Believe it or not!

Then we get a decision from a federal court in Texas where a lawyer had a relationship with his legal assistant -- and allegedly shoved her around a little bit, too, but that's ok because she probably asked for it (sarcasm) -- and then fired her when she, understandably, broke up with him. She's going to get a trial on claims of sexual harassment, intentional infliction of emotional distress, and violations of the Fair Labor Standards Act.

Fair Labor Standards Act??? HUH???

Yes, the Fair Labor Standards Act. You see, in addition to being pushed around -- literally -- she was also being treated as an "independent contractor." The judge said that there was enough evidence that she was, in fact, an "employee" for her Title VII harassment claims and her FLSA claims to go to trial.

And, believe it or not, the "independent contractor" angle to this case is more interesting than the sexy or girlfriend-beating parts.

At least, it is if you're an upstanding, respectable, non-sleazy lawyer or HR professional, like us.  

Here's what happened. The lawyer (let's call him "O.J.") hired this woman (let's call her "Farrah") to be his assistant when he was in private practice. Their sexual relationship began the same year. Later, he became an employee of a company (let's call it Penetrode) and wanted to get Farrah a job there, too. Penetrode didn't want her as an "employee" but only as an "independent contractor." So, at the direction of Penetrode, she formed her own consulting company (let's call it "Fake Company").

She, like, incorporated, and everything.

Here's Farrah with her awesome Fake Company team.

Meanwhile, all this dysfunctional sexual relationship stuff was going on between Farrah and O.J. Among other things, O.J. required her to attend Penetrode functions and meetings, told her when to be at work and when not to be at work, and otherwise acted as a regular old boss.

A really, really bad boss, but a boss, nonetheless.

Not only did he sexually harass and abuse Farrah (allegedly), but he also allegedly made her work a lot of hours for which she wasn't paid.

Dude, she's an independent contractor. She gets paid by the project, not by the hour!

So, after she broke up with O.J. and sued him and Penetrode, the latter tried to dismiss her Title VII and FLSA claims on the ground that Penetrode wasn't her employer.

Penetrode had several points in its favor:

*Farrah had her own consulting biz that was, like, incorporated, and everything.

*Farrah had other clients. (This point, I thought, was a genuinely good one for Penetrode.)

*Farrah paid taxes and her own Social Security, just like a real independent contractor.

When you have a minute, please pop on over to Blogging4jobs for the January Employment Law Blog Carnival. Many thanks to Jessica Miller-Merrell for hosting us this month, and to Eric Meyer, as always, for running the show!

But, the court said, there was reason to believe that the whole Fake Company concept was just a way to continue Farrah's employment for O.J.:

*Farrah had been O.J.'s employee when he was in private practice, and she formed Fake Company only after being told she had to do it to be able to work for Penetrode.

*The work that Farrah d/b/a Fake Company did for the other clients was a drop in the bucket compared with the work that she did for Penetrode, another indication that this Fake Company might have been, er, "fake."

*As already stated, O.J. told Farrah when she had to be at work, and he required her to attend various Penetrode functions (including office parties) that a true independent contractor would not normally be expected to attend. Or at least not required to attend.

*When he and Farrah were still in their stormy relationship, O.J. allegedly told Farrah that she would have a job at Penetrode as long as he did . . . indicating that she might not really be in an independent contractor relationship, which presumably would end when the "project" was finished.

So, the judge found that there were "genuine issues of material fact" on the "independent contractor versus employee" issue, meaning that Penetrode could not get out of the Title VII or FLSA claims before trial. (It did manage to get out of some vicarious liability claims for assault and battery based on O.J.'s alleged abuse, because of the statute of limitations.)

Not an actual picture of Farrah's boss.

The "independent contractor versus employee" issue is a big one. The U.S. Department of Labor issued a notice last week requesting comment on a proposal to conduct a nationwide survey intended to determine whether workers are being treated as "independent contractors" when they are really employees. (My firm's Wage and Hour Practice Group will soon have a more comprehensive bulletin on this DOL notice, and I'll update this post when it's out.) Commentators say that the DOL notice is a prelude to a requirement, proposed early in President Obama's first term, that employers be required to give written explanations to "independent contractors" of the basis for their being classified as such. The written explanations, of course, could be used against companies by the DOL or plaintiffs.

