Contractor or employee? Still a burning question.

While I generally represent employees in wage and hour lawsuits, I sometimes represent employers. They want my expertise and my perspective as a plaintiff's attorney.  I am often reluctant to do so, because it forecloses them as potential defendants in the future.  Nonetheless, some small companies are my clients and I can help.

These little companies are start ups, or they were started by a single man or woman doing a job who then needed help.  They put someone to work and then pay them like they themselves had been paid.  That is to say with a flat rate, as a contractor.  These new employers often believe that if they pay someone like a contractor, and tell their employees that they are actually contractors, then voila, they are contractors. 

Oy vey.

In fact, the employer and employee can't make that decision between themselves.  An employee can't waive his status as an employee, nor can he release his employer from liability to pay overtime or SSN benefits, or Medicare, or payroll taxes etc.  If the employers are wrong, then they can find themselves facing hefty IRS claims with fines and penalties, and similar claims by state taxing

authorities asking about where all the withholdings are.  In addition, some of these new employers are in businesses that lead to on-the-job injuries.  If the employer was calling their roofing workers contractors, for instance, and not paying workers compensation insurance, and that worker falls and hurts himself, and then wants medical expenses and lost wages, then the employer will suddenly find that saving a few bucks on payroll taxes has ballooned into a major loss.

The question is control.  States often have statutory definitions of employees and contractors.  They usually employ a control test.  Basically stated, if the person paying for the work provides the work, the tools and resources, controls the worker's hours of work and can discharge the worker for any reason, then the worker is controlled and is an employee.  That classification triggers statutory responsibilities and extra costs. But the extra costs are a fraction of what they could be if the employees are misclassified. 

Often the employer and the "contractor" are okay with their relationship.  The employer has no costs other than paying a straight wage to the worker, and the worker pays no taxes or other withholdings up front.  They may even be getting paid cash.  Everybody is happy.  It's when the relationship sours, usually when someone gets fired or hurt, that the wages of sin are collected.  And it can be an unholy amount of wages.

It is much safer, and less costly and dangerous, not to mention ethically superior, to err on the side of employer/employee rather than contractor/sub contractor.  If it's close, make them employees.  If you have any questions about what's close, then email or phone me.  www.langendorflaw.com.    

The FLSA loves employees and their lawyers.

The federal Fair Labor Standards Act, also known as FLSA (pronounced Full-sa), is the law that requires employers to pay employees overtime wages for weekly hours worked in excess of forty.  It has been around since 1938, with some modifications on the way.

Several employee friendly clauses were built into the law and its regulations.  There have also been thousands of court decisions that have added weight to the statute.  All that being said, the FLSA has become an extremely useful tool for employee representatives.

A couple of quirks that a lawyer or an employee should know:  Employers can't shield themselves from personal liability.  Very often large and small businesses are incorporated into corporations or limited liability companies.  These legal creations usually insulate officers and owners from financial liability for actions of the corporation.  However, the FLSA broadly defines "employer" as any entity or person that has control or influence over the employees' hours of work and pay.  I have surprised many owners and managers and their lawyers by attaching personal liability for unpaid wages.

Next on the list of powerful benefits is the requirement that employers maintain records of hours

worked by, and payments made to, their employees.  The law requires a rolling three year maintenance of this information.  When there is a dispute about whether an employee worked overtime, an employer's failure to produce the records of hours worked and pay earned is a killer.  The law specifically requires that the employer maintain them.  Courts have consistently held, over decades, that in the absence of contemporaneously created records, the employee's estimate of hours worked controls.  In the absence of specific evidence to contradict the employee's estimate (like time cards) the Court will allow the employee's estimate to stand as the amount of hours worked.  An employer can't complain about the estimate when they fail to keep the lawfully required records.

Even employees who are classified as salary exempt should have time records maintained for them.  At a minimum the smart employer will record that they worked the expected amount of hours in a work week. If there is any doubt about whether the employee is exempt from overtime, even a shred of doubt, then the conservative employer will keep detailed records.  

Rounding out this incomplete list of unique FLSA features is the liquidated damage and attorney's fees provision.  Under §216 of the FLSA, an employer who is shown to have violated the law is required to pay the back wages, an equal amount in additional damages, and the employee's attorney's fees.  Congressmen in 1938 expected that the unpaid wages may be less than the attorney's fees, and Courts have consistently awarded fees based on comparable attorney rates in the geographic area where the case is tried.  Needless to say, the awards of fees can be significant. 

An employer and his lawyer ought to take claims of unpaid overtime very seriously from the first moment they are raised.  The risks of allowing litigation to proceed can well exceed an early payment of the wages that should have been paid on demand and investigation.

I had a case a few years ago where I was trying to get the employer's attorney to discuss a settlement for my six employee clients.  The attorney was unaware of the FLSA risks and finally said "you're being tiresome, go ahead and sue us."  I did and got an award the defendant is still paying, with attorney's fees in excess of the back wages. 

The FLSA is the best friend to an employee and the employee's lawyer.  It is still not very well known by employers and their lawyers, but 7,000 federal cases a year are bringing them around.  The bottom line is that is best to take allegations of FLSA violations very seriously and very quickly, before attorney's fees exceed what any employer would have anticipated.  

More information available on my website:  www.LangendorfLaw.com