On April 21, 2010, the Connecticut Legislature passed House Bill No. 5204, "An Act Implementing the Recommendations of the Joint Enforcement Commission on Worker Misclassification." Significantly, the Act increases the civil penalty for employers who incorrectly classify employees as independent contractors from $300 per violation to $300 per day for each day that the worker is misclassified. The Act specifically provides that "each day of the violation constitutes a separate offense." The Connecticut Legislature stated that the Act will result in "a potential significant revenue gain for Connecticut."
In order to facilitate complaints about worker misclassification, Connecticut's Joint Enforcement Commission on Worker Misclassification also announced that it will launch a website through which workers will be able to file complaints regarding misclassification issues on an anonymous basis. Such complaints will be investigated by the Connecticut Department of Labor (CT DOL), and possibly by other agencies such as the Connecticut Department of Revenue Services. If such agencies conclude that an employer improperly has classified employees as independent contractors, the employer could be ordered to pay certain state employment-related taxes, such as unemployment premiums, in addition to the civil penalties.
Employers should take note that federal lawmakers also are focusing on the worker misclassification issue. Senators from Ohio and California introduced the Employee Misclassification Prevention Act (EMPA) in the United States Senate one day after passage of the Connecticut Act. If passed, EMPA would amend the Fair Labor Standards Act (FLSA) to require employers to maintain written records of independent contractors who perform labor or services for remuneration and to penalize employers that improperly classify employees as independent contractors. EMPA's significant proposed provisions include:
In addition to EMPA, Congress is currently considering Senate Bill No. 2882, which aims to eliminate the IRS safe harbor rule that allows companies to avoid back taxes for employees incorrectly classified as independent contractors if the company can demonstrate a reasonable basis for the classification. If passed, the bill also would require the IRS to notify both the employee and the U.S. DOL where it has determined that an employer has misclassified an employee as an independent contractor, which could prompt additional enforcement action by the U.S. DOL.
The misclassification of workers can result in employer liability beyond civil penalties and can include liability for unpaid federal, state and local income tax withholdings, unpaid Social Security and Medicare contributions, unpaid workers' compensation and unemployment premiums, and attendant penalties and interest. Such liability arises because employers do not withhold income taxes, Social Security or Medicare payments from compensation paid to independent contractors, whereas employers generally have a legal obligation to withhold such taxes and payments from compensation paid to employees. An employer's tax-qualified benefit plans also may be at risk of losing their tax-qualified status for failure to meet nondiscrimination requirements where workers have been excluded from participation as a result of their misclassification as independent contractors. Finally, misclassified workers may have claims for periods when they were denied employee benefits such as vacation pay, sick leave and personal days.
In light of the increased legislative focus and greater penalties related to the misclassification of workers, employers may wish to undertake an internal audit or external analysis of their current employees and independent contractors to ensure that they have correctly classified their workers. It may be prudent to have such audit or analysis performed by counsel and subject to attorney-client privilege. Specifically, employers may wish to consult guidelines promulgated by the CT DOL, the U.S. DOL and the IRS regarding the different factors that these agencies consider in determining whether a worker is an employee or independent contractor. The CT DOL guidelines can be found at http://www.ctdol.state.ct.us/uitax/abctest.doc the U.S. DOL guidelines can be found at http://www.dol.gov/elaws/esa/flsa/docs/contractors.asp and the IRS guidelines can be found at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html In addition, employers should discuss the results of any internal audit or external analysis with legal counsel to determine the potential impact of any misclassification and/or reclassification of workers.
Day Pitney partner Francine Esposito will speak at the upcoming webinar "Workplace Leave Laws: Strategies to Navigate the Changing Landscape in the U.S." Taking place on Sept. 14 at 2 p.m., the webinar is the first in a series of webinars hosted by the Employment Law Alliance (ELA) on workplace leave laws around the globe.
Day Pitney partner Francine Esposito will present a "2017 FMLA Master Class: New Jersey" seminar on September 13.
Day Pitney Alert
Eric Sussman authored an article, "Conn. High Court Sheds Light on 'ABC' Test Application," which was published by Law360.
Patrick McCarthy and Christopher Stracco spoke about Project Labor Agreements on Friday, February 10, at the New Jersey Institute of Continuing Legal Education's Annual 2017 Redevelopment Law Institute at the Renaissance Woodbridge Hotel in Iselin, New Jersey.
Michael Furey was quoted in an article, "The Biggest New Jersey Cases of 2016," which was published in Law360.
Michael Furey was quoted in an article, "NJ Panel Grills Hospitals Over Discovery In Horizon Row," in Law360. Day Pitney is representing five New Jersey hospitals in a lawsuit against Horizon Healthcare, relating to its new, multi-tiered health plan called OMNIA. Furey advocated on behalf of the five hospitals on Wednesday before a New Jersey appeals court that Horizon should turn over a consultant's report and certain agreements relating to how Horizon categorized hospitals under its controversial OMNIA Alliance program and the impact of OMNIA on the hospitals. These Tier 2 hospitals are alleging various claims, including breach of contract and citing concerns that being ranked in the lower tier of the program will cost them business. Horizon contends the sought-after materials, including a financial analysis, strategic alliance agreements and rate agreements between the insurer and OMNIA network hospitals, contain trade secret and confidential information. "If we're going to prove our hospitals should be Tier 1 alliance members, we need the documents and the information," Furey said.
Hartford, Conn., May 26, 2016 - Day Pitney LLP is pleased to announce that Employment and Labor attorney Albert Zakarian has been chosen as a Lifetime Achievement winner of The Connecticut Law Tribune’s second annual Professional Excellence Awards 2016. The Professional Excellence Awards 2016 recognize 28 lawyers, who were chosen from over 60 nominees, as either Lawyer of the Year or Lifetime Achievement recipients, according to The Connecticut Law Tribune. The Lifetime Achievement Awards honor "attorneys who have excelled over a career."
John McLafferty was quoted in an article, "Final overtime regulations less drastic than feared," in Massachusetts Lawyers Weekly. In the article, McLafferty discusses how the Department of Labor’s final revised federal overtime regulation will impact businesses. "The reality is that the rule made more people eligible for overtime; it didn’t create any obligation for employers to pay more overtime," he said. McLafferty added that the regulation’s impact on employees could have a wider effect on office culture and policies, which may affect a company’s ability to attract and retain workers. In addition, he noted that employers should take this opportunity to ensure that all of their employees are properly classified for overtime purposes.
Albert Zakarian has been chosen as a winner of The Connecticut Law Tribune's second annual Professional Excellence Awards. The awards recognize two dozen lawyers for outstanding service to the profession during their long careers. The publication received more than 70 nominations. Profiles of awardees will appear in the Law Tribune in May. An event will also be held in May to recognize the winners. More about the awards can be found here.