Why does Robin keep putting "independent contractors" in quotes?

Because many "independent contractors" are really employees. If an employee is misclassified as an "independent contractor," the company can be liable for failure to withhold taxes, the employer's share of FICA, and employee benefits. If you use "independent contractors," you should reevaluate their status as soon as you can and make any necessary corrections. This is especially true if you have a lot of "independent contractors" because the aggregated liability can be substantial, as Microsoft learned several years ago. (The Microsoft case involved "temps" who had been with the company long-term -- aka "permatemps" -- but the same principles apply.)

Believe it or not!

Image credits: Wikimedia Commons.

Creeeeeeeeaaaaaaaaaaak . . .

Eeeeeeeeeeeeeeeeeeeeeeeeeeeaughhhhhhhhhh . . .

In honor of Halloween, here are nine things employers say that strike terror in the hearts of their lawyers. CAUTION: Pregnant women, anyone with a heart condition or seizure disorder, and anyone who is easily upset should stop reading NOW!!!!

No one will be seated after the first 15 minutes of this post!

BEWARE! Take care! Pull the string! Pull the string!

YOU HAVE BEEN WARNED. MY FRIEND, CAN YOUR HEART STAND THE SHOCKING FACTS OF GRAVE ROBBERS FROM OUTER SPACE 9 SCARY THINGS THAT EMPLOYERS SAY? HERE GOES . . .

1. "When did we last have harassment training? Yep, we've been meaning to get that done."

2. "Of course we don't pay our secretaries overtime. They're salaried, not hourly, and they're all very professional."

3. "Well, no, we didn't really have much of a reason to fire Joe, but this is an employment-at-will state, isn't it? We don't need a reason."

4. "Mary isn't eligible for benefits. She's an independent contractor."

5. "Meet Jose. He's been temping with us for five years."

6. "I'm sure we'd manage if we let Rachel take off for the Sabbath. But if we did it for Rachel, then everybody would be wanting Saturdays off, so we told her no. After she missed a few Saturdays, we fired her for attendance."

"You did WHAT?"

7. "I guess with 20-20 hindsight we should have documented that."

8. "We hire Hispanics only, unless we're desperate for warm bodies. Hispanics work so hard and have such good attitudes."

"She fainted! Isn't it ok to discriminate in favor of Hispanics?"

9. "Yes, I know manager Sam is mean and treats his employees like dirt, but his department makes so much money . . ."

*whew* "That was number nine, right? I wasn't sure I'd make it. What a stupid, stupid, stupid post!"

Remember, my friend, future events such as these will affect you in the future. Pleasant nightmares . . .

Photo credits: Wikimedia Commons, still shots from Edward D. Wood Jr.'s Plan 9 From Outer Space (1959), considered one of the worst films ever made. (So bad, it's good.)

Here are some great labor and employment blog "leftovers" from the holidays that I hope you will enjoy as much as I did, followed by a few new year's resolutions for employers and employees. Please add to my list!

In case you were chillaxin' last week and missed it, here is a link to my 2011 labor and employment year in review. With President Obama's recess appointments (thanks to Eric B. Meyer of The Employer Handbook), it's already getting stale, so hurry up and eat!

More tasty cold stuff from around the internet:

The Evil HR Lady tells you how to know if you are the "Kim Jong Il" of your company. Funny, and good advice, too.

Daniel Schwartz of the outstanding Connecticut Employment Law Blog uses his Magic 8 Ball to let us know what to expect in the world of employment law in 2012.

And Donna Ballman of Screw You Guys, I'm Going Home uses the magic 8-ball app on her iPad to make her 2012 predictions from a plaintiff's perspective. Donna, you are so high-tech!

