Social Security (FICA) and Federal Unemployment Taxes withholding based on its finding that Nu-Look Design (employer) lacked a reasonable basis for not treating the worker as an employee. (Details and analysis are in the Contingent Employment Law Manual. The full case is in the Case Law Supplement.)

January 14, 2004 - Appeals Court Rejects Employment Discrimination Claim Against Hospital Based on Plaintiff's Failure to Prove He Was an Employee. (Shah v. Deaconess Hospital, No. 02-3033 (6th Cir.) Court held plaintiff did not establish that an employer-employee relationship existed between himself and Deaconess Hospital. 

February 2004 - California Supreme Court Upholds Landmark California Appeals Court Case for Misclassified Workers Paid Through Third Party Payroll Agencies (Metropolitan Water District v. Cargill)

The California Supreme Court affirmed a landmark 2001 Appeals Court case holding Metropolitan Water District of Southern California (MWD) illegally excluded common law employees from participating in the California Public Employees Retirement System (CALPERS). In MWD v. Cargill, the Court held that California state law is clear that common law employees must be enrolled in CALPERS regardless of whether they are paid through a third party payroll agency.

CO-EMPLOYMENT/JOINT EMPLOYER LIABILITY

WalMart Agrees to $11 Million Settlement in Illegal Foreign Janitors' Class Action Lawsuit. (Zavala et.al. v. Walmart Stores, Inc. , U.S. D.Ct. D. N.J.) settled March 18, 2005).

The illegal immigrant janitors were employed by Wal-Mart's contract janitorial services companies. Wal-Mart was liable as a joint employer with 12 contract janitorial services firms. The janitorial firms were charged with criminal violations and were fined $4 million.

$22 Million Settlement for 2,000 Illegal Immigrant Contract Janitors in Class Action Charging National Supermarkets and their Subcontractor Cleaning Companies with FLSA Violations. (Florex v. Albertson's. et. al. , U.S. D.Ct., C.D., Cal. Jan 26, 2005) (see also immigration law and employment liability news below).

NLRB Overturns its own Sturgis Decision, Holding that Bargaining Units of Jointly Employed Employees Require Parties' Consent. H.S. Care LLC, d/b/a/ Oakwood Care Center, 343 N.L.R.B. No. 76. November 19, 2004 -

In a landmark decision, the NLRB reversed its prior landmark ruling in M.B. Sturgis (2000) and held that the NLRA does not authorize the Board to direct elections in units encompassing the employees of more than one employer (joint employers), returning to its pre-Sturgis case law. Details and analysis are in the Contingent Employment Law Manual. The full Case Opinion is in the updated Case Law Supplement.

September 8, 2004 - Employer Held Not Liable to Pilot as "Joint" Employer or Integrated Employer under the FMLA - Appeals Court Establishes 3-Factor Test to Determine "Co-employer" Status. (Morrison v. Magic Carpet Aviation, RDV Sports, Inc., Harry  Mitchel, Alticor, Inc., f.n.a. Amway Corporation, No. 03-15340, 11^th Cir)

In this landmark case, the 11th Circuit established a 3-factor test for determining whether an entity is an individual's "co-employer".  The Court found there was no shared control of plaintiff for joint employer purposes and therefore no joint employment liability when an employer contracts for the services by another party. Read details and analysis in the Contingent Employment Law Manual. The full Opinion is in the Case Law Supplement.

Dunkin' Donuts and Employee Leasing Company Liable as Co-employers under NLRA. (Dunkin' Donuts Mid-Atlantic Distribution Center Inc. v. NLRB, No. 02-1334) April 2, 2004 

The DC Court of Appeals affirmed an NLRB holding that Dunkin' Donuts and Aldworth Co. were joint employers of plaintiff. Aldworth leased employees to Dunkin' Donuts, which  violated the NLRA.  As co-employers, both Dunkin' Donuts and Aldworth were ordered to: 1) offer reinstatement to employees who were unlawfully discharged; 2) compensate employees for losses; 3) purge their files of employees who suffered illegal discharges or discipline; 4) post remedial notices, and 5) engage in collective bargaining with the union. Read details and analysis in the Contingent Employment Law Manual. The full Case Opinion is in the Case Law Supplement.

Appeals Court Finds Air France Was Not a Joint Employer under FMLA and California Family Rights Act (CFRA); Plaintiffs/Employees Who Provide  Contracted Services to Air France Did Not Have Rights Under FLMA or CFRA (Moreau v. Air France, 9th Cir. Ct of Appeals, February 4, 2004 

The 9th Circuit held that Air France was not a "joint employer" of other firms' employees who provide contracted services to Air France, thus not covered by either  FMLA or CFRA because it did not meet FMLA minimum employee requirement of 50 or more employees within 75 miles of where the plaintiff worked. Read details and analysis in the Contingent Employment Law Manual. The full Case Opinion is in the Case Law Supplement.

