An exotic dancer’s classification is a hot topic since it serves as a potential poster child for what should be an employee even though the “industry standard” dictates independent contractor status. So what’s right?

Relationship Details

Before we draw any conclusions, let’s examine some of the details of the relationship. Dancers earn their money per shift.  A large majority of their income is derived from tips, of which the dancers have to pay a percentage back to the club to cover the dj, bartender, etc.. Gentlemen’s clubs typically control the hours that a dancer works.  In addition, the dancers are required to dance on stage several times as part of their shift along with providing extra friendly mingling services to customers. Though it is possible to work for multiple clubs simultaneously, most clubs prohibit their dancers from doing so.

I’ve laid out a few factors involved in a dancer’s relationship with their club. For those that didn’t notice…control, control, control dominated the relationship between both parties. But what’s it going to take for their IC status to be overturned? That’s the million dollar question.

Will anyone listen to the dancer’s claim?

The dancers have an uphill battle in front of them. There have been instances in other industries where workers have called attention to themselves with the hope that either a state or federal government would pay attention. And in those instances, the response from the government has either been discouraging or non-existent.  Whether these numerous cases make it to court depends on how aggressively the dancers and their lawyers are willing pursue employee status. After all, should the dancers be rewarded with employee status, changes are likely to occur with regards to income as well as the taxes they will now be responsible for.

We’ll continue to monitor whether the courts view exotic dancers as a labor group worthy of a legitimate employee occupation or whether they’ll continue to stay as industry standard independent contractors. Count me in as one person who is eagerly waiting for this legal dance to take center stage.

 Scarlet Letter

Financial penalty is not the only form of punishment employers will have to endure. Those found guilty of violating the law must also display a notice to the employees and general public stating the details of the violation. The notice must be signed by an officer of the company and be posted on the employer’s website or place of business (if the employer has no website) for one full year. Hester Prynne, is that you?

Job Killer Act

When yours truly blogged on this bill last month, I didn’t think that it had the slightest chance of passing. After all, people were calling it the “Job Killer Act” and unemployment in California was at 12.1%.  Not to mention, there was  no way that the  Governor would approve a bill that brands those who break the law. Apparently Gov. Brown didn’t pay any attention to the frivolous chatter when he put his pen to work and signed the bill. 

Employers have to pay attention to how they classify their workers

The California Labor Commissioner is out to make an example of businesses that make a practice of cheating the system. Construction industry can you hear me? Though this bill does not specifically name that industry, it’s not hard to read between the lines and understand for whom this bill is intended. However anyone outside of construction, I don’t recommend testing your fate. When this legislation officially becomes law in January, employers will finally have to pay attention to how they classify their workforce or face the consequences.

The VCSP Criteria

I can’t help but be sarcastic when speaking of this new plan.  I want to believe that the IRS had good intentions when this was being created.  Asking that the employer pay a small fraction of the cost on a worker who should have been an employee rather than an independent contractor is beneficial. Unfortunately, where the plan loses its luster is within the plan’s accompanying guidelines and how the IRS is perceived. To be eligible, the IRS has established a five point criteria which includes: 1) consistently treated workers as independent contractors, 2) have filed all required 1099 forms for workers for the previous three years, 3) Not currently being audited by the IRS, 4) not currently being audited by the DOL or any state agency for worker misclassification, and 5) if you were previously audited by the IRS or DOL, you’re only eligible if you complied with the audit result. And just when you thought that was the end of the criteria, there’s an “oh by the way” as the IRS has full discretion over who it accepts into their plan.

Employers Reluctant to Come Forward

The IRS is an acronym that nobody trusts. There are few people that divulge more information than what the IRS requests. It would have been in the best interest of the IRS to roll out a plan that prohibited information sharing between the IRS and DOL or other state agencies. Unfortunately that language was not included in their plan and because of that, employers will be reluctant to come forward.  Employers who keep abreast of employment news also realize that the IRS is not their primary concern when it involves misclassification. That lies with private class action lawsuits stemming from wage and hour disputes.

Can you trust the IRS?

An employer wants to make amends for the lack of good judgment used in classifying workers as IC’s instead of employees. Sacrificing themselves to the IRS with hopes of getting off easy makes sense. Unfortunately that’s the only thing that does. Without assurance from the IRS that they will not share any information with the DOL or other state agencies, this plan goes nowhere.  Maybe the IRS needs to makeover their reputation before rolling out a plan like this. Until employers can start trusting the IRS, most will say thanks but no thanks to this latest plan.

Worker Misclassification Issues

 This is not the first time that XE has come under fire for its worker misclassification issues. In 2007, the chairman of the House Committee on Oversight and Government Reform, Rep. Henry Waxman (D-CA) accused the private military company of engaging in an illegal tax scheme. Rep. Waxman indicated that Blackwater managed to avoid an estimated $31M in employment taxes.

Independent Contractors Performing Similar Services

Fast forward to today and where is XE? At the exact same place minus the name change. The Waxman interrogation of ’07 did nothing to change the company’s worker classification practices. How can a contractor who’s providing military services to a private military firm be classified as an independent contractor?  Did XE not think that the worker was performing services that were similar to other W2 employees? Did they overlook the fact that independent contractors were performing services that were integral to their core business? Regardless of XE’s thinking (or lack thereof) they knew that they were untouchable. After all, they were doing business with the U.S.  Government and there was a need for their services overseas. 

