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2016: The Current and Future State of Independent Contractor Compliance and Usage


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At Populus Group’s First Annual Customer Summit Conference in Nashville (May 9-11, 2016), Denis S. Kenny (Scherer Smith & Kenny LLP) presented on the hot-button topic of independent contractor misclassification including his attempt at prognostication about possible near-term legislative changes needed to address the on-demand/gig/sharing economy.

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2016: The Current and Future State of Independent Contractor Compliance and Usage

  1. 1. Presented by Denis Sullivan Kenny Scherer Smith & Kenny LLP © 2016 Scherer Smith & Kenny LLP 1
  2. 2.  Effects and implications of U.S. Department of Labor Administrator’s Interpretation No. 2015-1  Misconceptions that lead to misclassification: “on demand companies” in the “sharing” or “gig” economy  Consequences and ways to reduce risks of misclassification  Prognostication for 2016 and beyond. . . 2
  3. 3. No Single Federal or State Test 3
  4. 4.  On July 15, 2015, United States Department of Labor, Wage and Hour Administrator issued Administrator’s Interpretation No. 2015-1 (“Interpretation”).  This test looks to whether worker is economically dependent on or independent of the hiring company (the “Company”)  Interpretation’s message is clear: most workers are employees under FLSA, not independent contractors. 4
  5. 5. Agencies, courts and juries frequently apply the same test with differing results. 5
  6. 6.  “The worker wants to be an independent contractor.”  “The worker created a LLC or S-Corp to do business with us.”  “We have a written contract.”  “The worker only performs occasional services for us.” Reality: Classification is a legal determination that parties cannot displace by a written contract. “Form over substance” will not be allowed. 6
  7. 7. CAUSE: $2.7B “Tax Gap” EFEECT: Government Focus on misclassification and enforcement  Increased legislation at federal and state level • Inter-agency (state and federal) cooperation is growing. • Upsurge of audits tied to DOL budget increases 7
  8. 8.  Comments from “the bench.”  Settlements without closure.  RESULT: misclassification tests are antiquated and uncertainty remains! 8
  9. 9. Everyone is a potential adversary:  Government agencies  Plaintiff lawyers  Customers  Unions  Workers’ compensation carrier  Contractors themselves 9
  10. 10.  Total of Unpaid Taxes  Penalties  Fines  Punitive Damages  Compensatory Damages  Liquidated Damages  Equitable Relief  Back-Pay  Reinstatement  Expenses including attorneys’ fees and costs (even a “win” will be costly!) 10
  11. 11. 11 Defense of case:  Expect to pay $200,000+ in your attorneys’ fees, alone!
  12. 12. Pending State and Federal Legislation  The California 1099 Self-Organizing Act (AB 1727)  H.R. 2483: Independent Contractor Tax Fairness and Simplification Act of 2015 The Future: Need for Legislative Creation of a “New” Type of Worker?  the “Dependent Contractor”  Licensed or certified “self employed” worker(s) 12
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  14. 14. Please feel free to email or call me with any follow-up questions or comments about this presentation. Thank you, Denis Sullivan Kenny (415) 433-1099 140 Geary Street, 7th Flr., San Francisco, CA 94108 14