This month there have already been two cases in the staffing and workforce solutions industry that highlight the risks posed to that industry and their clients where the workers being referred are paid on a 1099 basis. One case arose in New York and involved workers referred to clients holding

Yesterday, just outside Washington, D.C., state and federal workforce agency officials met to discuss their joint efforts to crack down on independent contractor misclassification.  The forum, entitled “Worker Misclassification: Federal-State Perspectives and Initiatives,” was one of the opening day’s general sessions at the National Conference on Unemployment Insurance.  (Click “More” for “Takeaways” below)

On September 30, 2010, the U.S. Department of Labor released its Strategic Plan for Fiscal Years 2011 – 2016.  Among the goals listed by Labor Secretary Hilda Solis is to identify and deter the misclassification of employees as independent contractors.  The Strategic Plan states in part as follows:

WHD will be a key partner in a joint Department of Treasury-Department of Labor initiative to detect and deter the misclassification of employees as independent contractors and to strengthen and coordinate federal and state efforts to enforce labor law violations arising from misclassification. Individuals wrongly classified as independent contractors are denied access to critical benefits and protections – such as family and medical leave, overtime, minimum wage and unemployment insurance – to which they may be entitled as regular employees. Employee misclassification also generates substantial losses to the Treasury and the Social Security, Medicare, and Unemployment Insurance Trust Funds. In its last comprehensive estimate of the scope of the misclassification problem for tax year 1984, the Internal Revenue Service estimated that 15 percent of all employers misclassified a total of 3.4 million employees as independent contractors, resulting in an estimated annual revenue loss of $1.6 billion in 1984 dollars ($3.4 billion in 2010 dollars).  (Click “More” for “Commentary” below)

The federal court judge assigned to over 60 cases involving FedEx Ground drivers who claim they have been misclassified as independent contractors instead of employees has issued his second key ruling in the case.  In contrast to the judge’s conclusion in May that FedEx Ground drivers in Illinois were employees and not independent contractors under that state’s restrictive wage payment laws, on August 11 the judge reached a contrary conclusion under Kansas wage payment law, which uses the more prevalent “common law” test.

The 103-page decision under Kansas law was issued by Judge Robert L. Miller, Jr., the federal district court judge located in the Northern District of Indiana who has responsibility for many of the class actions filed against FedEx Ground.  Judge Miller’s decision is significant for at least two reasons.

The Senate Committee on Health, Education, Labor and Pensions (HELP) wasted no time in holding a hearing on the “Employee Misclassification Prevention Act” (EMPA), which was introduced jointly on April 22, 2010 by the Senate (S. 3254) and House (H.R. 5107).  On June 17, 2010, the Senate HELP Committee, headed by its Chairman, Tom Harkin (D-IA) and the Ranking Member of the Committee, Michael B. Enzi (R-WY), led a hearing by the full Committee where a high-ranking member of the Obama Administration and three other panelists spoke in favor of EMPA, and one panelist spoke in opposition to the bill.

As a regular subscriber to various alerts involving misclassification of employees as independent contractors, I see on a daily basis an array of articles by lawyers warning businesses of impending doom if they continue to use independent contractors. Consultants match these with advertisements and postings offering quick and guaranteed solutions to the misclassification dilemma. As is often the case, the answer lies somewhere in between.

No federal laws prohibit the use of independent contractors and only a few states limit their use. Therefore, there is no need for most companies to follow the ultra-conservative approach of discontinuing their use of non-employee contingent workers and reclassifying all 1099ers as W-2 employees – especially if your business structure relies in whole or in part on a contingent workforce. Reclassification of some or all of your 1099ers into W-2 employees, however, is one option that some companies may wish to consider among a range of alternatives, depending on a host of valid business and legal considerations. Some of the other alternatives available to companies include bona fide restructuring and employee leasing.