Employers, don't be too quick to take that IRS "independent contractor" deal

Posted by Robin E. Shea on September 23, 2011

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 entersBaby with apple.jpg 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.

Equal-opportunity harassers, dirty old men, retaliation, and the "gender gap" on Wikipedia: pressing legal issues of the day

Posted by Robin E. Shea on February 04, 2011

Latest dispatches from the employment law front:

If you're going to be an SOB, make sure you're an SOB to everybody. A federal district court in Kentucky granted summary judgment to the employer in a sexual harassment case. The female plaintiffs alleged that a charlatan "turnaround specialist" hired by their CEO was not "motivated by sexual desire" butWoman reading newspaper screaming.jpg was simply abusive and mean. The court found in favor of the employer based on the "equal opportunity harasser" concept: the evidence clearly showed that the "specialist" was abusive and mean to everybody, not just women. Among other things, he had "invited" the male production manager to step outside to the parking lot, presumably to fight. He had also cursed at another male employee, threatened him, and thrown a piece of paper in his face.

The "equal-opportunity harasser" concept is well established in the law because the essence of "discrimination" is to treat one group differently from others. If the plaintiffs could have shown that this consultant was a bully only to women, then they would have had a claim. But since he treated both sexes equally badly, he could not be found to have discriminated based on sex. For the same reason, the women's retaliation claims under Title VII of the Civil Rights Act of 1964 also failed -- because their complaints about the consultant were not complaints of sex discrimination/harassment, they had not engaged in activity protected by Title VII.

That said, consultants and managers who behave this way are toxic and should be dealt with promptly. In this case, the employees complained to the CEO, who removed the consultant from "service." (The plaintiffs sued after they were terminated for other reasons several months later.) Even if the employees don't have a valid discrimination claim, the morale issues caused by a bad boss are obvious. And employees who feel that they have not been treated with respect and dignity will be much more likely to take legal action against the company.

Dirty old men need love, too . . . or do they? A perennial problem for health care facilities, and especially nursing homes, is the patient who hasn't had the benefit of modern EEO, diversity, or harassment training, and doesn't understand that he or she cannot use racial epithets or grope the staff. Often, these patients are so elderly that they grew up in a completely different era and may not be familiar with modern standards of behavior. Or they may have diminished capacity because of senile dementia or Alzheimer's.

In any event, they can't be thrown out onto the street as easily as a 35-year-old able-bodied employee who is a jerk at work. But what does the employer do when the patient mistreats, abuses, or even molests the staff?

According to the U.S. Court of Appeals for the Tenth Circuit (Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming), the employer has to do more than just give the patient a good talking to. In Aguiar v. Bartlesville Care Center, the defendant nursing home had a resident who in his former life had a history of "domestic abuse, assault and battery, and violation of a protective order." Nonetheless, he was allowed to move freely in the nursing home and subjected the plaintiff, an aide, to unwanted kissing, groping, grabbing, and threatening behavior when she refused his advances.

The Center talked to him about his behavior, and documented the talks, and tried to assign another caregiver to give him his medications, but when another caregiver gave him medication, he would become hostile and go in search of the plaintiff.

After one such incident, in which the resident pursued the plaintiff, got into a shouting/cursing match with her, and called her a "b*tch," she retorted that he was a "pr**k." The next day, when questioned, she admitted to what she had said and was terminated. The person who had terminated her did not know the history of the resident's behavior or of the plaintiff's prior complaints, and was terminating her only because she had admitted to using abusive language with a patient.

The District Court found that the nursing home had done enough to try to end the harassment of the plaintiff and therefore granted summary judgment to the nursing home on the plaintiff's hostile work environment and negligent supervision claims. But the Tenth Circuit reversed, saying that a jury should decide whether the nursing home knew or should have known about the resident's harassing behavior and whether its response was adequate. Among other things, the nursing home said that it offered the plaintiff a chance to move to another area of the nursing home but that she had declined the offer. The plaintiff denied that such an offer had ever been made.

On the other hand, the Tenth Circuit affirmed dismissal of the retaliation claim, finding that there was no evidence that the manager who fired the plaintiff knew anything about the plaintiff's history with this resident.

Why bother? Prompt action by HR does no good, apparently. The U.S. Court of Appeals for the Eighth Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) reversed a grant of summary judgment to an employer where the plaintiff alleged that her plant manager took her written complaint of harassment, wadded it up saying, "This is bulls**t," tossed it in the trash, and told her to leave and that he never wanted to see her again. Seems like an open-and-shut case for the plaintiff, no? But within two days of this alleged incident, the corporate HR manager told the plaintiff that she was not fired, and offered her the job back. The plaintiff refused to return and was treated as a voluntary quit. For this reason, the District Court granted the employer's motion for summary judgment, but on appeal the Eighth Circuit said that even a two-day termination might discourage a reasonable employee from engaging in the protected activity, so the plaintiff's claims will go to trial.

