James F. Mahoney, Attorney

July 2011

Multi-Sided Attacks on the Independent Contractor Model

Arizona, Colorado and New Jersey are among the states that are making it more difficult for employers to prove that a worker is truly an "independent contractor"

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The Colorado Court of Appeals just made it more difficult for employers to prove that a worker is truly an "independent contractor,” at least in the context of Unemployment Insurance benefits.

In SZL, Inc. v. Industrial Claim Appeals Office, (Colo. App. 2011), the court found that an over-the-road truck driver was an employee entitled to unemployment compensation benefits despite the fact that he had leased his truck from the employer and signed an independent contractor

The ruling has to do with the Colorado Employment Security Act, wherein services performed for another are "employment" for unemployment compensation purposes, unless the employer proves that the individual is:

  • "free from control and direction in the performance of the service," and

  • "customarily engaged in an independent trade, occupation, profession, or business related to the service performed."

It does not matter in Colorado – or in most states – whether workers qualify as independent contractors for other purposes, such as tax withholding or Workers’ Comp premium. Each state has its own arcane rules over several areas. This office was recently retained and successfully defended several misclassification fines and assessments in Arizona.

Lastly, owner-operators this month sued the largest drayage company at the Port of New York and New Jersey, claiming the company improperly classified them as independent contractors instead of employees.

The lawsuit was filed in New Jersey Superior Court in Newark. It represents a new front by a Teamsters-backed campaign to re-classify owner-operators as employees so they can be eligible for union representation.

One glaring problem with the truckers' arrangement was that the dray company apparently collected Work Comp premiums from drivers’ settlements. That’s illegal, of course, but how many companies are walking the fine line collecting premium inadvertently from owner-operators.

Review your independent contractor relationships before the government does. The first line of defense against a misclassification claim, regardless what entity makes that claim, is still an updated, valid Independent Contractor Agreement.