December 30, 2003 - 2nd Circuit Makes Major Changes in Joint Employer Status Test in Affirming Employer Liability as Joint Employer in FLSA cases. (Zheng v. Liberty Apparel Co. Inc., No. 02-7826,

In a landmark decision the 2nd Circuit significantly changed its test for determining joint employer status (thus co-employment liability) under the FLSA and NY State labor law, holding that both defendant garment manufacturers and outsourced contract manufacturers were both liable as joint employers under the FLSA and NY labor law.  Read details and analysis in our Contingent Employment Law Manual. Read the full case opinion in our Manual Case Law Supplement.

EMPLOYMENT LIABILITY

WalMart Agrees to $11 Million Settlement in Illegal Foreign Janitors' Class Action Lawsuit Charging Walmart with Violations of FLSA and RICO (Zavala et.al. v. Walmart Stores, Inc. , U.S. D.Ct. D. N.J.) settled March 18, 2005) The $11 million settlement cleared Wal-Mart of federal charges for hiring the illegal immigrants

Labor Dept Orders Computech to Pay $5.7 Million in Fines and Back Wages for FLSA Violations to more than 200 H-1B Computer Professionals. (March, 2005)

The Labor Dept ordered Computech Inc., a national placement firm for computer professionals to pay $4.5 million in back wages to 232 non-immigrant computer professionals and $1.2 million in fines for willful violations of the H-1B visa program's wage requirements and providing inaccurate information on its H-1B application materials in violation of immigration laws. Computech brought non-immigrant H-1B workers into the country, but did not pay them the required wage rate in the areas where they were employed, and often paid them nothing when there were no work assignments available. Read details and analysis in the updated Contingent Employment Law Manual.

Jan 26, 2005 -Federal Court Holds National Supermarkets Responsible for Overtime and other FLSA Violations by their Subcontractor Cleaning Firm, Resulting in a $22.4 Million Settlement for 2,000 Immigrant Janitors in Class Action Suit. (U.S. D.Ct., Cal. ) (see also immigration law and co-employment liability)

In a landmark case, a Federal Court in California approved a $22.4 million settlement in this class action lawsuit by 2,000 immigrant janitors who were hired by subcontractor  cleaning firms and worked as janitors in the California stores of several national grocery stores - Safeway, Vons, Albertsons, and Ralph's. The plaintiffs/janitors charged the defendants violated FLSA overtime and minimum wage laws, holding the stores responsible for their cleaning companies' failure to pay overtime and minimum wages under the FLSA. (U.S. D.CT. S.D., CA, Los Angeles, Jan 26, 2005).

Federal Court Approves Class Action Status in Janitors' Co-employment Class Action Lawsuit against Walmart charging Violations of FLSA and RICO (Zavala et.al. v. Walmart Stores, Inc , U.S. D.Ct. D. N.J.) Dec 29. 2004 (see also Immigration Law and Co-employment Liability)

The Federal Court in Newark, New Jersey approves a "collective action" in the class action suit filed contract employee janitors who sued Walmart in November 2003 charging that Walmart violated the FLSA and RICO as a co-employer with the contract employee staffing agencies.

The Court ruled only on the FLSA claim, that all contract janitors who worked for Walmart since 2000 anywhere in the U.S. should be notified of their potential eligibility to join as members of this class action.

Security Guards are Not Entitled to Overtime under FLSA Based on Court Finding Guards were  Independent Contractors, not Employees. (Johnson, et.al. v. Unified Government of Wyandotte County/Kansas City, Kansas and Housing Authority of Kansas City, June 7, 2004)

In this landmark case, the 10th Circuit held that security guards at defendant's Housing Authority were not entitled to overtime pay because they were contractors and not employees. The Court based its ruling on five factors in determining employee vs. independent contractor status, holding that the defendant Housing Authority had only a minimal degree of control over its security guards.

Sega of America and Spherion Corp Settle Employment Discrimination and Retaliation Lawsuit by EEOC for $600,000 (March, 2004)

The EEOC charged that Sega directed Spherion to terminate temporary employees placed at Sega's testing department by firing 13 Filipino game testers due to their national origin and firing five other testers in retaliation for their friendship with an employee who  threatened to file a complaint alleging preferential treatment of Filipino employees.

Supreme Court Sets Standard for Corporations to include Shareholder- Directors as "Employees" in order to meet "Employee Headcount" Threshold for ADA Coverage. (Clackamas Gastroenterology Associates v. Wells, U.S. Supreme Court, April 22, 2003). Read analysis of this landmark case affecting small business owners in the Contingent Employment Law Manual.

Musicians are Independent Contractors and Not Employees of Community Orchestra, and Therefore Don't Have Rights to Sue the Defendant Orchestra under the ADA or Title VII of the Civil Rights Act. (Lehrol v. Friends of Minnesota, U.S. Ct of Appeals, 8th Circuit, May 6, 2003). Details in the Contingent Employment Law Manual.  

Appeals Court Rejects Age Discrimination Claim By Corporate Shareholder Who Shared Control of a Closely Held Professional Corporation (Schmidt v. Ottawa Medical Center, P.C.), US Court of Appeals, 7th Circuit, March 5, 2003) Read details and analysis in our Contingent Employment Law Manual  

EMPLOYEE BENEFITS and ERISA

5th Circuit Holds Contract Employees Placed with Defendant Georgia Gulf Were Not Common Law Employees of Georgia Gulf, thus Not Entitled to Benefits under ERISA. (Landry, et. al. v. Georgia Gulf, March 8, 2004).