I just hope that the prompt action by this diligent HR manager will have some effect on the company's damages, if not its liability.

"Gender gap" on Wikipedia? Many of you have probably read about the recent angst of the Wikipedia Foundation about the fact that only about 15 percent of its postings are by females. The Foundation intends to take steps to increase the "female" presence on Wikipedia . . . not clear how that's gonna happen. Like the inflated "gender gap" in pay, which I submit is 99%* a result of voluntary work-family-lifestyle choices made by women, my reaction is . . . who cares? As far as I know, Wikipedia is doing nothing to prevent women from posting as often and as long-windedly as they want. If it turns out that women are statistically not as interested in pontificating on arcane subjects as are men, then let the guys do it. We have enough real problems to worry about.

*This is a statistic that I made up and is completely unscientific.   

"We're gonna regulate your tie morphology, and you can't stop us!"

Posted by Robin E. Shea on December 27, 2010

Swiss bank UBS has been the butt of some teasing for its strict, extremely precise, and sometimes incomprehensible employee dress code. Particularly puzzling is its requirement that men's neckties match "the morphology of the face." (I've done a good bit of internet surfing trying to find out exactly what this means, without much luck. A commenter at Evil HR Lady says it means that men with wide faces should have wide knots in their ties, and men with narrow faces narrow ones. Maybe so. Whatever.)

In any event, there is no question that UBS would have the right to do this, even in America. Employers are Questioning Man.19131826.jpggenerally free to establish dress and grooming standards that they consider appropriate, with a few exceptions. If a grooming standard tends to exclude individuals of a particular race, sex, nationality, or religion, the employer would have to show that the standard had a legitimate business justification.

For example, African-American men are more likely than Caucasian or Asian men to have a skin condition called pseudofolliculitis barbae. Close shaving aggravates the condition, and so African-American men have been successful suing employers who required male employees to be clean-shaven. However, where being clean-shaven was a safety issue (for example, with firefighters who need a good "seal" for oxygen masks), courts have upheld no-beard requirements.

It is also generally lawful for an employer to have dress and grooming requirements that are different for men and women, as long as the requirements are "equivalent." For example, an employer with a business-dress code can allow women to wear either pant- or skirt-suits while allowing men to wear only pant-suits, and requiring men, but not women, to wear neckties. As another example, an employer could require all employees to wear uniforms but have a "pant" uniform for men and a "skirt" uniform for women.

 On the other hand, it would be sex discrimination for an employer to allow, for example, men to wear "business casual" dress at work and require women to wear uniforms. The uniform indicates lower status, and so requiring only women to wear uniforms would be considered discriminatory.

Of course, if an employee is required by his or her religion to wear a certain type of clothing, such as a Muslim hijab (scarf), the employer would have to allow it unless there was a compelling reason -- for example, safety -- to prohibit it.

Absent evidence of discriminatory impact, then, there should be no problem with UBS's "morphology" requirement . . . if anyone ever figures out what it means.

Plan/Prevent/Protect: "Affirmative Action for Everybody!"

Posted by Robin E. Shea on October 25, 2010

Drunken men toasting.jpgThe U.S. Department of Labor is planning to impose new “affirmative action” requirements on employers, requiring them to develop “plans” to address workplace safety, equal employment opportunity, and wage and hour/employee classification issues.

For the most part, these requirements – called “Plan/Prevent/Protect” – will not be limited to federal contractors but, rather, will apply to all employers covered by the relevant laws.

The proposed changes are dramatic, and shift from what the DOL calls “catch me if you can” (in other words, employer is presumed compliant unless the government is given reason to believe otherwise) to “Plan/Prevent/Protect” (in other words, employer is presumed guilty unless it can prove otherwise). “[E]mployers and other regulated entities will be asked to assemble plans, create processes, and designate people charged with achieving compliance,” says the DOL, and “compliance will be non-negotiable . . ..” (Emphasis added.)

The “Plan” component will require employers to enlist employees in “identifying and remediating risks of legal violations and other risks to workers.” The plans must be made available to the workers “so they can fully understand them and help to monitor their implementation.”

The “Prevent” component will require employers to “thoroughly and completely implement the plan in a manner that prevents legal violations. . . . The employer . . . cannot draft a plan and then put it on a shelf. The plan must be fully implemented . . ..”

The “Protect” component will require employers to ensure “that the plan’s objectives are met on a regular basis. Just any plan will not do. The plan must actually protect workers from violations of their workplace rights.”

In the context of compliance with the Fair Labor Standards Act, Plan/Prevent/Protect will require that employers provide information to employees about how their pay is calculated, and prepare a “classification analysis” with respect to any job that it treats as FLSA-exempt. Of course, the analysis will have to be made available to the employees and the government. The DOL will issue proposed regulations on Plan/Prevent/Protect at some unspecified point in the future.