In our practice, we deal with a considerable number of employee misclassification claims. These issues arise when a company pays a worker as an independent contractor when that person fails to meet the legal test for contractor status. Misclassification claims can lead to tax liability, claims for unpaid wages, or allegations that the worker was deprived of benefits provided to employees.

In some situations, the company’s first reaction to the misclassification claim is to note that the worker agreed to be considered a contractor, or in a number of cases, either requested or conditioned their services on contractor classification. These companies are often dismayed to learn that worker preferences or agreements do not provide a legal shield to later misclassification claims. Put simply, workers who are legally employees cannot waive their right to legal protections afforded to such persons. Any attempt to do so will be considered null and void.

When a worker who appears to meet the legal definition for employees insists on contractor classification, this raises red flags for the company. In many cases, this demand indicates an intent on the part of the worker not to pay income taxes and to avoid tax withholding through contractor classification. If the misclassified worker fails to pay income taxes, this can trigger audits by state and federal tax authorities that can lead to assessment of penalties and interest against the company for failing to make payroll withholdings for workers who meet the legal definition of an employee regardless of the parties' agreement.

For more information, please contact me or your regular Parker Poe contact. Click here to subscribe to our latest alerts and insights.