Lessons from a Reggae Cucumber Song: Draft Benefit Plan Eligibility Language Carefully

ERISA independent contractor misclassification cucumber

Reggae artist Macka B has a song touting the nutritional benefits of the cucumber. The song includes verses like:

Get the cucumber cut it inna slice
Put it inna jug of water overnight
You know what you get for a fraction of the price
Energy drink full of electrolytes

I learned about this song when I asked The Google for songs about benefits. But as much as I like the song (youtube here), this post is about a different kind of benefits.

One of the biggest risks of independent contractor misclassification is having to provide employee benefits to workers you thought were independent contractors. If it turns out those workers were misclassified and are really employees, they may suddenly be eligible for all sorts of employee benefits, including retirement plans like 401(k) match and employee stock ownership. And they’ll be eligible retroactively. This can be expensive. A goof of this type cost one major corporation $97 million back in the late 1990s.

As one recent federal court decision from Georgia reminds us, businesses can avoid this risk with careful drafting in its benefit plan document.

Federal law prohibits an employer from denying participation in an ERISA plan
on the basis of age or length of service. But plans can exclude individuals for other reasons — including independent contractor misclassification. Here’s how that would work:

The plan language will define who is eligible to participate. You get to write your own plan language. Eligible employees can be defined to exclude anyone not treated by the company as an employee for payroll purposes. The plan can further exclude anyone who the company was treating as an independent contractor for payroll purposes even if a court or agency later determines that individual to be an employee. It is permissible for the plan still to exclude that person from coverage.

In this case, the plan’s eligibility section stated:

It is expressly intended that individuals who are not treated as common law employees by the Employer or a Controlled Group member for purposes of its payroll records are to be excluded from participation in the Plan, even if a court or administrative agency determines that such individuals are common law employees and not independent
contractors.

That’s gold! Use it.

And don’t forget to eat your cucumbers.

© 2018 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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