Defendant Georgia Gulf hired contract workers from various third parties. Plaintiffs claimed they were eligible for employee benefits from Georgia Gulf. They sued defendant  claiming they were common law employees and thus eligible for employee benefits under ERISA. Georgia Gulf concluded that plaintiffs were not common law employees, and therefore not eligible for employee benefits. The District court held that plaintiffs were not common law employees of Georgia Gulf. The 5th Circuit affirmed the district court on appeal, holding that plaintiffs were not common law employees of defendant based on the traditional common law factors test of Nationwide Mut. Ins. Co. v. Darden. It found that a plurality of the Darden factors, including skill required, right to assign additional projects, method of payment, role in hiring and paying assistants, employee benefits, and tax treatment, supported the finding that plaintiffs were not defendant's common law employees.

Plaintiffs also argued that Georgia Gulf's benefit plans would lose their tax exempt status because defendant undercounted its contract employees. The Court rejected this argument as well, holding that no precedent conflates tax exempt status with common law employment under the Darden factors.

Supreme Court Holds Working Owner of a Business Who is Sole Shareholder and President Qualifies as an Employee "Participant" in an ERISA-Covered Pension Plan. (Yates v. Hendon, U.S. Supreme Court, March 2, 2004, remanded by Hendon v. Yates (In re Yates, 6th Cir. April 8, 2004.)

If an employee benefit plan covers one or more employees other than the business owner and his or her spouse, the working owner may participate on equal terms with other plan participants.  

Employer May Limit Employee Benefits Plan Participation to Salaried Employees Only Under ERISA (Bauer v. Summit Bancorp., US Ct of Appeals, 3^rd Circuit, March 25, 2003). The full text of this case can be found in our Case Law Supplement. The case is analyzed with details in our Contingent Employment Law Manual

Walmart Enforcement Action Highlights Legal Risks in Hiring Immigrants - BCIS Enforcement Includes Civil and Criminal Penalties for Immigration Law Violations.

Walmart responded to the arrest of 245 foreign non-immigrant workers by promising to review its 1.1 million workforce and to discharge workers hired in violation of Immigration Law requirements of proper documentation to work in the U.S.(including properly completed I-9 Forms (see our Contingent Workforce Forms Book). 

HIPAA PRIVACY REQUIREMENTS

Temporary Staffing Agencies are Treated as Business Associates under HIPAA Privacy Rules -- Agencies should review all contracts and add  Business Associate Agreements for HIPAA compliance as needed. (HHS Regulations, April 14, 2003) See article below

Privacy Rules Create Two New Worker Classifications: Workers are either "workforce members" or "business associates". Contractor agreements need revision for HIPAA compliance as "business associate agreements". (HHS Regulations, April 14, 2003). See article below. Traditional "Employee vs. Contractor" Distinctions.

HIPAA Requirements for Small Businesses  Effective April 14, 2004

New HIPAA Privacy Rule Requirements protecting personal health information (PHI) mandate compliance for small providers. Forms for HIPAA compliance are included in our Contingent Workforce Forms Book.

States 

New state laws defining "independent contractor" with costly penalties for  'employee misclassification" are being aggressively enforced by state agencies. See current list of state laws.

Worker Status Tests Under Federal Laws and Agency Regulations

IRS Worker Status Determination Criteria:-3-prong test

ERISA/Employee Benefits 12-Factor Test

Immigration Law: 7- Factor Test

EEOC Common Law Test

Commentary

Co-employment Raises New Legal Risks for Staffing Agencies and Business Clients,
January 2005

Emerging Co-employment Risks in Joint Ventures, Partnering, Strategic Alliances and Outsourcing, December 2004 

New HIPAA Health Information Privacy Requirements Pose Costly Traps for Contractor Workforce Management, April, 2003

Ex-CEO's Who Consult to Former Employers are Independent Contractors, Not Employees and Should Lose Benefits & Perks Under IRS Worker Status Rules, September, 2002

Hiring Contingent Workers Becomes a Riskier Business, July, 2002

EEOC's New ADA Guidance Casts Broad Legal Risk Net on Staffing Agencies and Businesses April, 2001

Home Based Business Owners Need to Know Their Worker Status at Tax Time, January, 2001

Our Mission

We provide timely information and education about significant legal developments affecting temporary, contract and other contingent workforce managers, business owners, staffing agencies, attorneys, consultants, third party service providers and other professionals involved in contingent workforce legal matters.

Disclaimer

The information contained on this site is intended for informational purposes only.  It is not intended or provided as legal advice or  counsel.  You should contact appropriate and experienced legal counsel for advice on subject matters contained on this web site

Copyright 2001, 2002. 2003, 2004, 2995, 200-6, 2007, 2008 

REW Associates, Inc.   All Rights Reserved