Philip Miles of Lawffice Space shares with us his Top 5 Employment Law Cases of the Week for 2011. If you ever wanted to know about "Crazy Bi**h Bingo" (and who doesn't?), be sure to check Philip out!

Here's a favorite from Jon Hyman of Ohio Employer's Law Blog: Resolve this year to properly handle no-fault attendance policies. Since the $20 million EEOC/Verizon settlement, this is more important than ever.

OK, is that tryptophan kicking in yet? But, wait! Don't get too comfy, because now it's time for some employment New Year's resolutions:

1. If I am an employer, I will make sure all of my supervisors and managers have harassment training this year. At a minimum, the training will cover harassment based on race, national origin, religion, disability, and age, as well as sex. If my state or company policy prohibits other types of harassment, I will be sure that those types are covered as well.

2. If I am an employee, I will refrain from using social media to bad-mouth my boss, my company, my co-workers, or my customers . . . even if the National Labor Relations Board says it's legal for me to do so.

3. If I am an employer, I will review my attendance, medical leave, and reasonable accommodation procedures to make sure that they comply with the Americans with Disabilities Act. If they don't, I will make the appropriate changes right away. No procrastination!

4. If I am an employee, I will show up for work on time every day unless I have a very good reason not to, and I will give my employer a fair day's work for a fair day's pay, with no "drama."

5. If I am an employer, and if I haven't done it recently, I will have a wage-hour audit in 2012 to ensure that my employees are properly classified as exempt/non-exempt, that the non-exempt employees aren't working off the clock, that I'm not violating child labor laws (especially if I'm in the food or hospitality industry), and that I don't have any employees whom I am improperly treating as "independent contractors." If it turns out that I'm doing anything wrong, I will promptly fix it. No dawdling!

6. If I am an employee, I will comply with my employer's rules about appropriate behavior at work, including but not limited to rules pertaining to honesty, harassment and bullying, and safety.

7. If I am an employer, I will make sure that I am in compliance with the Genetic Information Non-Discrimination Act, and in particular that I am providing the "safe harbor" language whenever I sent one of my employees to the doctor.

8. If I am an employer, I will re-familiarize myself with the concept of "retaliation" and consult with an attorney whenever an employment decision looks like it may be close to the line. I will not wait until after the damage has been done.

Ugh. And this post started out so nice. Please add any resolutions you think employers or employees should make this year. And a safe and prosperous 2012 to you all!

Now, fix me a drink, will ya? We have a lot to talk about.

JANUARY

Ah-choo! Some teenage burglars stole an urn that contained the cremated remains of a man and two great Danes. The teens, obviously not criminal masterminds, snorted the ashes, believing them to be cocaine. 

and . . .

"He*l, they're all disgruntled. I ain't runnin' no da*n daisy farm!" The EEOC reported that for fiscal year 2010 it received a record number of charges, and that retaliation charges surpassed race discrimination charges for the first time in history.

Express yourself. The U.S. Department of Labor issued guidance on its "lactation accommodation" provisions in the Patient Protection and Affordable Care Act (aka "Obamacare") and requested feedback from the public.

GINA: It's more than just a pretty name. The Genetic Information Nondiscrimination Act, which prohibits the acquisition, use or disclosure of "genetic information," which includes family medical history information, took effect.

Nice family. I'd hate to see somet'ing happen to 'em, ya know? The Supreme Court held in Thompson v. North American Stainless that the Title VII anti-retaliation provisions extend to fiances and other significant others of the person who engages in legally protected activity.

FEBRUARY

"Of course, you realize this means war." Uber-disgruntled ex-employee Charlie Sheen declared war on his former employers CBS and Warner Brothers.

and . . .

Another county heard from. (Or is it "country"?) Constangy, Brooks launched the most-excellent Employee Benefits Unplugged, which covers income tax, executive compensation, 401(k) and 403(b) plans, fiduciary compliance, and Department of Labor and Internal Revenue Service audits. All of the attorneys in the firm's Employee Benefits Practice group contribute, but the Chief Blogmistress is Jewell Lim Esposito from the firm's Fairfax, Virginia office.

