Missclassifying Indpendent Contractors

My law partner, Bob Fishman, reminds us frequently, "the devil is in the details."  This is what we call a "Bob-ism."  We have collected many Bob-isms over the years.  I need to blog on some of them soon. 

In California employment law, the devil really is in the details.  Small errors create costly consequences.  Lowe's discovered this recently.  A group of garage door installers sued Lowe's claiming they were misclassified as independent contractors.  (Shepard v. Lowe's HIW Inc., Case No. 4:12-cv-03893-JSW.)  You probably know the routine.  You, the customer, purchase a garage door (or carpet, or tile, etc.) at Lowe's and Lowe's can arrange for someone to install it for you.  Lowe's considered these installers as independent contractors. 

On June 26th, Lowe's settled the case for $6,500,000.  Ouch.  There must have been some merit to the installers' case. 

If Lowe's considered the installers as independent contractors, it did not maintain time records, nor provide proper paycheck stubs.  It may not have paid minimum wage or overtime.  Perhaps it failed to provide meal or rest periods.  It did not withhold or pay its share of payroll taxes.  And of course, the installers' lawyers wanted Lowe's to pay their fees. 

Antelope Valley Newspapers, Inc. is also learning the devilish detail of independent contractors.  Carriers sued them complaining they were misclassified.  (Ayala v. Antelope Valley Newspapers, Inc., 2014 DJDAR 8620.)  The case has proceeded already to the California Supreme Court on procedural issues.  In this case, the Supreme Court noted the common law test of determining employment status:  Whether the principal (the business) "has the right to control the manner and means of accomplishing the result desired."  It further wrote that the critical element is whether the principal "retains all necessary control" over operations. 

The test may be easy to write, but it is difficult to apply.  When is control sufficient to create an employment relationship?  What control is "necessary" for the operations?  How much control must the principal retain? 

These are difficult and detailed questions.  But a business must ask, and answer these questions before entering into an independent contractor relationship.  Even careful scrutiny and proper documentation of the business relationship does not ensure success.  Attorneys for workers may take questionable cases in hopes of convincing the business to settle on favorable terms to the plaintiffs.  After all, most employment cases bring with them the potential for the employee to obtain legal fees.  (Actually, the employee's lawyer gets those fees.) 

Yes, the devil is in the details.