The U.S. Department of Labor has targeted a number of industries for allegedly misclassifying employees as independent contractors (ICs), and cable companies are one of them. On May 9, 2013, the Labor Department announced in a press release that Bowlin Group LLC, which provides installation services for Insight Communications, a cable television, telephone, and Internet service provider in Kentucky, agreed to a consent judgment in federal court to pay $1,075,000 in back wages and liquidated damages.
The payments will be made to 77 cable installers whom Bowlin Group allegedly misclassified as ICs and then failed to pay overtime compensation at the rate of time-and-a-half to the IC installers as well as other similarly situated installers whom Bowlin designated as employees. The consent judgment was signed April 30, 2013 by federal court Judge David L. Bunning of the U.S. District Court for the Eastern District of Kentucky. Harris v. Bowlin Group, LLC, Case 2:12-cv-00076 (E.D. Ky. April 30, 2013).
In addition, under the consent judgment, Bowlin Group and its affiliates consented to a permanent injunction barring them from failing to pay overtime and minimum wages and keeping and preserving employment records in violation of the provisions of the federal Fair Labor Standards Act. The consent judgment includes a non-admission clause that Bowlin Group and the other defendants are settling disputed claims in good faith to avoid legal fees.
Analysis: A Failure to Structure, Document, and Implement IC Relationships
It appears from the allegations and the DOL’s press release that Bowlin Group may not have structured its relationship with its installers in a manner that likely complied with the FLSA and comparable laws governing ICs. Bowlin Group may have used both employees and ICs relatively interchangeably as cable installers.
While there is nothing under the FLSA and other comparable laws that prohibit a business from using both employees and ICs to perform the same end-result, many companies that do so fail to take steps to structure, document, and implement properly their IC relationships to demonstrate the important differences between ICs and their employees. While these steps are essential for all companies using ICs, they are absolutely critical for any company that uses both employees and ICs to perform an end-result that is the same or appears to be the same. Absent such steps, a business is advertising that it may be misclassifying a portion of its workforce.
Although the Labor Department’s press release states that “misclassification of employees as independent contractors . . . leads to unfair competition because businesses that play by the rules operate at a disadvantage to those that don’t,” many companies that may not currently be “playing by the rules” can readily accomplish that objective and gain a lawful competitive advantage over others in the industry.
Takeaways and Best Practices
As we noted in a prior blog post about another cable company that was also the subject of a costly class action lawsuit, the position of cable installer is an example of a function that can be legitimately structured and documented as an IC, 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 implemented. Examples of some of the many workers that can lawfully be either ICs or employees under federal and most state laws include:
- physicians and other medical personnel,
- interpreters and translators,
- court reporters,
- truck drivers and couriers,
- computer technicians,
- taxicab or limo drivers,
- physical and occupational therapists,
- carpet installers,
- writers and editors,
- IT consultants,
- route salespersons,
- insurance agents,
- coaches, trainers, and officials,
- tutors and instructors,
- sales consultants,
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. Only a few states have laws that are inhospitable to almost all types of ICs.
The Bowlin Group case illustrates the value of using, in advance of a legal challenge, a methodology such as IC Diagnostics™ 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, re-documented, and re-implemented to maximize the likelihood that those workers will be held to be ICs and not employees. Other proprietary compliance tools include the 48 Factors-Plus™ analysis and IC Compliance Scale.™
The costs of misclassification do not always end in class action cases when the last payment is made to the prevailing workers. Any company settling a case brought by the Labor Department may also be facing liabilities for unpaid payroll taxes at the federal and state levels, unpaid unemployment tax payments, and workers compensation premiums. There may also be claims for unpaid employee expenses and unpaid employee benefits.
A settlement or adverse IC determination, however, should not necessarily be regarded as an obligation on the part of the business to treat the workers in question as employees on a going-forward basis. If the liabilities from an adverse IC determination can be satisfied, many businesses can adopt an IC model that may well 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.