MARCH

I hate to say "You can't make this stuff up," but you really can't make this stuff up. A New York man who had a court appearance on a DWI charge showed up with an open can of beer and (allegedy) was carrying a bag with four more cans of beer. The man, who had prior DWIs, was jailed with no bail.

and . . . 

At the stroke of a pen, entire nation becomes disabled. The EEOC issued its Final Rule interpreting the Americans with Disabilities Act Amendments Act.

Make sure your "paws" know the laws. The U.S. Supreme Court found in Staub v. Proctor Hospital that an employer could be liable under a "cat's paw theory" for employment decisions that were influenced by a supervisor or other member of management who had an unlawful motive.

APRIL

Study: Members of Congress give each other much less grief than they deserve. A Harvard professor conducted a study that concluded that members of Congress spent 27 percent of their time taunting each other.

and . . .

Life begins at Concepcion. The U.S. Supreme Court found in AT&T v. Concepcion that arbitration of class claims was ok and consistent with the policy underlying the Federal Arbitration Act. The Concepcion decision overruled the interpretation of the California courts that class claims could not be arbitrated.

OFCCP starts pilin' on. The Office of Federal Contract Compliance Programs issued a proposed rule regarding the obligations of federal contractors to recruit and hire veterans. Although the desire to help veterans is laudable, the rule would impose significant compliance burdens on federal contractors.

Nothing could be finah . . . The NLRB filed a complaint against Boeing Corporation for opening a production line in North Charleston, South Carolina, instead of the outskirts of Seattle, Washington, where most of its production was located. The Board alleged that the move to right-to-work South Carolina was the company's unlawful attempt to avoid dealing with the International Association of Machinists, which had carried on a number of strikes at the Washington State facility over the years.

MAY

Cannibal Lecter. A man ran an internet ad seeking someone "who would agree to be killed, cooked, and eaten." A Swiss man answered the ad, thinking it was just a fantasy game, but after talking with the "cannibal" on the phone, determined that he was deadly serious. (Tehe. Get it?) The would-be "meal" called the police, who answered the ad undercover and foiled the banquet.  

and . . .

"I'm a victim of soicumstance!" (Probably true.) Bruce Raynor, President of the Workers United affiliate of the Service Employees International Union and International Executive Vice President of the SEIU, was forced out of both positions after being charged with filing misleading expense reports. Raynor, a labor leader for 38 years and who had been president of UNITE and UNITE HERE for eight years before joining Workers United, contended that he was a victim of SEIU politics.

Kiss our apps! The U.S. Department of Labor launched its wage and hour recordkeeping app (at link, scroll down to "Email your timesheets directly to Big Brother!") for iPhones and iPods, with a promise to develop counterparts for Androids and Blackberrys.

Labor pains. The NLRB sued the state of Arizona over a constitutional amendment that protected the right of employees to have secret ballots in union representation elections. The Board contends that state constitutional amendments like Arizona's are preempted by the NLRB. It has also sued the state of South Dakota for the same reason.

Your money, or your life. The OFCCP proposed changing the scheduling letter that it sends to federal contractors who are being audited. The changes would require contractors to provide detailed, individualized information about employees' compensation, among other proposed changes.

One word. Weinergate.

and . . .

Labor pains, about an hour apart.  The NLRB issued a proposed rule providing for "quickie elections," shortening the time between the filing of a union election petition and the election date, and giving unions immediate access to contact information of employees.

Love those Supremes. On a more positive note, the Supreme Court held in Walmart v. Dukes that a sex discrimination case could not proceed as a class action unless the members of the putative class had so much in common that they could be treated as "one." The Court also held that individual claims for damages had to proceed under rules that allowed the putative class members to "opt out" and that provide more procedural safeguards for defendants.

Don't go away mad, just go away. The Supreme Court upheld an Arizona statute that, among other things, sanctioned employers for knowingly or intentionally employing illegal aliens. The Court, in Chamber of Commerce of the United States v. Whiting, found that the Arizona law was not preempted by the federal Immigration Reform and Control Act.

