Independent Contractor Compliance Practice
Practice Group Leaders
Richard J. Reibstein (employment/labor matters)
Lisa B. Petkun (tax matters)
Andrew J. Rudolph (employee benefits matters)
Private and governmental employers have substantially increased their use of independent contractors (ICs), long-term temps and other contingent workers to supplement their regular workforces. For those employers that properly classify their 1099ers as independent contractors, state and federal laws permit them to exclude such workers from costly legal payments such as income tax withholding, FICA and Medicare contributions, and unemployment and workers’ compensation premiums. Bona fide independent contractors can also be excluded from participation in employee benefit plans such as pension and group medical plans, and are not included in the computation of “employees” for purposes of the Affordable Care Act (ACA).
The Changing Landscape: Regulatory, Legislative, and Judicial Crackdown on the Misclassification of Employees as Independent Contractors
Responding to mounting evidence that many employers nationwide have misclassified some of their employees as independent contractors as a cost-saving measure, many employers believed to be misclassifying employees as 1099ers have been the subject of a crackdown by the IRS, state and federal labor departments and plaintiffs’ class action lawyers. In addition, state and federal legislatures, often at the behest of unions, have been active in seeking to curtail misclassification and increase the penalties for misclassifying employees as independent contractors.
These initiatives, each of which are described in more detail below, have increased the need for companies that use independent contractors to examine closely the structure, documentation, and implementation of their business models and, where necessary, to take steps to enhance their independent contractor compliance and minimize or eliminate their exposure to misclassification liability.
State and Federal Regulatory and Enforcement Initiatives
State and Federal Legislative Initiatives
Class Action Litigation
Meeting Legal Challenges to the Valid Use of Independent Contractors in a Diverse Group of Industries
In 2010, Pepper Hamilton established its Independent Contractor Compliance Practice Group to help employers meet these various legal challenges to their valid use of independent contractors and other types of contingent workers. The practice team focuses on the interrelated legal issues involving independent contractors by using an interdisciplinary approach, along with proprietary tools and techniques, to diagnose and enhance employers’ compliance with independent contractor laws.
Pepper’s Independent Contractor Compliance Practice Group includes more than 30 employment, tax, employee benefits, and class action attorneys in eleven Pepper offices coast to coast, working collectively and collaboratively. Our approach helps organizations legally use independent contractors, in compliance with applicable employment, tax and employee benefits laws, to minimize exposure to liability from such laws. We also defend organizations subject to misclassification challenges brought in judicial and administrative proceedings and audits throughout the U.S. by governmental agencies and private class action lawyers. Few industries are immune from such legal challenges, and our lawyers have represented clients in independent contractor compliance matters in a host of diverse industries.
Our Proprietary IC Diagnostics™ Process
Our lawyers understand that an audit by an unemployment or workers’ compensation agency of a company’s use of independent contractors also may lead to legal challenges to a company’s tax and employee benefits practices, and vice-versa. When asked by clients to enhance their compliance with independent contractor laws, we examine the issues and propose compliance measures, including alternatives, in all related disciplines – labor/employment, tax, and employee benefits – using our proprietary “IC Diagnostics™” process, based on continually updated legal research covering federal law and the laws in nearly every state. Our practice is nationwide and, where applicable, we work with lawyers in specific states.
Our Legal Blog, Articles, White Paper, and Representative Engagements
For the past four years, our practice group leaders have published a legal blog dedicated solely to this area of the law; it can be found at www.independentcontractorcompliance.com. The blog is noted for its timely, comprehensive, in-depth posts that report and analyze new developments in this area of the law. Included among the nearly 100 blog posts published to date is the only regular monthly update of virtually all important judicial, legislative, regulatory, and other noteworthy matters on the subject. The blog also offers readers the most complete set of legal resources for companies and lawyers seeking information about independent contractor compliance and misclassification.
Members of our practice group have conducted numerous seminars and presentations and written more than a dozen articles on misclassification liability, how to enhance compliance with laws permitting the use of independent contractors, and other matters of vital interest to organizations that make use of independent contractors, long-term temps and other types of contingent workers. Our white paper, entitled “How Companies Can Minimize the Risk of Independent Contractor Misclassification,” is one of the most viewed legal resources on the subject of independent contractors available on the Internet. We also have been quoted in the American Bar Association Journal and many other leading business and legal publications on the subject of misclassification of independent contractors.
A list of our representative engagements reflects the depth and breadth of Pepper’s Independent Contractor Compliance practice. Our engagements in the area of class action defense of employment cases can be found on the firm’s Class Action Litigation practice description.