Misclassification isn’t always intentional, but there can be severe penalties if caught either way.
By Ben Young, Christie Vu and Greg Boornazian
Small to mid-size businesses often assume they can fly under the radar when it comes to worker misclassification. But the reality is a realized claim that an independent contractor is really an employee can happen in just about any industry, to just about any business, with just about any scenario you can imagine. Here are three claims scenarios and lessons learned.
1) What does eight years of driver misclassification cost?
Joint logistics employers Parts Authority and Diligent Delivery Systems paid $2.8 million each in back wages and liquidated damages, as determined by the U.S. District Court for the District of Arizona.[1]
From April 2012 to March 2020, it was determined that the companies misclassified almost 1,400 drivers as independent contractors and failed to meet minimum wage requirements, pay time-and-a-half for hours over 40 in the workweek, and keep required timekeeping records.
2) Are golf caddies contractors or employees?
The sports and athletics industry is flush with misclassification court cases, from referees to security guards, cheerleaders to arena crew members. A few cases involving golf caddies in New York[2] and New Jersey[3] were filed in late 2022 and early 2023, bringing into question whether caddies are employees or independent contractors. Let’s take a look.
CONTROL: At the clubs in these cases, the caddie master was responsible for assigning caddies to golfers, taking the control of their own schedule away from the caddies. At the same time, caddies were unable to reject any assignments, violating the independent contractor’s right to perform work when and in the manner they see fit.
ECONOMIC DEPENDENCY: While caddies are free to work at as many clubs as they like, caddies who demonstrate loyalty to a particular club have been known to benefit by having more golfers assigned to them, obtaining higher compensation as a result. Golf clubs also tend to set bag fees, which serves as the caddie’s rate.
THE RELATIONSHIP: Most golf clubs require golfers to use caddies, and the service the caddies provide is directly related to the clubs’ central business. This suggests an employee-employer relationship.
3) Who pays the cost when workers are misclassified?
A complaint was filed against Wellfleet Communications on behalf of its sales telemarketers, who claimed to receive less than minimum wage, and as little as $3 for an entire work week.[4] The Department of Labor (DOL) investigation showed that over 1,300 call center workers, who worked a minimum of 32 hours per week for Wellfleet, were misclassified as independent contractors and therefore paid only when they made sales.
The company owners were held personally liable after the DOL investigation.[5] The ruling ordered the company to pay over $1.4 million in back wages and liquidated damages.
Why proper classification matters
The government’s definitions for what is an employee and an independent contractor can be somewhat confusing and vague, but know that misclassification is receiving increased attention by both the current White House administration, and at the state level as well. The benefit to the worker is clear, but the consequences for the employer are not always acknowledged.
Misclassification is not always an attempt at avoiding insurance coverage and other benefits to employees, like the government might fear. When the standards are unclear, employers are more likely to inadvertently misinterpret the guidelines.
The cost for this misinterpretation can be significant for employers, ranging from fines to jail time. Engaging employment practice expertise and tightening up processes and procedures can save businesses from time-consuming audits and expensive settlements.
For more insight on today’s evolving employment landscape, check out our eBook: Knowing the Difference Between Employee & Independent Contractor and Why It Matters.
[1] U.S. Department of Labor “News Release: Department of Labor Obtains Judgment Ordering Auto Parts Seller, Logistics Company to Pay $5.6M to 1,398 Misclassified Drivers,” January 12, 2023.
[2] Bloomberg Law “NY Golf Club Misclassified Caddies, Owes Wages, Lawsuit Says,” January 23, 2023.
[3] Patch “Employee Sues Morristown Golf Club Over Labor Wage Dispute,” October 13, 2022.
[4] Las Vegas Review-Journal “Las Vegas telemarketer sued for shorting workers’ pay,” October 20, 2016.
[5] U.S. Department of Labor “Federal Court Finds Las Vegas Company Shortchanged Employees, Orders $1.4M in Back Wages, Damages Paid to 1,328 Call Center Workers,” November 2, 2021.
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