Will Changes to the Tax Code Reduce Claims of Independent Contractor Misclassification?

Unicorn independent contractor misclassification

Ha ha. Wishful thinking.

By now, we’ve all heard that the new tax code provides a 20% tax deduction for many small businesses, including potentially independent contractors. (More info here.) As a result, some workers might prefer to be called contractors instead of employees to take advantage of the new deduction. Contractor status may be particularly appealing to workers who don’t need health insurance or other employee benefits. But, as we covered here, it doesn’t matter what a worker wants. The facts of the relationship determine a worker’s classification, no matter what the parties want it to be.

Don’t expect this change in the tax law to mean that independent contractor misclassification claims are going away. They’re not. Continue reading

NYC Freelancer Law & New Rules Now In Effect, But New Rules Could Violate Federal Law

new york city freelancer law new rulesIf you retain freelancers in New York City, pay attention.

As we wrote here, NYC’s Freelance Isn’t Free Act requires a written agreement when retaining an individual independent contractor, if the value of services is $800 or more. The law covers any individual non-employee, including nannies and babysitters. (Loyal readers, please read this earlier post for details.)

The law took effect May 15, 2017, but new rules — effective July 24, 2017 — create additional burdens.

The NYC Department of Consumer Affairs has published final rules implementing the Act. While the purpose of the rules is (supposedly) to clarify the Act, the Rules go much further and create new requirements — some of which may be contrary to federal law.

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Misclassification settlement strips $6 million from Club Assets

IMG_1090When I was an undergrad at Michigan, any time I would drive to the airport or to Tiger Stadium, I’d see billboards for Deja Vu, a strip club with (apparently) lots of locations. I never visited (not into that sort of thing, thanks for asking), and I never thought much of it. I certainly did not expect to be writing about Deja Vu and independent contractor misclassification 25 years later. But here goes.

When patrons of these fine establishments partake in the traditional lap dance, it’s doubtful they’re thinking about whether these often-single-mom “entertainers” who are just trying to make a living have been properly classified under wage and hour law. More likely, they’re thinking about — never mind.

But that’s an important issue, as Deja Vu recently learned, when it was sued by a class of 28,177 dancers alleging they were misclassified as independent contractors, rather than Continue reading

How Can There Be Misclassification When The Worker Prefers to Be an Independent Contractor?

Alan Hudock

Photo of Singer Dave Mason (We Just Disagree), by Alan Hurtock

Let’s start with this: Everyone is happy being an independent contractor until they’re not.

What do I mean by that? Right now, the relationship works. The contractor performs, and you pay for the work.

But what happens when things go south? As soon as you decide you no longer need those services, the contractor might stop being your BFF.

A disgruntled former contractor has some options, all of which involve some variation of this story: “Once upon a time, I was misclassified and should have been an employee.” None of the former contractor’s possible next steps are good for you: Continue reading

Four Ways to Give Up Control and Protect Independent Contractor Status


Retaining control over how independent contractors do their work can sink an otherwise legitimate independent contractor relationship.

Fortunately, steps can almost always be taken to give up aspects of control that do not hurt the business case for using a contractor instead of an employee. Companies need to be thoughtful and proactive, though, in evaluating and modifying these relationships — before they are challenged in a misclassification claim.

Here are four aspects of control you may be able to relinquish in your relationships with independent contractors: Continue reading

Avoid this Common But Disastrous Mistake in Staffing Agency Agreements

staffing services mistake-1966448_1920

A client once asked me to review the Employment Agreement of a candidate they were considering hiring. The candidate had recently been terminated but his Employment Agreement contained a 12-month non-compete, and my client’s job offer seemed pretty clearly to be for a competing job.

But the terminating employer made once huge mistake. When it meant to terminate employment, instead it terminated the agreement … and with it, the non-compete.  Oops!

I see the same mistake in Staffing Agreements and Professional Services Agreements all the time.

These agreement are usually intended to serve as Master Service Agreements (MSA), with additional work orders to govern the actual services to be provided. These MSAs contain very important clauses that are intended to survive, even after the services have stopped. Examples of clauses intended to survive the termination of services include indemnification, insurance coverage, preservation of confidential information, and right to audit.

The mistake I see over and over, however, is the inclusion of a termination clause that allows for termination of the agreement, not merely termination of services.

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Contractors Gone Wild! Are You Covered?

independent contractor vs. employee thieves-2012538_1280When an employee embezzles money, a company may look for insurance coverage under a crime policy, for employee theft. When an independent contractor steals money, a general commercial liability may cover the loss. But when an independent contractor acts like an employee, performs services typical of an employee, then steals money — neither coverage may apply.

That’s the harsh lesson recently learned by an Indiana company. Telamon Corporation retained an independent contractor to provide services through a series of consulting agreements. Eventually, the company made her a Vice President (please don’t name your independent contractors “Vice Presidents,” then claim they are not employees!) and put her in charge of recovering old telecommunications equipment to sell it to salvagers. She had other ideas, however. She recovered the equipment and sold it to salvagers, but she kept the money for herself. $5.2 million of it.

That eventually landed her in prison, where she won free use of an orange jumpsuit for five years. I know, she could have afforded a blinged-out $5 million jumpsuit, but she took the free one from the state.

Telamon, meanwhile, tapped its insurers to try to recover the cash.

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