To be an employer, or not to be an employer? You would think that you could decide your company’s identity as an employer — or not — by entering into a proper independent contractor agreement with folks you bring on board. Not true. While there are certain measures you can take to protect your business form meritless unemployment filings, there is no bright line rule and the Department of Labor (“DOL”) has the final word. This, in our view, is not good.
We should know. We recently had the pleasure of defending a start up ad agency against a meritless unemployment claim in front of New York DOL Insurance Appeal Board. In the case, the agency had: entered into an independent contractor arrangement with the claimant, paid the claimant as a 1099 contractor, and did not require the claimant to come into the office. The claimant even admitted on the record that he agreed to be an independent contractor, and that he understood what that meant. Slam dunk case, right? Wrong. The DOL initially found the agency to be an employer. We had to appeal the finding and are now awaiting the decision. There is no bright line rule here because neither the contract you sign with an independent contractor, or the contractor’s use of a 1099 to file taxes, are dispositive in the DOL’s eyes. As such, you need to ensure that you don’t control the “means used to achieve the results,” which means many things under the case law, including that you: don’t require the independent contractor to come into the office, allow the contractor to hold other jobs, don’t provide any benefits (including free use of the office printer and other machinery), and that you pay by fixed fee. Even then, the DOL can find that you are an employer. We think that this is precisely why many companies are concerned about bringing on independent contractors in this tight economy — they are afraid that the independent contractor will go to the DOL for unemployment. In so doing, these folks abuse the system, give a bad name to unemployment, and stifle the economic recovery by creating uncertainty.