Independent Contractor vs. Employee: An Ode to Tom Petty

With an unmistakable voice and powerful lyrics, Tom Petty will long be remembered as a musical giant. As I tuned into the SiriusXM Tom Petty channel on my drive home from work last night, I decided to honor his memory the only way I know how – by linking a bunch of his song titles to completely irrelevant points about independent contractor misclassification.

So, here it is, the subject of Independent Contractor vs. Employee, as told through the song titles of Tom Petty.

You Got Lucky. Businesses sometimes tell me that their independent contractors must not be misclassified because it’s always been done this way. The business has never been audited or sued. Ignorance, however, should never be mistaken for bliss. Just because your classification of workers as contractors has never been challenged does not mean it is correct. To all those businesses who may be misclassifying their independent contractors but have never been challenged, I would say, You Got Lucky.

Don’t Do Me Like That. This song reminds me of the common scenario where an independent contractor has been blissfully working for a business for many years. Everyone is happy with the arrangement – until they are not. The business cuts ties with the independent contractor, then the contractor files a complaint. The agency or judge, evaluating the facts of the relationship, concludes that the contractor was really an employee all along, and the business now owes back assessments or back taxes for several years of misclassification. To every independent contractor who has filed a claim, what the business really wants tell you is, Don’t Do Me Like That.

I Won’t Back Down. When your independent contractor files for unemployment, try not to think of this clam the same way you would think of an unemployment claim filed by an employee. When a former employee files for unemployment, you probably don’t care a whole lot. The consequences to your business are minuscule and, besides, the person lost a job and is seeking a government benefit that is meant for when people lose a job. On the other hand, if your independent contractor files for unemployment, there can be serious consequences if that worker is deemed to have been an employee and therefore eligible for unemployment insurance. The consequences are that your business did not pay into the unemployment system for that worker — and for every other similarly situated independent contractor, for as far back as the statute of limitations extends. The economic consequences can be significant. You probably want to fight that claim. If your contractor files for unemployment, your Tom Petty song ought to be, I Won’t Back Down.

Yer So Bad. The consequences of independent contractor misclassification can be substantial. You know all those employment, tax, and benefit laws that you thought didn’t apply? Well, now they apply. Fines, penalties, back taxes, assessments, and good old fashioned lawsuits await, along with all sorts of fun flavors of damages like back wages (yummy!), punitive damages (scrumptious!), and having to pay the attorneys’ fees of the plaintiff who just sued you (what??? icky!). All of these negative consequences are the courts’ and agencies’ way of saying, Yer So Bad.

Time to Move On. Businesses that use independent contractors should take proactive steps to evaluate those relationships. Sometimes, after an honest assessment, the best strategy is to reclassify those workers as employees. Time to Move On.

Jammin’ Me. This ‘80s beauty featured lines like, “Take back your Iranian torture” and “Quit jammin me.” Those are lines you might want to say to the government agency that conducts a 1099 audit and alleges that you’ve misclassified some contractors. You might want to say it. But you probably shouldn’t. Not professional.

It’ll All Work Out. This is the part of the blog post where you lean back and take a deep breath. In a true independent contractor relationship, you care about the result but do not exert control over how the work is done. The more you control how the work is done, the more likely the contractor is misclassified and is really an employee. The best philosophy with independent contractors is not to micromanage. Chill, man. It’ll All Work Out.  (Or, if we were doing a Breaking Bad post, “Saul Good, Man”)

It’s Good to Be King. This is the feeling you should have if you’ve been proactive, evaluated your 1099 contractor relationships, made sure the facts support independent contractor status under all of the various Right to Control Tests, Economic Realities Tests, ABC Tests, and whatever other tests any state or local government throws at you. When it’s all said and done and you can say with confidence that your contractors are properly classified, you’ll know It’s Good to Be King.

© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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