Employer Beware as Title between Employee and Independent Contractor Blurs

Owning and managing a business in New York can be as challenging as getting a good slice of pizza anywhere outside of the tri-state area. As this country deepens into economic stagnation, employment is getting harder to find. Recently, there has been a trend in New York for employers to try and protect themselves against taking on too many employees. As the New York Law Journal highlights, this is once employers hire an individual they must withhold and pay income, pay social security, and pay medicare taxes. Therefore, it is easier for employers to hire someone who isn’t labeled as an employee but an independent contractor instead. However, a growing number of New York court cases are working to establish what is considered an independent contractor versus an employee in New York’s competitive business world.

In recent years, the US Supreme Court held in the case of Community for Creative Non-Violence v. Reid, that there are 13 factors (none individually determinative) to help assess whether a hired person is an employee or independent contractor.  This case was later followed by the 2nd Circuit for direction, where New York is located.  In addition to the US Supreme Court’s determination, the IRS has also outlined a more expansive “20 factor Test” to make this determination.  With this US Supreme Court case and the IRS guidelines, New York courts have found, for example, that a contract between an employer and an individual is not enough to support a claim that the individual is merely and independent contractor.  As such, the New York State Department of Labor stresses the importance of supervision, direction and control of the individual engaging in services to define the employer-employee relationship. Ultimately, the New York Law Journal helps the reader to fully understand that there is no one controlling factor to determine the relationship between employer and employee, but rather the degree of supervision, direction and control involved in the services rendered by the individual.  See full article: New York Law Journal, January 23, 2007, page 4 and cont’d. on page 7.

Given this trend amongst employers to classify the people they hire as employees, New York law makers are attacking the independent contractor problem trade by trade. For example, most recently, on October 26, 2010 the Construction Industry Fair Play Act was enacted to create a presumption that all construction workers are employees unless they meet the following three points:

  • Employee is “free from control and direction in performing the job, both under his or her contract and in fact”;
  • Employee’s services “must be performed outside the usual course of business for which the service is performed”; and
  • Employee is “customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.”

The law also requires contractors to post a written notice (describing the rights and responsibilities of independent contractors and employees and the contact information for filing complaints).  The penalties for violating this law are many, such as $1,500 per violation, and $5,000 for subsequent violations. Also, a first violation civil penalty of $2,500 per employee will be imposed for willful misclassification as an independent contractor and up to $5,000 per employee for additional violations within a five-year period. This law also provides a civil cause of action for employees to seek a recovery of lost wages and attorneys’ fees.  Read More. 

Employment law issues are much more personal than political. As an experienced firm, Leeds Morelli & Brown, PC is nationally recognized in the area of employment law.  Our firm has had considerable success in these matters throughout Long Island and the New York City area.  For more information, contact Leeds, Morelli and Brown, PC at 1-800-585-4658 for a free consultation.