The U.S. Department of Labor recently scored a meaningful victory in yet another court case where a company failed to structure, document, and execute properly an independent contractor relationship with workers who were paid on a 1099 basis.  In Hilda L. Solis, Secretary of Labor v. Cascom, Inc. and Julia J. Gress, U.S. District Court Judge Thomas M. Rose of the Southern District of Ohio the court found that the Cascom’s cable installers were employees under the federal Fair Labor Standards Act, having been misclassified as independent contractors by Cascom, thereby subjecting the company and its owner to damages for unpaid overtime wages.

This case illustrates what a company should not do to if it wishes to pay workers on a 1099 basis.  The court found that:

  • Cascom’s relationship with its cable installers was structured in such a manner that Cascom directed the installers how to perform their work, provided training for the installers, prohibited the installers from using others to perform the work unless approved by Cascom, and required assignments to be accepted, among other things indicative of an employment relationship.
  • Cascom’s contracts with its cable installers were inconsistent with IC status; for example, certain provisions afforded Cascom the right to control the manner in which the work was performed and gave Cascom the right to change the terms of the agreement at any time.
  • In practice, Cascom issued written orders to the installers, required them to account for all materials daily, made work mandatory at certain times, and forbade installers from leaving the field without first checking in with their supervisors.

The position of cable installer is another example of a function that can be legitimately structured and documented as an independent contractor, consistent with federal and most state law tests for IC status.  It is similar to the jobs of workers in many other industries that lawfully can exist either within a legitimate IC or an employment relationship, depending on how that relationship with the hiring party is structured, documented, and executed in practice. Examples of some of the many workers that can lawfully be either ICs or employees under federal and most state laws include:

  • physicians,
  • recruiters,
  • interpreters and translators,
  • truck drivers and couriers,
  • computer technicians,
  • taxicab drivers,
  • physical and occupational therapists,
  • designers,
  • models,
  • carpet installers,
  • writers,
  • insurance agents,
  • coaches and trainers,
  • instructors,
  • attorneys,

as well as many others.  Some states have statutes specifically excluding certain types of workers from being considered employees, or specifically mandating that they be regarded only as employees.  Further, many states have laws with different tests for determining if an individual is an employee or independent contractor, depending on the law in question (e.g., tax, wage and hour, or unemployment).

The Cascom case demonstrates the value of using a methodology such as the publisher’s IC Diagnostics™ (found on the Resource page of this Blog) to (a) evaluate whether an existing position can be legitimately structured as an independent contractor relationship, and (b) if so, whether it needs to be restructured, documented, and executed (and how to do so) to maximize the likelihood that those workers will be held to be ICs and not employees.  The comprehensive tools used by the publisher’s independent contractor compliance practice include its 48 Factors-Plus analysis and its IC Compliance Scale.™

What is next for Cascom in terms of this case involving misclassification of employees as independent contractors?  If an appeal to the U.S. Court of Appeals for the Sixth Circuit is unsuccessful, Cascom may be facing not only liabilities for unpaid overtime compensation but also unpaid payroll taxes at the federal and state levels, unpaid unemployment tax payments and workers compensation premiums, unpaid employee expenses, and unpaid employee benefits.

An adverse IC determination, however, should not necessarily be regarded as an obligation on the part of the business to treat those workers as employees on a going-forward basis.  If the liabilities from an adverse IC determination can be satisfied, many businesses, including Cascom, can adopt an IC model that will likely survive future scrutiny under federal and most state laws, provided the business properly engages in bona fide restructuring, conducts proper re-documentation, and implements and follows new, state-of-the-art IC practices.


Written by Richard Reibstein.