Saturday, May 31, 2008
The Risk of Using Independent Contractors is an interesting May 15, 2008 New York Law Journal article which discusses the risks in classifying individuals as independent contractors verses employees. As this article point out, misclassification can raise employment law as well as tax law issues. Recently, both New York and New Jersey have taken steps to address worker misclassification. Senator Obama has also introduced legislation on the federal level to address this problem As the article states:
[M]any states, including New York, embarked on their own independent worker misclassification initiatives in 2007. Former Governor Eliot Spitzer signed an Executive Order in September 2007 establishing the Joint Enforcement Task Force on Employee Misclassification. Members of the task force include the heads of the New York state departments of Labor, Taxation and Workers' Compensation as well as the New York Attorney General. The departments have been charged with sharing information among themselves about employers suspected of improperly classifying employees as independent contractors, increasing awareness of the harms inflicted by illegal worker misclassifications, creating hotlines for the public (which can be used by competitors) and referring cases to prosecuting authorities as appropriate.
The task force issued its first report on Feb. 1, 2008, and called for far-reaching proposals including legislation that would extend individual liability for worker misclassifications to corporate officers, shareholders, members of LLCs and LLPs, and corporate successors and affiliated entities.
In 2007, the New Jersey State Legislature passed, and Governor Jon S. Corzine signed into law, the Construction Industry Independent Contractor Act. This law is the most aggressive law in the country governing hiring practices involving the use of independent contractors. It is based on a belief by New Jersey legislators that employers in the construction industry commonly engage in unchecked misclassifications of employees as independent contractors.
Two bills have been introduced in New York that are similar to the independent contractor legislation in New Jersey: New York Assembly Bill A06643 and its companion New York Senate bill S04925.
At the federal level, Senator Barack Obama (D-Ill.) has introduced S.2044, the Independent Contractor Proper Classification Act. If enacted, this legislation would limit the availability of the "safe harbor" provisions in the Revenue Act of 1978,1 permit workers to petition the IRS for a determination of their status as an independent contractor or employee, and mandate that employers post notices to employees and independent contractors informing them of their right to challenge their classification as an independent contractor. The legislation is being considered by the Senate Finance Committee.
Mitchell H. Rubinstein