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TECHWORKPLACE
by Jeffrey L. Berger, Esq.
Jeffrey L. Berger
specializes in management-side employment and business law, and related litigation in
Washington, D.C., and nationally. Questions and comments on the TECHWORKPLACE are
encouraged. Other articles are available at www.bergerlaborlaw.com.
A ROSE BY ANY OTHER NAME:
THE INDEPENDENT CONTRACTOR vs. EMPLOYEE ISSUE JUST GOT THORNIER
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While the conventional image of a temporary employee is
of a recently graduated English major toiling through a stack of files, the high tech
workforce includes a significant number of highly specialized and well trained contingent
workers hired as independent contractors. Generally engaged on a project-by-project basis,
independent contractors afford companies flexibility in meeting cyclical production needs
and the demands of just-in-time delivery, without the ongoing payroll, benefit, space, and
taxation requirements associated with full-time employees. In the infamous Microsoft
decision, software testers successfully sued for stock options based on an earlier IRS
finding that they had been misclassified as independent contractors, as opposed to
employees, for withholding and employment tax purposes. In Microsoft’s wake, the
scrutiny of such relationships and the penalties for improper treatment have grown
precipitously, and are likely to increase due to a recent Department of Labor (DOL)
decision to enter the fray.
Last October, the DOL filed suit against Time Warner on
behalf of hundreds of workers it claims were unfairly denied pension and health benefits
as a result of being misclassified as independent contractors. The suit, which represents
a employee/independent contractor questionable expansion of the DOL’s authority under
ERISA (the federal pension law), personally names company officials who had responsibility
for managing benefit plans. DOL seeks retroactive benefits for the workers and an
independent audit of the company. To support its action, the DOL examined each of Time
Warner’s and its subsidiaries’ employee handbooks, benefit plan documents, and
employee classification definitions for conflicts and instances where workers were treated
contrary to the documents. While too early to tell, if the DOL is successful employers and
independent contractors may be faced with a new set of employee classification rules which
would greatly expand the universe of workers that must be included in pension, stock
option, health and other benefit plans, and for whom employers must pay payroll taxes and
overtime compensation.
With the rapid evolution of high tech communications and
mobile work arrangements, the workplace has developed contingent worker relationships that
strain conventional employee/independent contractor distinctions. To clarify the
ground-rules, the IRS recently revised a twenty-point guideline which identifies
classification criteria. While somewhat flexible, the guidelines focus on who has the
right to control the worker with regard to how, when, and where the work is accomplished.
If the DOL suit is successful, employers could also be held to definitions established in
company handbooks, policies, and plan documents, and potentially face retroactive benefit
awards to improperly classified workers.
In the highly competitive technology workplace, properly
structured contingent work arrangements offer companies the ability to meet
project-specific staffing requirements and acquire skilled workers without many of the
administrative and financial burdens associated with employees. While significant legal
pitfalls exist, employers who develop legally defensible independent contractor
agreements, review employee handbooks and benefit plans for compliance, and properly
classify employees and contingent workers can likely steer clear of such hazards and
promote flexibility and efficiency in the workplace.
© 1999 Jeffrey Berger
REPRINTED FROM:
TECHGAZETTE - February 1999, Vol. 2, No. 2
The Berger Law Firm, P.C. 1825 Eye St. N.W., Suite 400, Washington, D.C.
20006.
Phone: (202) 861-1361 Fax: (202) 861-1362
Legal advice is case specific and is not intended to be provided by this article.
The Berger Law Firm, P.C. may not be held responsible for any consequences
that may arise in connection with the use of or reliance on the information provided.
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