As prudent business owners know, the distinction between employees and independent contractors is critical to ensure that employers are handling unemployment insurance, taxes, health insurance, workers’ compensation insurance, and other matters properly. Misclassification of an employee as an independent contractor (rather than as an employee) can lead to years of penalties, fines, back payments being assessed, and other problems against employers. That’s the situation our client, a technology company in the education space, found itself in when an individual the company treated only as an independent contractor alleged in an unemployment insurance filing that she was actually an employee.
Given that this individual had agreed in writing before she performed service that she was an independent contractor and not an employee, our client thought the unemployment claim would be denied outright. Unfortunately for our client, the New York State Department of Labor (“DOL”) agreed with the individual, and found she was an employee entitled to unemployment benefits. The DOL then sought to expand the issue, and attempted to go back nearly five years to retroactively declare that all the company’s independent contractors were really employees and to collect employer taxes on all payments to them from 2016 to the present (and going forward). That’s when the company turned to CMM to challenge that decision.
Determining whether an employer-employee relationship exists involves an assessment of the extent to which the supposed “employer” exercised control over the results of the individual’s work and, more importantly, the means by which those results are produced. CMM’s Christine Malafi and David Green defended the company’s position, and the resulting hearing spanned numerous days, where CMM adduced testimony and evidence demonstrating that this individual was in total control of her own schedule, had the freedom to accept or decline all or any assignments, and that she worked independently, with the company only ensuring proper services and compliance with regulations and laws in the performance of those services – all of which, CMM argued, pointed to an independent contractor relationship.
CMM’s efforts paid off. In a major victory for our client, the Administrative Law Judge found “insufficient indicia demonstrating the requisite level of supervision, direction, and control to be an employer” – essentially, that the individual (as well as the hundreds of other individuals in the same position) was an independent contractor, not an employee.
“Thank you so much for your direction and guidance throughout this process,” the client wrote to CMM upon learning of the result. “We are elated with the outcome.”
If your business is facing an investigation by the Department of Labor (DOL) or other government agency, please reach out to our Labor & Employment team for guidance. We have helped countless businesses move forward. Learn more here.