A Case Involving Uber Has States Revisiting Employee versus Independent Contractor Status

When it comes to employment misclassification, no industry is safe. Employee misclassification occurs when an employer improperly classifies a worker as an independent contractor rather than as an employee. Misclassification can be intentional and unintentional and it generally results in avoidance of employment taxes and other potential liabilities.

While misclassification is prevalent in the construction industry, the issue recently resurfaced in a case involving San Francisco-based Uber Technologies Inc., the increasingly popular transportation network company wherein drivers use their own personal vehicles to transport customers to and from their destinations. Uber drivers and customers use a mobile-phone application that allows drivers to indicate whether they are accepting rides and allows customers to locate drivers and pay their respective fares. Uber has always classified its drivers as independent contractors.

In a recent hearing, the California Labor Commission challenged Uber’s classification of its drivers and reviewed whether Uber drivers were actually employees. Uber looked to the drivers’ exclusive control over their schedules and which ride requests to accept to support their contention the drivers were independent contractors. To Uber’s dismay, the commission ruled Uber drivers were, in fact, employees, entitling them to various benefits, including health insurance, unemployment benefits and workers’ compensation. As a result, Uber also was forced to cover certain business expenses, including toll reimbursements and mileage. Of the labor commissions addressing the Uber issue, the California Labor Commission’s decision directly conflicts with rulings in five other states: Colorado, Georgia, Illinois, Pennsylvania and Texas. All of these states’ commissions held that Uber drivers were independent contractors.

As employee misclassification gains more visibility, more states are reevaluating how to properly classify workers. The North Carolina General Assembly, for example, is attempting to pass a law that would expressly define the factors that would determine whether a worker is an employee or independent contractor. A few of the factors being considered by the North Carolina Legislature in House Bill 482 include:

  • Whether the individual is engaged in an independent business, calling or occupation.
  • Whether the individual is paid a fixed price, a lump sum or upon a quantitative basis for the work performed.
  • Whether the individual is not subject to discharge because he or she adopts one method of doing the work rather than another.
  • Whether the individual is free to hire assistants as he or she may think necessary and whether the individual has full control over such assistants.
  • Whether the individual selects his or her own time.

In addition to the much-needed clarification, the bill also proposes a penalty provision, where repeated intentional misclassifications by employers of their employees as independent contractors will trigger a $1,000 per employee liability. The bill would also create a five-member investigatory team and an amnesty period that would provide an opportunity for employers to self-report their current misclassifications. The “temporary amnesty program” will provide misclassifying employers with
immunity from civil penalty and enable to re-classify their workers to their correct designation.

Other states, like Texas, who have already enacted a similar law, are successfully discovering and reclassifying misclassified employees. In 2013, the Texas Labor Commission conducted 6,158 audits—752 of which were in the construction industry. Of the 752 businesses, 37.6 percent were found to have at least one misclassified employee. A total of 3,638 employees—an average of about 16 per business—were misclassified as independent contractors. The construction industry had one of the highest percentages of misclassified employees among all industries.

An investigative series, “Contract to Cheat”, published in a number of Sacramento, Calif.-based The McClatchy Co.’s newspapers in 2014, revealed just how prevalent the misclassification issue is in the construction industry in high-development areas, such as North Carolina and Texas. The series resulted from a year-long investigation into U.S. Housing and Urban Development, Washington, D.C., and other government projects that were completed during the government stimulus era of 2009-13. Payroll records of 64 HUD projects with budgets of more than $1 million were released to the McClatchy investigators and revealed employee misclassification was rampant throughout the construction industry.

The series revealed, among other findings, that employers in North Carolina and Texas with government contracts, which general contractors accepted on the condition they would adhere to all government laws and ensure all their subcontractors would do the same, were misclassifying employees 35.2 and 37.7 percent of the time, respectively. Additionally, Florida, where, like North Carolina and Texas, the construction workforce includes a higher-than-average concentration of immigrant workers, also experienced misclassification of 15.5 percent of workers.

The McClatchy investigation estimated misclassification resulted in $467 million per year to North Carolina and $1.2 billion per year in Texas of lost tax revenue from employers and workers failing to pay employment-related taxes. Not only did employers fail to withhold mandated taxes, such as social security and unemployment taxes, but North Carolina independent contractors who attempted to comply with tax law underreported their income by 56 percent to the state and federal governments. In addition to abusing the tax system, the practice has made it more difficult for smaller, law-abiding employers to compete with employers who are strategically undercutting the competition, placing lower bids made possible by the illegal tax benefit of misclassifying employees.

Though not currently being considered by state legislatures, the opportunity to create a third classification may present itself in the future. Canada has employed the use of a third, intermediate category: the dependent contractor, which is technically a subset of the independent contractor classification. The dependent contractor is a hybrid classification that includes benefits of the independent contractor and employee classifications. Dependent contractors enjoy some of the protections provided to an employee, such as health insurance, severance protections, unemployment benefits, and workers’ compensation, but they still enjoy the flexibility of schedule and control otherwise held by independent contractors.