JULY

They couldn't do it here because it would have violated the ADA. The Crowne Plaza announced the introduction of "snore patrols" in its European and Middle Eastern hotels. The patrollers walk through the hallways and notify guests who snore too loudly, disturbing other guests. The heavy snorers are not kicked out of the hotels but may be moved to rooms in the hotel where they won't bother anybody. (In case you didn't get the ADA reference, loud snoring is often a result of sleep apnea.)

and . . .

Labor pains, coming every 45 minutes now. The U.S. Department of Labor issued a proposed rule on "persuader" reporting rules for attorneys and consultants who advise companies in union elections.

Let's you and him fight. The EEOC got the biggest settlement in its history -- $20MM -- against Verizon. In a case that began under the Bush Administration, the EEOC alleged that Verizon violated the ADA by charging no-fault attendance points without making accommodations to employees whose absences were caused by disabilities. Verizon's attendance policy was part of a collective bargaining agreement. We can't help wishing Verizon had called the EEOC's bluff and gone to court, but its reluctance to do so is certainly understandable.

AUGUST

His sexual harassment training apparently didn't "take." An employee at a fast food restaurant in Georgia was arrested after he handcuffed himself to a teenage co-worker who continually rejected his requests for dates. The girl's co-workers ultimately persuaded him to release her, and she was not hurt.

and . . .

Liebman leaves, poster provision promulgated. NLRB chair Wilma Liebman left the Board as her term expired, but not without a few parting "gifts" for employers, one of which was a requirement that all employers governed by the NLRB post notices informing employees of their right to join unions.

Labor pains, 30 minutes apart now. The NLRB approved a job-based bargaining unit in Specialty Healthcare and Rehabilitation of Mobile, in a decision that is expected to make it dramatically easier for employees in the health care industry as well as other industries to organize. Small bargaining units tend to be more advantageous for unions.

SEPTEMBER

Steak tartare. A man was arrested at a Carlisle, Pennsylvania Walmart for eating some of the store's raw meat merchandise and putting the rest back on the shelves. Walmart had to throw out the meat, of course. Even though the value of the meat was just over $24, he was charged with a felony because he had four prior convictions of retail theft.

and . . .

Thanks, but no thanks. The Internal Revenue Service announced an "independent contractor amnesty" program. Employers who voluntarily reclassify their "independent contractors" as employees get a number of nice tax breaks. Sounds great until you realize that, at the same time, the IRS, the U.S. Department of Labor, and a number of state governments have entered into agreements to share information. And the amnesty applies only to the IRS, not to these other agencies. What do you bet the DOL, et al., will come after some poor unsuspecting employer who enters into one of these agreements, hitting it up for back overtime wages, back benefits, back workers' compensation, and more.

Xtreme EEO. Between the first of August and mid-September, the EEOC filed 21 ADA lawsuits against employers, including a case against Walgreen's over a cashier who was fired for eating a bag of potato chips without paying for it, and a case against Goodyear over a production worker with menstrual problems.

Petulant post protected? Pshaw! In Karl Knauz Motors, Inc., an administrative law judge found that a BMW dealership did not violate the National Labor Relations Act by terminating a salesman who posted on his personal Facebook page photographs and snarky comments about a kid who "test drove" a vehicle into a pond. Although the ALJ found that other Facebook posts by the salesman were protected concerted activity (where he'd criticized the cheap food at a customer event, saying he thought it would adversely affect sales commissions), the ALJ also found that the unprotected "test drive" post was the reason for the termination.

Ain't we something! (Really, you.) Employment & Labor Insider and our brother blog, WorkMatters, were selected for the LexisNexis top 25 employment law blogs. Thanks so much to you, our readers, for your support!

OCTOBER

That's a lotta apps! Research in Motion, the company that manufactures the Blackberry smartphone, apologized for a three-day email outage by offering users $100 in apps. (Psssst -- if you are a Blackberry user and haven't claimed yours yet, you still have until December 31.)

and . . .

