Preferred Vendors as Company Representatives (United States)

Response # 1: I suggest you review a significant case involving Lowes or Home Depot within the past 3 or 4 years. In that case the "independent contractors" who were retained to perform outside installation work were deemed to be improperly classified based on criteria similar to what you mention.¹

 

Response # 2: We recently had someone request company business cards for a contractor because he thought it was awkward to have meetings with the two of them with one representing from outside the company. Human Resources and I both held a strong front against this, and the business folks took our advice. To help convince your team that this is not the way to go, you might try providing the laundry list of potential risks for misclassification. I'll paste the list that worked for me below. The headliner cases others pointed to are also good tools to show the high visibility and dollar amounts on the line, and to show that this is a real and common issue being fought in courts right now.

The risks for misclassification can includes state and federal payroll tax penalties, employment benefit issues, and federal and state law employment violation claims, which include overtime claims, wage and hour violations, the Labor Code Private Attorney General Act claims, late payment claims, and penalties on top of the damages for these claims. We would also be subject to paying attorneys' fees. Attorneys take these cases on contingency, so there is a high incentive for employees and their attorneys to pursue these kinds of claims. These things are not covered by our insurance, so we would be fully out of pocket for such claims.²

 

Response # 3: We do not have any specific experience with this precise issue, but you are correct to be worried. The installers will essentially hold themselves out to the public as employees of your company. The Company will undoubtedly give them their assignments and schedules, and the customers will no doubt pay the company, not the contractors. If a customer has a problem with the installer, they will call the Company and expect that the Company will take some action, thereby exercising 'control' over the contractor. If the contractor(s) actually are in the business of providing this kind of service for multiple clients and in fact work for multiple clients, you might have a prayer, but if they work exclusively for your Company, these facts could well result in a finding by a court (or the National Labor Relations Board) that they are your "employees" and treating them as if they are non-employee contractors could be a major problem for you down the road.³

 

Response # 4: I think in addition to the usual misclassification/co-employment concerns here, what can't be overstated is the potential exposure under the Affordable Care Act (ACA). The 4980H(a) and (b) penalties are extraordinary – in particular the (a) penalties. Under ACA there is an obligation of the "common law employer" to offer the mandated health care coverage, and if it does not, and if the common law employee obtains coverage and a tax subsidy at the Exchange, the common law employer is going to have an (a) penalty to pay. I suggest that this should definitely be costed out before proceeding.⁴

 

Response # 5: There are indeed significant challenges to utilizing independent contractors, but we have found that there are ways to optimize 1099 use while avoiding the pitfalls of the Fedex/Macys/Uber rulings.⁵