Employment and Labor Insider - Legalese Is Not Spoken Here

This has not been a good week for lawyers. First, we heard about the married Minnesota lawyer who had a sexual relationship with a client (a major ethical violation in itself) and then had the nerve to bill her for his time! Whether a special billing rate applied to criminal conversation is not disclosed. Hey, by the way, which task code would this fall under?  "Appear for/Attend," "Communication (With Client)," or "Review/Analyze"? Do you think he inflated his hours? Hmmmm . . .

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.

After a great holiday feast, isn't it fun just to eat the leftovers? Like a nice, cold roast beast sandwich with a wedge of leftover pie? Yum!

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!

Don't eat that pretty red apple, Snow White!!! It has poison in it!!!!

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.