Hell hath no fury? The ABA Journal caught some grief after it ran an article about a study showing that legal assistants overwhelmingly preferred working for male attorneys. According to the study, no assistants preferred working for female partners, and less than a handful preferred female associates. The author of the ABA Journal article and the professor who conducted the study were female.

Poster posting postponed. The NLRB delayed the effective date of its notice posting requirement (see August) until January 31, 2012.

NOVEMBER

I totally understand how this woman feels. A Wisconsin woman had her heart set on a 3 a.m. cheeseburger at McDonald's. Unfortunately for her boyfriend, when they got to the drive-thru window, they were informed that the restaurant had stopped serving "dinner" and was now serving breakfast only. They drove away, and, out of her mind with grief, the woman began hitting her boyfriend, biting his arm, and tearing his shirt. When he pulled over to the side of the road, she allegedly got on top of the hood of his car to keep him from leaving. The woman admitted to the police that she was "freaking out" over her inability to get a cheeseburger. She was charged with disorderly conduct. (This story reminds me of the Whammyburger scene in Falling Down, although in that movie, Michael Douglas wanted breakfast. At first.)

and . . .

The incredible shrinking NLRB. With Wilma Liebman's departure (see August), the Board was down to three members, one of whom was Craig Becker, whose recess appointment is due to expire on New Year's Eve, leaving the Board with only two members. Thanks to the Supreme Court's decision in New Process Steel, this means that the two-member Board would be unable to take any action because it must have three members for a quorum. In response, the Board delegated authority to litigate and seek injunctions, as well as authority to certify the results of certain secret ballot elections, to the General Counsel of the NLRB.

What shall it profit a man, if he shall gain 666 days without a lost-time accident, and lose his own soul? A Georgia employer was proud of making it 666 days without a lost-time accident and required its employees to wear badges advertising that fact. Only problem was, one employee believed that wearing the "666" badge would cause him to suffer eternal damnation because it was "the mark of the beast" described in the Book of Revelations. Instead of letting this one guy skip the badge and save his soul, the employer fired him. He filed suit for failure to make a religious accommodation.

Labor pains, 15 minutes apart. The NLRB approved a resolution to go forward with its "quickie election" proposal (see June).

DECEMBER

Tubas are the new Escalades. California, which, as we all know, is way ahead of the rest of us, is experiencing a crime wave of tuba thefts. Piccolos, trumpets, maracas, and pipe organs, among others, remain unmolested. Law enforcement authorities believe that tubas are in demand now because of the banda music popular in Southern California. A new tuba sells for about $5,000, and a used one for about $2,000.

and . . .

Speaking of California . . . A boatload of new employment laws will take effect in the Golden State on New Year's Day 2012, including a ban on most credit checks, a requirement that some employers certify their efforts to prevent human trafficking and slavery, and much, much more! Probably some other states have laws that will take effect on New Year's Day, too.

Since everyone is now disabled, maybe this won't be too big a deal. The OFCCP issued a proposed rule interpreting Section 503 of the Rehabilitation Act of 1973, which would require federal contractors to establish "goals" of a 7 percent disabled workforce. (Hat tip to Constangy's John Doyle, who pointed out how easy this goal will be to attain, now that the ADAAA has rendered virtually 100 percent of the workforce "disabled." LOL, John!)

Boeing case ends. The NLRB withdrew its complaint against Boeing (see April) after the company agreed to open a new production line in Washington State.

Buh-bye. Craig Becker's recess appointment to the NLRB expires this Saturday night.

Labor pains - GET ME TO THAT DELIVERY ROOM STAT! One day before the NLRB issued a final rule on "quickie" elections (see June), the U.S. Chamber of Commerce sued to block the rule. President Obama announced that he would make recess appointments to the NLRB of Sharon Block, the DOL's Deputy Assistant Secretary for Congressional Affairs, and Richard Griffith, General Counsel of the International Union of Operating Engineers, to the Board to restore the quorum (see November), but all 47 Republican senators have gone on record as opposing the appointments. And the NLRB has postponed its posting provision (see August and October) yet again . . . the new deadline is April 30, 2012.

