Are Your Workers Employees or Independent Contractors? Three Exercises to Help Students Accurately Classify Workers

• Date: 01 August 2017
• DOI: http://doi.org/10.1111/jlse.12060
• Published date: 01 August 2017

Journal of Legal Studies Education

Volume 34, Issue 2, 167–205, Summer 2017

Are Your Workers Employees or

Independent Contractors? Three

Exercises to Help Students Accurately

Classify Workers

Leila G. Lawlor∗and Susan L. Willey∗∗

I. INTRODUCTION

In today’s dynamic and competitive marketplace, determining whether a

worker is an “employee” or an “independent contractor” has become more

complex with the emergence of nontraditional jobs in “on-demand”1com-

panies such as Uber, Lyft, TaskRabbit, BlueApron, and Airbnb. The conse-

quences of classifying workers as employees or independent contractors are

substantial, as independent contractors do not receive the benefits and pro-

tections enjoyed by employees. Workers classified as independent contractors

are solely liable for their own torts;2are not entitled to benefits under the Fair

Labor Standards Act (FLSA);3and are not protected against discrimination

under Title VII, the Age Discrimination in Employment Act and the Ameri-

cans with Disabilities Act.4Employers who incorrectly misclassify workers as

∗Assistant Professor of Business Law, Perimeter College, Georgia State University.

∗∗Clinical Professor of Legal Studies, Robinson College of Business, Georgia State University.

1On-demand industries are also sometimes collectively called the “sharing economy” or the

“gig economy.” See Aaron Smith, Shared, Collaborative and On Demand: The New Digital Economy,

PewResearchCenter (May 19, 2016), http://www.pewinternet.org/2016/05/19/the-new-digital-

economy/.

2See Edward J. Henderson, Liability to Employees of Independent Contractors Engaged in Inherently

Dangerous Work: A Workable Workers’ Compensation Proposal,48 FORDHAM L. REV. 1165, 1165–69

(1980) (discussing the traditional rule and its “inherently dangerous work” exception).

329 U.S.C. § 203 (2014) (defining “employee” and excluding “independent contractor”).

4For general guidelines as to worker protection under federal discrimination

statutes, see U.S. EQUAL EMP.OPPORTUNITY COMM’N,LAWS ENFORCED BY EEOC,

C2017 The Authors

Journal of Legal Studies Education C2017 Academy of Legal Studies in Business

167

168 Vol. 34 / The Journal of Legal Studies Education

independent contractors may face litigation challenging the classification.

Employers found liable of misclassification may be subject to the payment of

back wages; retroactive benefits to those workers; and liability for unpaid em-

ployment taxes, including interest and penalties.5Employers may also face

negative publicity due to misclassification.

In our undergraduate legal and ethical environment of business classes,

we teach business students how to apply legal rules and ethical principles

to problems that arise in business. Teaching the distinction between

independent contractors and employees offers a rich, timely opportunity to

improve students’ critical thinking and communication skills. In a series of

scaffolded assignments, culminating in a written project, students apply the

current legal standards to three business scenarios chosen to illustrate the

complexity of this classification under Department of Labor (DOL) guide-

lines issued in July 2015,6Internal Revenue Service (IRS) rules,7and recent

decisions from the U.S. courts of appeals.8The three exercises explained

in this article can easily be accomplished in two separate in-class sessions

https://www.eeoc.gov/laws/statutes/index.cfm (last visited Oct. 28, 2016).

On October 17, 2016, the Equal Employment Opportunity Commission released a Strategic En-

forcement Plan for its next five-year term, in which the Commission identified employee classifi-

cation as one if its new priorities, specifically emphasizing the importance of proper worker classi-

fication in the new on-demand economy: “The Commission adds a new priority to address issues

related to complex employment relationships and structures in the 21st century workplace, focus-

ing specifically on temporary workers, staffing agencies, independent contractor relationships,

and the on-demand economy.” U.S. EQUAL EMP.OPPORTUNITY COMM’N,STRATEGIC ENFORCE-

MENT PLAN,FISCAL YEARS 2017–2021 (Oct. 17, 2016), https://www1.eeoc.gov//eeoc/plan/sep-

2017.cfm?renderforprint=1.

5See, generally, Employee Misclassification Can Lead to Big Penalties for Employers,AM.BAR

ASS’NE-NEWS (July 2011), http://www.americanbar.org/newsletter/publications/youraba/

201107article05.html.

6Adm’r David Weil, U.S. Dep’t of Labor, Wage & Hour Div., Adm’r’s Interpretation No. 2015-1

“The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Iden-

tification of Employees Who Are Misclassified as Independent Contractors” (July 15, 2015),

http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm.

7IRS PUB.NO. 15-A, EMPLOYER’SSUPPLEMENTAL TAX GUIDE (2016), https://www.irs.gov/

publications/p15a/. The IRS explains this tax guidance for business owners online. Indepen-

dent Contractor (Self-Employed) or Employee? IRS, http://www.irs.gov/Businesses/Small-Businesses-

&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee (last updated July 7,

2016).

8E.g., Scantland v Jeffry Knight, 721 F.3d 1308 (11th Cir. 2013); Alexander v. FedEx Ground

Package Sys. Inc., 765 F.3d 981 (9th Cir. 2014).

2017 / Are Your Workers Employees or Independent Contractors? 169

of approximately thirty minutes each, plus a short, out-of-class written

assignment.

In addition to developing students’ legal reasoning skills, these case

studies provide an opportunity for students to engage with instructors and

classmates in discussing corporate accountability to all stakeholders, not just

to shareholders. In analyzing these very real and current problems, students

consider the specific interests of hourly workers, both as a matter of sound

financial foresight and as a matter of conscience, as well as the legal and

ethical challenges a business faces in balancing competing factors: the desire

to maximize shareholder profits, the financial interests of workers, and even

the coordination of safety protocol in the workplace.

While these case studies focus on one determination—whether a

worker is an employee or an independent contractor—they also can be

used to stimulate learning about issues of tort, contract, and agency law, as

well as the responsibility a business owes to its stakeholders. Designed for

an undergraduate legal environment of business course, the cases can be

adapted for use in an upper-level employment law course, as well as an MBA

legal environment class. In Part II, we provide a brief primer on current

worker classification requirements, an explanation of employer incentives

for misclassifying workers as independent contractors, and an examination

of some of the ethical issues that arise when employers misclassify workers as

employees instead of independent contractors. In Part III, we describe the

three case studies that comprise this project, their learning objectives, and

how we administer them through a series of scaffolded exercises. Following

this explanation of the three case problems, we also discuss the benefits

of using this project in our undergraduate legal environment of business

course. Part IV concludes. Full text of the problems and instructions for

their use, as well as excerpts of the relevant statutory, administrative, and

case law are provided in the Appendices.

II. A BRIEF PRIMER ON WORKER CLASSIFICATION

REQUIREMENTS

This primer provides a summary explaining why employers are often incen-

tivized to misclassify workers as independent contractors. It also explains the

six-factor “economic realities” test adopted by the federal courts and the DOL

for properly classifying workers. Ethical concerns associated with misclassify-

ing workers as independent contractors are also considered.