$6.5 million class action settlement imparts four lessons for companies seeking to minimize independent contractor misclassification liability

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From Lexology — from the Independent Contractor Compliance and Misclassification Blog, Pepper Hamilton attorneys provide 4 lessons for companies that can be learned from the settlement between Lowe’s Home Centers and home improvement contractors.  They write:

Four Takeaways (i.e., Lessons)

1.  Retaining contractors who operate in the form of business entities, such as LLCs, do not necessarily insulate companies from independent contractor misclassification exposure

A common misconception by many businesses is that contracting with an LLC, corporation, or other form of business entity eliminates the likelihood of misclassification liability. Here, the class members covered by the $6.5 million settlement by Lowe’s Home Centers include installation contractors that operate in the form of business entities….

Some state laws expressly carve out from their definitions of “employee” status a business entity where the hiring party does not exercise direction or control over the performance of the services and meets other requirements. Thus, companies that wish to minimize independent contractor misclassification liability wisely do not rely solely on the fact that the independent contractor is a business entity.

2.  A failure to properly structure, document, and implement independent contractor relationships

It appears from the allegations that Lowe’s Home Centers may not have structured its relationship with home improvement contractors in a manner that enhanced compliance with a state’s independent contractor laws. The laws in almost all states allow companies like Lowe’s to contract with individuals or businesses to provide services to customers and clients of the company, yet many companies that do so fail to take steps to structure, document, and implement properly their independent contractor relationships to fully comply with those laws.

Prudent businesses that use independent contractors or pay workers on a 1099 basis tend to address the issue of their independent contractor compliance before being served with a class action summons and complaint or before receiving a notice from a state unemployment or workers compensation office, the IRS, or state revenue department.

This and similar class action lawsuits illustrate the value of using, in advance of a legal challenge, a methodology such as IC Diagnostics™ to evaluate whether an existing or proposed independent contractor relationship can be legitimately structured as such, and if so, whether it needs to be restructured, re-documented, and re-implemented to maximize the likelihood that those workers will be regarded by the courts and government regulators as independent contractors and not employees….”

Read the full story at $6.5 million class action settlement imparts four lessons for companies seeking to minimize independent contractor misclassification liability – Lexology.

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