IATR — IN FOCUSPresident, International Association
of Transportation Regulators
Distinguished Lecturer, University Transportation Research Center, Region 2
Contact: mwdaus@juno.com
| IATR — IN FOCUS |
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| by Matthew W. Daus, Esq. President, International Association of Transportation Regulators Distinguished Lecturer, University Transportation Research Center, Region 2 Contact: mwdaus@juno.com |
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Independent Contractor Status
By Matthew W. Daus, Esq. & Jasmine K. Le Veaux, Esq.
Transportation Practice Group
Most for-hire vehicle ("FHV") drivers in New York are classified as independent contractors, a status which is important under federal, state and local tax and labor laws. Worker classification has become a particularly important topic recently as the Internal Revenue Service ("IRS") has stepped up enforcement of rules regarding independent contractors. This increased enforcement has been facilitated by the formation of joint task forces among the Federal Department of Treasury and the Department of Labor ("DOL"), as well as between state {10641371:9} agencies, to crack down on independent contractor misclassification.1
A striking example of how far New York is willing to go to enforce proper classification of workers occurred in 2008 when then Attorney General Andrew Cuomo criminally prosecuted an owner of a pizzeria for failing to secure workers' compensation coverage and pay overtime wages.2 The owner's arrest was a result of an investigation conducted by the New York Joint Enforcement Task Force on Employee Misclassification.3
In addition to criminal and civil actions initiated by the government there are also private causes of action that can be instituted under the Fair Labor Standards Act4 and equivalent state laws for overtime back pay resulting from improper worker classification. These may be commenced by groups of workers in the form of a class action involving significant liability exposure.
The IRS defines an "independent contractor" as an individual that has the right to control or direct the result of the work performed.5 The company for which an independent contractor works is not required to pay federal employment taxes for that worker.
While tests for assessing worker status vary among governmental agencies, in general, the more control a company has over the manner and means by which a worker performs his services the more likely the worker will be considered an employee. Although no one fact is determinative, we have outlined a number of provisions that may appear, and/or should appear, in a FHV driver affiliate application and/or agreement in order to clarify the independent contractor status of the driver:
Matthew W. Daus, Esq. (left), Chair of the Transportation Practice Group at Windels, Marx is joined by Associate and practice group member Jasmine Leveaux (right), at the law firm's Midtown Manhattan offices.
For instance, TLC regulations require FHVs to be regularly inspected three times per year and bases can also be fined $350 for each failure of its affiliated vehicle owner/drivers to comply7. A base may enforce this regulation through the provisions of its driver application or agreement by requiring each driver to ensure that their affiliated vehicle is inspected. This practice is not likely to harm the independent contractor status of the driver because the base has simply incorporated a TLC mandate into their company policies rather than exerting its own control over the driver. Also, some FHV bases also insert indemnity provisions in their driver or vehicle affiliation agreements to require owner-drivers to reimburse the base for any TLC fines paid as a result of the misconduct of the affiliated FHV.
As the issue of worker misclassification becomes increasingly enforced by government agencies who are now sharing information with one another, FHV bases should be aware of the laws with respect to this issue, and make responsible changes to driver affiliate applications, company policies, and business practices in order to clearly define a driver's status as an independent contractor. While the above mentioned points may serve as guide posts to initiate company review of internal policies and documents, FHV bases need not abandon all policies that exert some form of control over the drivers. Instead, bases should consider their internal policies and apply a cost/benefit analysis to whether such policies are in fact necessary, effective, and worth potential liability exposure.
It is highly recommended that FHV bases spend time preemptively auditing their policies and current agreements with drivers now as the costs of litigation and/or defending government action, as well as the monetary damages and penalties that could be assessed, could be quite significant and "far outweigh" the costs of conducting a legal review.8