Commentary: The Freelancers Union and Independent Contractor Misclassification

Steven Greenhouse writes about the Freelancers Union in a timely article for the Sunday Business section of The New York Times today, March 24. The Freelancers Union is not a labor organization, either in the typical mold or one that is legally recognized as a “labor organization” under the federal labor law. More precisely, it is an association providing an array of affordable insurance and needed social benefits for independent contractors and other contingent workers who are not classified as “employees” by the companies for whom they provide services. As Greenhouse states, “The Freelancers Union, with its oxymoronic name, is a . . . collection of workers in the fast evolving freelance economy – whether lawyers, software developers, graphic artists, accountants, consultants, nannies, writers, editors, Web site designers or sellers on Etsy.”

The Freelancers Union states that it has over 200,000 members. Greenhouse reports that more than half of its members reside in New York State, and its founder and president, Sara Horowitz, predicts its membership will exceed a million freelancers within the next three years. Greenhouse reports that members of the Freelancers Union do not pay dues but are afforded access to far more affordable health insurance (40% less than individual plans available in New York State), retirement plans, and life, dental, and disability insurance. Members also have access to wellness services, such as “health coaches,” nutritionists, and acupuncturists.

Greenhouse notes that the Freelancers Union was recently awarded a low-interest $340 million loan by the Obama Administration to establish health care cooperatives in New York, New Jersey, and Oregon to provide medical insurance to freelancers and other workers.

The Freelancers Union is one of a number of organizations offering health insurance to those in the “gig economy,” a term used by Horowitz. Others include Fractured Atlas and PLCSI; an online company, HealthQuote360, is an aggregator of health insurance policies geared for independent contractors.

Commentary

Businesses that use legitimate independent contractors (ICs) are increasingly worried that the government crackdown on IC misclassification will “throw the baby out with the bathwater.” In other words, businesses fear that the crackdown will not merely target companies that illegitimately exploit common law W-2 employees by improperly treating them as 1099ers, but also target businesses that have a good faith belief that they are properly classifying ICs as 1099ers. This is a legitimate concern for hundreds of thousands of businesses that make use of ICs to supplement their workforce or operate their business in an IC-dependent model.

Some may regard the Obama Administration’s $340 million loan support for the Freelancers Union as rather ironic in view of its funding in the 2013 Budget of the Labor Department of Labor’s initiative to “detect and deter” misclassification of employees as independent contractors. However, even former Secretary Hilda Solis noted, when signing a joint misclassification initiative with the IRS, that the sustained use of ICs and other contingent workers is “not inherently illegal.” And when a leading House Democrat co-sponsored a federal bill to eliminate the “safe harbor” for businesses using ICs, he acknowledged that “legal independent contractors play an important role in the economy.”

Most of the rhetoric by legislators, business groups, and worker organizations on the issue of worker classification tends to lack a sense of balance, thereby stalemating any even-handed legislative approaches to the issue. Perhaps articles such as Greenhouse’s will remind all stakeholders in this national debate that ICs are not without access to health and other types of affordable group insurance, and that there are reasons for the government to support businesses and ICs that have a genuine IC relationship and are properly classified as 1099ers, while providing more effective remedies to those employees who have been knowingly misclassified as ICs.

Better yet, it is hoped that that Greenhouse’s article on the Freelancers Union will promote bipartisan action that will both legislate against intentional misclassification of employees as ICs yet protect those who have a good faith belief that their IC relationships comply with the law.

Takeaways

1.       Businesses using ICs should alert them to organizations like the Freelancers Union that provide group health insurance benefits.

Many businesses have bona fide IC relationships with those providing services are shocked when they have to defend against claims by these workers for unemployment benefits, overtime pay, statutory termination benefits, and an array of other types of employee benefits. Many of these claims are filed because such bona fide ICs believe they have no means of securing benefits, especially health care insurance, unless they are reclassified as an employee of a business that retained them. The Freelancers Union is the type of organization about which many businesses should notify their ICs so that these workers can address their understandable need for affordable health insurance coverage. With access to the group benefits made available to members of organizations like the Freelancers Union, some of those workers properly treated as 1099ers may be less inclined to pursue legal claims.

2.       Businesses should enhance their level of IC compliance to avoid or minimize misclassification liability

Savvy businesses that use ICs have come to realize that they need to structure, document, and implement their IC relationships in accordance with applicable federal and state laws – or face seven-figure or greater liability for IC misclassification.

Re-structuring, re-documenting, and re-implementing IC relationships is readily attainable for most companies that wish to enhance their IC compliance, but it usually requires a firm commitment to adjust their existing IC relationships to some extent. Oftentimes, all that is needed is a tune-up; other times, the relationship needs a significant restructuring.

A number of companies have effectively used IC Diagnostics™ to enhance their IC relationships using the IC Compliance Scale™ to measure the level of their compliance with laws governing ICs.

Making this type of commitment should be done after recognizing the scope of any misclassification exposure facing the business. This can be accomplished using a comprehensive tool such as IC Misclassification Metrics™.  The extent of the efforts undertaken by a business to enhance its IC compliance should be in direct proportion to the magnitude of any IC misclassification exposure.

Richard Reibstein
Lisa Petkun
Andrew Rudolph

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