From Massachusetts Lawyers Weekly, Stephen M. Honig discusses the challenges created by the 2010 Dodd-Frank Act which requires a comparison of a public CEO’s earnings to the media earnings of all other employees. One challenge is defining who is an employee. Stephen writes:
Who are employees? People who are full time, part time, seasonal or temporary, located inside or outside the United States. Independent contractors are excluded.
But, what is the definition of an employee? There is much non-SEC litigation on this. The government, for tax and employee-protection reasons, seeks to classify “independent contractors” as employees if they perform services central to an enterprise’s business.
What if a company files a disclosure excluding many people it classified as contractors, who are later legally reclassified as employees? No one is going to say in a disclosure: “Although we claim that many people who work with our company are independent contractors, we are including their earnings to avoid material misrepresentation.”
Read the full story at Securities and Exchange Commission: a frustrated regulator