Contractor traction: the use and abuse of independent contractor status.

• Author: Terman, Mark E.
• Position: EMPLOYMENT LAW

It's easy to see why California employers are frustrated with the endless tangle of employment laws that appear to change every 10 minutes. But some employers mistakenly attempt to avoid regulation and save the cost of employment taxes by classifying workers as independent contractors when the substance of the relationships is one of employee-employer.

This article will explore why independent contractor status often is attacked; risks of misclassification; and factors to consider in determining whether workers are truly independent contractors.

IF IT LOOKS TOO GOOD TO BE TRUE

Companies that hire independent contractors generally avoid employer obligations under many state and federal laws. For example:

* Reasonable accommodation and return to work obligations under disability laws do not apply.

* Anti-discrimination obligations to protected employee classes (e.g., age, race, sex, national origin, ancestry, disability, medical condition, sexual preference, religion, etc.) are not a concern (though independent contractors are protected under sexual harassment laws).

* No collective bargaining or union issues.

* No employee benefits to give, such as medical insurance, pension, stock option and other equity plans.

* No disability insurance, life insurance, sick pay and vacation pay.

* The worker is not part of the work force for workers' compensation insurance purposes.

* Leaves of absence, such as California Family Rights Act, Family and Medical Leave Act and pregnancy disability leave, are not required.

* Tax and trust fund obligations (e.g., income tax, unemployment insurance, state disability insurance, paid family leave, employment training tax, Social Security and Medicare) are of little concern.

* Unemployment insurance benefits are not owed.

* Wage and hour laws (e.g., minimum wage, overtime, rest periods, vacation pay on termination, etc.) do not apply.

* Plant closure and mass layoff notice laws are not a worry.

* Wrongful employment termination and related causes of action do not exist.

Does this look too good to be true? Many regulatory agencies think so. Each body views the classification with its own tests and varying degrees of skepticism.

California jurisdictions include Cal-OSHA; the Department of Fair Employment and Housing; Department of Labor and Workforce Development (Division of Labor Standards Enforcement a.k.a. Labor Commissioner); Employment Development Department--Benefits/Tax; Franchise Tax Board; Unemployment...