Heads will turn if this lawsuit goes to trial.  Any new legislation created for the purpose of curbing worker misclassification will never be taken seriously as long as there are parties who are exempt from playing by the rules.

Worker Classifications from a Third Party

Contacting a third party for a recommendation on your worker classification is not a foreign idea.  The IRS has an SS-8 form that a worker can complete to obtain their worker status for Purposes of Federal Employment Taxes and Income Tax Withholding. While the IRS provides aid in determining status, I’d find it difficult to believe that the form is being utilized to its potential.  Why? I can’t imagine that there are too many people willing to share additional tax information with Uncle Sam.

So where does that leave workers? It leads them to sites like USovertimelawyers.com and ehow.com.  While these are just two examples of websites that target the worker audience, both contain different approaches.  For example, USOvertimelawyers.com’s main focus is on overtime.  Their site makes the transition to independent contractor misclassification on the notion that if you’re an independent contractor, you’re not collecting overtime.  The potential reader begins to wonder if they’ve been improperly misclassified and before they can finish the paragraph; USOvertimelawers.com’s has conveniently placed their 800 number on their site with hope that it provides an opportunity for the worker and a potential payout for the law firm.  This is the most common tactic utilized by many third party agencies looking to make a buck.  ehow.com on the other hand presents their material in a different manner without being over the top. The ehow.com approach is as simple as their title “How to Sue Your Employer for Wrongful Misclassification”. In four easy steps, ehow.com advises the worker on how to initiate a lawsuit with steps that include contacting an employment law firm and gathering as much material (employee handbooks, training material, memo’s, etc.) that could potentially support a misclassification case. If you didn’t know of an employment lawyers, ehow.com conveniently offers sponsored links of which all happen to be law firms. Convenient, isn’t it?

Independent Contractor Misclassification Audience is Evolving

The audience for independent contractor misclassification is changing. In the past, a majority of the news coming from the government or third party outlets have been directed at companies who misclassify workers. The general tone of the news releases reminds me of my childhood years when the boogeyman was going to get me if I didn’t comply. Now it appears that this kind of scare tactic doesn’t work as most companies continue to go about their business without fear of penalty.  The switch of targeting independent contractors as the audience is intriguing since it seems that we’re inching towards a whistleblower society. If companies cannot police themselves in their day to day business, why not engage a worker to police their own status. After all, the worker has much to gain and the potential employer, much to lose.

Bill 2135 expands penalties to businesses that intentionally misclassify workers to avoid paying taxes. No longer would guilty businesses be subject to only civil penalties. Instead, the guilty parties could be hit with misdemeanor penalties instead.

In an attempt to refrain from coming across as a correspondent for Fox News, this new piece of legislation does not come without a few negatives.  First, the automatic penalties for first-time offenders have been wiped out.  Second, the Kansas Secretary of Labor will have the final word on who will be penalized and the amounts of those penalties.

In the Hands of the Secretary of Labor

It appears that the success or failure of this law will be in the hands of the Secretary of Labor’s office.  How does a state anoint an individual and leave it to their discretion to decide whether or not a worker is properly classified. The federal government and other states have agencies that handle these types of situations yet Kansas has decided to rest the verdict on an individual or his/her designee to make that decision.  On the flip side, one could argue that the final determination in any form of audit or misclassification case comes from one individual…typically an auditor or a judge.

Another Blueprint for Fight Worker Misclassification

Kansas should be applauded for its effort in the battle against worker misclassification. Pairing the Kansas DOL and DOR has the potential for good things to be accomplished. After reading some of the commentary regarding this bill, most wish that the final verdict rested in the hands of the departments not the Secretary to avoid any personal agenda. Others hoped that the law would continue applying pressure on first time offenders to prevent them from doing it again. How the law is implemented and enforced will be watched by other states.  It will provide another working example of what tactic does or does not work.

We’ll attempt to provide you with updates on the success of this law as it becomes available. Please check back with us in a few months.

Independent Contractor usage Targeted

Increased Funds Requested for Enforcement of Misclassified ICs

If approved, the budget would set aside $240 million for initiatives specifically related to enforcing the misclassification of workers as employees rather than independent contractors.  It is not surprising to see this on the budget, given that this provision is projected to deliver $1.3 billion in revenue over just two years.  Some might consider this a worthwhile investment.

While the Department of Labor’s budget request is$1.1 billion dollars less for fiscal year 2012, it would still increase spending for agencies regulating employers. The budget includes the following requests that are specific to worker misclassification:

“In FY 2012, the Department will redouble its efforts to combat worker misclassification by investing $46 million for a multi-agency initiative of OFFCP, the Wage and Hour Division, OSHA, the Office of the Solicitor, and the Employment and Training Administration, which will fund state grants that address worker misclassification within the context of the unemployment insurance program.  This initiative will help level the playing field for employers who abide by the law and provide employees with their rightful pay and benefits…”

“…The FY 2012 Budget Request includes an increase of $24,711,000 for an initiative focused on establishing capacity to address misclassification within the Federal/state administered Unemployment Insurance program. The first component, which was included in the FY 2011 Budget, which would provide states with the opportunity to compete for grants to: increase their capacity to participate in data sharing activities with the IRS and other Federal and state agencies; implement targeted audit strategies; establish a cross-state agency task force to target egregious employer schemes to avoid taxation through misclassification; and to develop education and outreach programs.”

Incentives to Enforce Misclassification