Question

Bob was hired as an independent contractor for GRP, Inc. for a six-month term. Bob has expertise in process manufacturing, which GRP, Inc. needed to complete a project it was hired to perform. Bob was required to work at GRP's premises between 8:00 a.m - 5:00 p.m.. He was required to report to Frank, his immediate superior on the project. Frank is an employee of GRP, Inc.. Bob was allowed to take morning and afternoon breaks and a one-hour lunch break as was the practice for all of GRP's employees. Bob was required to sign an Independent Contractor Agreement with GRP, Inc. prior to his acceptance for this assignment. GRP, Inc. paid Eric every two weeks, just as it did regular employees. No taxes or withholdings were taken from Bobc's check issued by GRP, Inc.. GRP, Inc. also did not contribute to unemployment insurance for Bob.

Three months into the project, it was determined that Bob's expertise was not as significant as he represented. Frank has issued two performance warnings to him. Indeed, upper-level management personnel concluded that Eric's performance did not meet the company's expectations. The company fired Bob for "cause", based upon two points: (1) he misrepresented his qualifications; and (2) failure to perform / poor performance.

Bob has filed actions with the Illinois Department of Employment Security seeking unemployment compensation benefits following his termination. Further, he has filed an action for overtime pay violations through the Department of Labor. The latter claim is based on Bob's working three hours each night on the project after the 5:00 p.m. shift ended. He claims he worked far in excess of a regular forty-hour workweek, but was not paid overtime compensation. In effect, Eric contends, in both claims, that GRP, Inc. improperly "misclassified" his employment status. He argues that, even though he signed an independent contractor agreement, the agreement was imposed upon him by GRP, Inc. and should have no legal effect as he was not really working as an independent contractor, but as an employee.

Bob's claims raise a complex, but often common situation. Who eventually prevails? Why / why not.

Answer 1

Q: Bob's claims raise a complex, but often common situation. Who eventually prevails? Why / why not.

A: Bob's claims will eventually prevail over his employer GRP, Inc., in this situation. Misclassification is an increasing labor issue where employers are increasingly seen to be misusing contracts to save on labor costs by avoiding to pay employment benefits and denying growth opportunities with the company, and try to minimize on labor disputes.

Under the Fair Labor Standards Act (FLSA), which is the U.S. federal law concerning employment issues like minimum daily and fair wages, overtime pay, etc., the mere signing of an independent contractor agreement and the mere nomenclature or job title or job designation stating that an employee is an independent contractor on a fixed term contract or whether taxes were being paid directly by the independent contractor or deductions were being made from the salary or not towards employee insurance or other savings schemes, does not necessarily mean or imply that the employee is an independent contractor in reality under this federal law, and could be actually at par with a full time or regular employee.

There are several other factors that need to be taken into consideration as a whole/combination of factors in order to determine this type of job status of being a contractor or not. For example, the amount of work the employee is obligated to perform, the place of work - onsite or offsite and duration of working hours, punishments for not performing those working hours or tasks assigned, direct payment of taxes, etc.

In this case, while Bob had signed a fixed term contract and was paying his taxes directly, and there were no employee deductions from his pay check, the employer GRP, Inc, was exerting complete and direct authority over Bob making him work for fixed working hours and treating him like any other employee including in the fixed breaks and hours which were not flexible and he was being made to stay back after hours too.

Had Bob been an independent contractor for GRP, Inc., Bob could have been expected to put in some hours of work for GRP, Inc. on a daily or weekly basis but should not have been obligated to work the entire day from 8 am to 5 pm and for a fixed number of working hours of forty hours per week which does not show any flexibility but that of a regular employee and would have been penalized by his employer for not working for these fixed hours.

Besides, these practices also go to show that he was being treated as a regular, full time employee at GRP, Inc., and not that of an independent contractor:

1. Bob was allowed to take morning and afternoon breaks and a one-hour lunch break "as was the practice for all of GRP's employees."

2. GRP, Inc. paid Eric every two weeks, "just as it did regular employees."

So, these clearly indicate that Bob was in effect being treated as a full time and regular employee by GRP, Inc. irrespective of his employment contract referring to him as an independent contractor.

Further, Bob was not being paid overtime as per his claims of being made to stay back for three extra hours every day after his regular working hours from 8:00 am to 5:00 pm goes to show a violation committed by his employer GRP, Inc., under the FLSA, and so Bob would be entitled to claim and receive overtime over and above his fixed monthly salary even if as backwages after being terminated/fired and the Department of Labor would have to take this into consideration.

Thus, Bob's claims towards misclassifications were justified and the Illinois Department of Employment Security would have to provide Bob with unemployment compensation benefits as he would be eligible for the same as Bob was fired for non or poor performance. An employee who is terminated or fired on the ground of misconduct is not eligible to receive unemployment compensation benefits under the law, which wasn't the case here with Bob.