The coronavirus, or COVID-19, is sweeping the world. Hundreds of thousands are sick, thousands have died, and governments across the globe are struggling in their response to stem the tide of infection and flatten the curve of transmission.
Besides the sickness itself, people are scrambling to grasp what the wider impact will be on the local, state, national, and global economies. In the short term, at the very least, there are likely to be massive layoffs as more and more people stay at home. Economists are estimating that millions of workers could be laid off in the near future. Which brings us to an important issue that is woefully unaddressed. Mis-classification of workers.
If you are an employee (meaning you get a W-2 each year at tax time) and you lose your job through no fault of your own, you will be eligible for unemployment benefits. In Indiana, that means you can receive 47% of your weekly wage up to a maximum of $390 weekly.
But what if you don’t get a W-2? That means you are classified as an “independent contractor.” As an independent contractor you are NOT covered by unemployment insurance. Additionally, you typically don’t get any benefits; you’re not covered by Worker’s Compensation laws and your employer doesn’t contribute a portion of your FICA (a/k/a “payroll”) taxes. When an independent contractor is laid off, they’re on their own.
How many workers are mis-classified? In 2011, there were estimates that 3.4 million workers were mis-classified as independent contractors. With the growth of the American economy since then, that number is almost certainly much higher today.
Why are workers mis-classified? Frankly….greed. Employers can save a great deal of money by avoiding payroll taxes, benefits, and insurance premiums.
What does it matter? From our practice, we see this most often in the context of Work Comp. The work comp system has been in place for over 100 years and it comes with a very specific trade-off for employees/employers. For the employees, if they are hurt on the job in the course and scope of their employment, they are entitled to have their medical bills paid as well as wage loss benefits. Even if the accident is their fault. For the employers, they have to pay medical bills for an on the job accident, but they are immune from a lawsuit.
See, in the common law, if you get hurt because someone else is negligent, you can file a lawsuit for compensation. That’s what we do at Ladendorf Fregiato & Bigler every day. But this would apply to the negligence of a co-worker or even of an employer. So the trade-off is basically guaranteed benefits, but generally a lower benefit amount than someone would otherwise be entitled to.
Who mis-classifies? To be clear, it happens in all sectors of the economy. Where we tend to see it most often is in the construction and commercial trucking fields. This is what we typically see in a situation where a worker is injured by the negligence of a co-worker. We make a claim against the employer (remember, they’re not immune from suit if it’s an independent contractor). The employer’s insurance company hires an attorney who proceeds to attempt to get the court to rule that the employee was actually an employee the whole time so the case should be dismissed because the employer is immune. Indiana case law even supports this. An employer can fail to pay benefits by mis-classifying, and then cut the employee loose with no recourse when it gets bad. Oh, and I don’t want to forget to mention that just because they argue that they’re an employee in a negligence claim it doesn’t mean they volunteer to start paying work comp benefits for that. Whether it’s with us prosecuting negligence cases, or with a work comp attorney trying to get benefits, workers are often left holding the bag.
How do I determine how I should be classified? The IRS uses a 20-factor test in deciding whether an individual is an employee or an independent contractor for the purposes of employment or workers compensation law. Click HERE to learn more about the IRS test. In summary, it really seems to come down to “control.” Is the employer driving a company truck, wear a company uniform, only work for the company, the company sets the hours, and the company provide the tools? Yeah, probably an employee. There’s lots of legal gray area depending on the factors, but I hope you get the gist.
The problem of mis-classification of workers can lead to horrible outcomes for workers. They pass every test for employment and are clearly “employees” under the legal definition, but their employers try to save money on unemployment insurance, Work Comp insurance, and benefits paid. And, sadly, when something goes wrong, whether it’s a layoff or a workplace injury, the worker is on their own in what can be very desperate times.
The coronavirus is and will continue to be a major disruption on our way of life for the foreseeable future. We sincerely hope, though, that certain failures of the system that negatively impact workers when times are the worst are not forgotten when the times are good.
Be safe out there.