The Task at Hand: Focusing on Worker Classification
On April 15, 2019, Wisconsin Governor Tony Evers announced the creation of the Joint Enforcement Task Force on Payroll Fraud and Worker Misclassification. The task force, staffed by the Wisconsin Department of Workforce Development (DWD), will review potential worker misclassification claims noted by the Wisconsin Department of Revenue, the DWD, and the Wisconsin Department of Justice and issue an annual compliance report to the governor.
According to Executive Order 20, signed by Governor Evers on April 15, between January 2016 and April 2019, the DWD found that more than 5,800 employees were improperly classified as “independent contractors” when they were actually employees, which resulted in almost $70 million in under-reported gross wages and the assessment of $1.8 million in unemployment insurance taxes, interest, and penalties. The hope is that the task force will review current employer practices and facilitate better actions in the future.
Why Is This An Issue?
There are a number of benefits for employers that classify workers as independent contractors rather than as employees. For example, an employer can be held liable for an employee’s actions during the scope of employment that cause harm to a third party. However, an employer cannot be held liable for the actions of an independent contractor unless there are extenuating circumstances.
Likewise, the Wisconsin Fair Employment Act (WFEA), which prohibits workplace discrimination, retaliation, and harassment, doesn’t afford protection to independent contractors. Additionally, the Wisconsin Worker’s Compensation Act (WCA) and the Unemployment Compensation Act don’t cover independent contractors. Finally, there are different tax implications for employees and independent contractors.
Overall, from a liability and economic standpoint, it’s extremely beneficial to employ independent contractors, which could contribute to the widespread misclassification noted by the DWD.
How Can You Avoid Employee Misclassification Issues?
The main issue the task force will seek to address is the wrongful classification of employees as independent contractors. Under Wisconsin law, there are specific tests for determining whether someone is an employee or an independent contractor.
Under Wisconsin tort (personal injury) law, the principal test for determining whether a person is an employee is whether the employer has control over, or the right to control, her work. “Physical control” of an individual’s work is critical for determining whether an employment relationship exists. If an employer asserts control over an individual’s work, she would be classified as an employee. The same test is used to determine whether someone is an employee or an independent contractor for purposes of the WFEA.
Here are a couple of easy examples of how to determine whether someone is an employee subject to his employer’s control or an independent contractor who controls and directs his own work under Wisconsin’s tort law test:
Abe is a plumber who works for Building Fixers. Cole calls Building Fixers because he has a broken toilet. Building Fixers sends Abe to Cole’s house to fix the toilet. Abe controls when he is able to do the work on Cole’s toilet because he sets his own schedule. He brings his own tools to Cole’s house and sets the price he charges for the work. He also controls how he repairs the toilet (he can choose to repair or replace a broken part).
Even though he was hired by Cole through Building Fixers, Abe would likely be considered an independent contractor under Wisconsin tort law and the WFEA because Building Fixers doesn’t control any aspect of his work.
Nancy works at McButter’s Burgers. She has a set schedule, which is determined by her man-ager at McButter’s. When she works, she is required to wear a uniform with the McButter’s logo. She works only as a cashier because she hasn’t been trained or certified by McButter’s to operate any equipment in the kitchen. Before she was hired, she was required to go through two days of training on how to operate the cash register and how to greet and treat customers pursuant to McButter’s handbook.
McButter’s controls when Nancy works, what she wears when she works, and how she performs the work. As a result, under the control test set forth by Wisconsin’s tort law and the WFEA, she is an employee of McButter’s.
Determining whether someone is an independent contractor or an employee is often a highly fact-intensive inquiry. When assessing whether an employment relationship exists, courts look at all aspects of the relationship between the individual and the employer. Under certain regulatory schemes, such as the WCA, there’s almost a presumption that individuals are employees. Indeed, Wisconsin courts tend to require clear evidence demonstrating a lack of control before they will conclude that someone is actually an independent contractor.
It’s unclear whether Governor Evers’ joint task force will carry any political sway over how Wisconsin judges will decide future cases involving employee classification. However, given the recent prominence of the issue, you should be cautious and consider reviewing your employee and independent contractor classifications to ensure compliance.