In Canada, the classification hinges upon the number of clients the contractor has. A dependent contractor—like many contract construction workers—has only one client and depends on that client for income and sustenance of their business. A contractor with more than one client is an independent contractor because they are not exclusively dependent upon any one client. Were a state to create a dependent contractor classification, legislators would then be tasked with determining which select employee benefits employers would be required to provide dependent contractors versus full-time employees.

Although Uber is appealing the California Labor Commission’s decision, the commission’s ruling is important because it has sparked a renewed discussion of employee misclassification across not only the transportation services field, but also in the construction industry, where, as discussed above, it has long been an important issue.

As more states review employee misclassification, it is imperative employers, employees, and contractors alike be aware of any changes to state and federal employment laws. While employers are frequent targets of employee misclassification enforcement efforts, “independent contractors” may also be held liable, especially when they willfully comply with intentional misclassification. An employer should never assume that paying a worker by the hour, or any one of the other factors set forth above, guarantees the worker should be classified as one classification or another. If you are concerned about your business’s employment practices, consult an employment law attorney in your area who can best advise you on your state’s employment laws.

A Metal Roof Crowns a Residential New-construction Project

When Charles Callaghan purchased the two vacant lots next to his home in Ponte Vedra Beach, Fla., he thought they would form the perfect location for his family’s dream home. A team comprised of architects, contractors and manufacturers worked together to bring his ideas to life in the form of a new 7,500-square-foot residence. The building’s crowning feature is a metal roof system that was designed to complement the aesthetics of the home and stand up to the harsh oceanfront environment for decades to come.

The roof of the Callaghan residence in Ponte Vedra Beach, Fla., features 12,000 square feet of Petersen Aluminum’s Snap-Clad in Slate Gray.

The roof of the Callaghan
residence in Ponte Vedra
Beach, Fla., features 12,000 square feet of Petersen Aluminum’s Snap-Clad in Slate Gray.

“With the larger lot, we thought we could do something unique to the neighborhood,” Callaghan says. “When we first met with the architect, there were a few keys we wanted to stress. First, we didn’t want a boxy-looking house. We also wanted shingle-style siding and a metal roof. We like the look of the metal roof, we like the durability, and we thought it would be a good way of complementing the shingles on the house.”

At every phase of the project, the team of construction professionals ensured the project was executed with precision, down to the last detail of the metal roof.

THE DESIGN

The house was designed by Jaycox Architects & Associates, Jacksonville, Fla. According to William R. Jaycox, principal, the plan made the backyard pool the home’s focal point. “They wanted to do a casual, shingle-style beach house that wasn’t like everyone else’s house,” Jaycox notes. “We designed the house so it was mostly single-story and spread it out around the pool, which made for an interesting roof design. It’s all in small modules.”

The L-shaped home features a master-bedroom suite on one side while the other side contains the living room, dining room, kitchen, family room and guest bedroom. “This one also has a four-car garage under the main roof, and, because the house wraps continuously around the pool, you get a fun little foyer in the front with a little cupola up above, you get the dormers for the bedrooms in the attic, and the master suite is a little pod unto itself,” Jaycox adds. “The back has a pool pavilion separate from the house. When you put all of those elements together, you get a very interesting structure, and the metal roof was perfect because it accentuates the lines.”

The roof system specified included 12,000 square feet of aluminum panels in the cool-color Slate Gray. “This house is only a few blocks from the ocean, and in those cases we typically use aluminum,” Jaycox says. “We’ve had great success with that system. It’s absolutely bombproof from a corrosion standpoint with stainless fasteners, heavy-gauge aluminum and the Kynar finish.”

Thorne Metal Systems installed a high-temperature, self-adhered underlayment beneath the metal roof, as specified.

Thorne Metal Systems installed a high-temperature, self-adhered underlayment beneath the metal roof, as specified.

When applied by a certified installer, the system can qualify for a 20-year Oceanfront Finish Warranty from the manufacturer. In addition, the roof meets all Florida’s tough building-code requirements. The system, consisting of 0.040-gauge aluminum, 16-inch-wide panels with fastening clips spaced at 24-inches on-center, carries a Miami-Dade NOA with a -110 PSF uplift. (The UL 90 uplift is -52.5 PSF.)

THE INSTALLATION

The roofing contractor on the project was Thorne Metal Systems of Middleburg, Fla. Owner Bill Thorne has been installing metal roofs since 1989. He formed his own company 13 years ago, and it has become the go-to metal roof installer for Jaycox Architects
& Associates and the general contractor on the project, C.F. Knight Inc., Jacksonville.

Thorne has a lot of experience installing this particular aluminum roof system. “The system is a very easy system to install,” he says. “It’s very user- friendly. The panels have male and female joints that snap together and are held in place with stainless-steel clips.”

PHOTOS: Petersen Aluminum Corp.

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