Thank you again! Employment & Labor Insider and our brother blog, WorkMatters, were selected for the ABA Blawg 100. We very much appreciate your support and hope you will stay with us in 2012!

Speaking of which, just wait'll next year . . . Did you know that the world really isn't going to end on 12/21/12? What's with that?

You know the old saying, "If it seems too good to be true, it probably is"? Well, it appears that this may be the case with the new "sweet deal" the Internal Revenue Service is offering to employers who agree to reclassify their "independent contractors" [sic] as "employees" in exchange for some admittedly generous breaks.

The IRS announced this week that it is offering a REALLY, REALLY NICE THING to employers. :-)  If an employer promises that it will treat its independent contractors as employees going forward and enters into an agreement with the IRS, the IRS will assess employment taxes for only the tax year before the agreement was entered and at a reduced rate, with no penalties or interest, and no audits. The program is aimed at small employers, but all employers are welcome. Jewell Lim Esposito at our sister blog, Employee Benefits Unplugged, has more details about the IRS deal and thinks it's great from a pure tax standpoint.

I agree. But, as Jewell also notes, the news release says nothing about amnesty on all liability resulting from a misclassification.

I must admit that I wondered why this Administration, which is usually aggressive toward employers, is all of a sudden being so sweet and lovable?

(I am such a cynic.)

It then occurred to me: But, of course! This is to allow that other agency, the U.S. Department of Labor, which presumably will not be a party to the IRS/employer agreement, to come in and sue the pants off the employer for back benefits and wage-hour violations. Because, you see, misclassified "independent contractors" don't get benefits or overtime, and they may not even be getting the minimum wage once their "fee" is divided by hours worked.

My paranoia was really raging now, and I remembered another news item that came out at the beginning of this week: Secretary of Labor Hilda L. Solis announced a "cooperative" initiative in which the IRS, the DOL, and 11 state governments* are going to start working together to fight misclassification of employees as independent contractors. In addition, the Office of Federal Contract Compliance Programs (the affirmative action guys) and the Occupational Safety and Health Administration are among the agencies who will be receiving and sharing information.

*The 11 states who entered into the memorandum of understanding or have agreed to do so are Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington.

(Hat tip to Bureau of National Affairs for both of these news items.)

So! Aha! Putting it all together, here's what the deal really appears to be: A naive (probably small but could be large) employer who has some misclassified folks will read about the IRS deal and think, "What have I got to lose? I'd be a fool to turn this down!" So he signs the agreement with the IRS.

Bam! Six months later, the DOL -- who has received from the IRS the list of unsuspecting employers who entered into this agreement admitting that they were doing it wrong -- comes out for an investigation and hits the employer for overtime and possibly minimum wage violations. Then, the employer's state government -- armed with the same information -- comes out and clobbers the employer for workers' compensation premiums and benefits, and possibly other benefits that the state requires employers to offer to employees. Bam! Bam!

But, wait! There's more! The newly classified employees might have claims for other employment benefits as well, as Microsoft learned the hard way. Bam! Bam! Bam! Then, OSHA and the OFCCP and who knows who else can come in and kick the employer a few more times while he's down. Bam! Bam! Bam! Bam! Bam! (etc.)

THE MORAL: If you have "independent contractors" who are misclassified, by all means get that fixed as quickly as you can. As long as the workers are misclassified, you are potentially liable for back taxes, including FICA, and penalties, back benefits, and back wages. In fact, you can even be liable for severance pay in the event that the faux independent contractor was let go under circumstances that would have entitled her to severance if she'd been an employee. (I actually had this happen to a client once.)

To repeat, if you're doing it wrong, stop it now. But don't be too eager to enter into this deal with the IRS, and definitely do not enter it without consulting with your attorney. Situations vary, and the IRS deal may be good for some, but you also may be much better off taking your chances with an IRS audit (which may or may not ever happen). Meanwhile, you will not be erecting a large neon sign with flashing lights saying, "Here I am, Hilda Solis and everybody else -- I'm guilty -- come and get me!"

Just call me Jim Garrison.