Where does Liability Fall if you Misclassify a Worker?

When an employer misclassifies a worker as an Independent Contractor rather than an employee, they can be subject to fines and penalties by both state and federal agencies. In addition, it is possible that an owner, manager, or member of the board of directors can be held personally liable for such misclassification.  If this isn’t bad enough, there is a possibility that the employee could sue for lost income, wages, or benefits they would have received if they had been classified correctly.

Enforcement Issues

In recent case law, the lawyers representing drivers who have sued Uber in California commenced another lawsuit on behalf of drivers alleging that Uber misclassified them as independent contractors instead of employees. This lawsuit, though, is not against Uber itself; rather, it is against Travis Kalanick, the former CEO and a current board member, and Garrett Camp, the Chairman of the Board of Uber Technologies, Inc. This new lawsuit may well be an attempt to avoid the arbitration provisions in the independent contractor agreements that most Uber drivers have signed with Uber. Undoubtedly, Kalanick and Camp will likely argue that they are covered by the Uber arbitration clause, and it will be up to a court (or an arbitrator) to decide that issue. https://www.jdsupra.com/legalnews/uber-s-former-ceo-and-current-chairman-62398/

What is Personal Liability?

Personal liability means that legal damages are collected from the individual’s personal bank account, retirement fund, and/or sale of personal property (car, home, collectibles, etc.). Though there has always been some degree of personal liability in employment situations, the general rule has been organizational liability. The employer paid; individuals did not. That’s changing. Usually, the employer is sued as an entity (The Employer). In a growing number of cases, plaintiffs are naming the employer as well as the individual(s) accused of actually committing the violation. In these cases, the court may award damages against both the organization and the individual manager. In some cases, the plaintiff can elect to collect from either, or both. Under ERISA, there is personal liability for breach of fiduciary duty. Anyone exercising discretion can be a fiduciary, including owners, clinic directors, board members, HR staff, and office managers. Individuals, especially supervisors, are now frequent targets. Companies should warn and train their supervisors in order to avoid such liability.

Who needs to really pay attention? 

Companies, managers, and independent contractors (ICs) may not realize that not only will the company be at risk due to worker misclassification but the worker and manager can be held personally responsible.  They are all responsible for paying fines, penalties, interest, attorney fees, overtime, expenses, stock options, and lost productivity. If an auditing agency (IRS, DOL, EEOC, NLRB), Federal or State, finds that the organization misclassified a worker and paid them as a 1099 and not a W-2,   Federal government agencies and the states now share information which may lead to additional audits. Violations incur significant financial penalties and may also be subject to criminal prosecution. Business owners, corporate officers, and principal shareholders, as well as supervisors and managers, can also be held personally liable. It’s always a good idea to consult with employment counsel to ensure compliance with applicable laws.

Where else can you find additional information? 

ClearPath Workforce Management specializes in independent contractor engagement and compliance.  We can assist in properly developing these policies and setting up a program for proper management of independent talent.  Call us today with your questions, and stay out of firing range.

1 comment

  1. Matthew May
    March 22, 2018 at 2:05 pm

    I would be interested in learning about independent contractors and how to properly Draft an independent contractor agreement

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