MISCLASSIFICATION OF ‘INDEPENDENT CONTRACTORS’

Taxi

I recently blogged on the topic of classifying individuals as employees versus independent contractors.  Two recent rulings from California courts have put this issue back in the news.  Both cases involve companies who misclassified drivers as independent contractors and thus cheated the drivers out of wages they lawfully earned as employees.

The Department of Labor investigated both of these employers, National Consolidated Couriers Inc. and Stanford Yellow Taxi Cab, Inc.  During the NCCI investigation, the company attempted to destroy records that showed NCCI had an employment relationship with the drivers (which would not exist if the drivers were truly independent contractors).  The Stanford Cab investigation revealed that Stanford terminated a driver a few days before trial to discourage the driver from testifying.

Both employers tried to argue that the drivers were independent contractors who were in business for themselves, which the courts rejected.  For example, the Stanford Cab drivers were required to work 6 days a week for 12-hour shifts, weren’t allowed to “change their schedules or operate independently by reaching out directly to passengers,” and were forced to abide by a dress code.  As noted in the previous post, these are some of the factors Iowa courts use to determine whether someone is an employee or an independent contractor.

The DOL takes the issue of misclassification very seriously and has started an initiative to partner with state labor divisions to combat misclassification.  The DOL currently has memorandums of understanding with 25 of the 50 states, including Iowa.  Iowa’s Workforce Development Department entered into its MOU with the DOL on January 17, 2013, with the goals of providing outreach, sharing resources, and conducting joint investigations.

Misclassification not only harms workers by denying them important benefits and protections to which they are entitled, but also hurts state and federal governments.  Employers who misclassify employees as independent contractors do not remit payroll taxes for those individuals, thus resulting in significant losses to state treasuries and to federal Social Security and Medicare.

photo credit: <a href=”http://www.flickr.com/photos/33007551@N08/3672590112″>Empire state taxi</a> via <a href=”http://photopin.com”>photopin</a&gt; <a href=”https://creativecommons.org/licenses/by/2.0/”>(license)</a&gt;

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