Misclassifying Workers as Independent Contractors is a Litigation Risk

A number of businesses now hire independent contractors to perform activities in the workplace. However, the increasing use of independent contractors has also raised several employment litigation hazards. The federal administration is now strongly and closely investigating those businesses that hire workers who have been wrongly classified as independent contractors.

You may believe when you hire an independent contractor that the arrangement works best for the two of you. However, the situation could change when the contractor decides that he wants the benefits that are available for a regular worker. It is only then that many independent contractors choose the litigation route, filing a lawsuit against the business, and claiming that they were wrongly misclassified as independent contractors, instead of full-time workers on the payroll.

For example, in recent years, a number of strip clubs have found themselves battling allegations from their dancers, that they were wrongly misclassified as independent contractors, instead of employees of the clubs. Courts have actually agreed with the dancers in several cases. Similar such verdicts have also gone in favor of independent contractors.

To avoid litigation, avoid any inadvertent misclassification of independent contractors.  What makes matters very difficult is that the law has no standard definition of what constitutes a contractor. Such litigation typically depends on the question – does the person meet the criteria for a worker, or an independent contractor?

To answer that question, look at the kind of control that you have over the worker. For instance, if the worker is subjected to your workplace hours, and performs the work in a manner that is defined by you, then he is more likely to be an employee. If however, the worker has his own powers, and has freedom to decide the manner in which he will perform his activities, then he is likely to be a subcontractor. The courts will decide based on this very simple premise.

In a diversifying economy, when many businesses now hire independent contractors, answering such questions has become even more important. Just because you hire someone as an independent contractor, and he agrees with his status as an independent contractor, don’t assume that you’re safe from litigation.