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Independent Contractor

New Prime Loses In Its Attempt To Compel Arbitration In Interstate Trucking Case

New Prime Loses In Its Attempt To Compel Arbitration In Interstate Trucking Case

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Arbitration on Friday, February 8, 2019.

On January 15, 2019, the U.S. Supreme Court issued a decision in New Prime Inc. v. Oliveira, a case concerning the enforceability of arbitration agreements in the interstate trucking sector of our economy.

The decision was unanimous (and very anxiously watched by the trucking community nationwide).

INDEPENDENT CONTRACTOR OWNER-OPERATOR SOUGHT MINIMUM WAGE THROUGH A CLASS ACTION SUIT AGAINST NEW PRIME: The facts of the case were not at issue. New Prime Inc. (“New Prime”) is an interstate trucking company that engaged plaintiff Dominic Oliveira to drive his own truck under an Independent Contractor Operating Agreement (“Agreement”). The Agreement had both an arbitration clause and a delegation clause (granting the arbitrator authority to evaluate, and then decide, questions of arbitrability).

Plaintiff Dominic Oliveira filed a class action lawsuit against New Prime seeking minimum wage (in Federal District court in Massachusetts).

DRIVER ARGUED THAT NEW PRIME COULD NOT COMPEL ARBITRATION DUE TO TRANSPORTATION WORKERS EXCLUSION: New Prime defended itself by filing a motion to compel arbitration per the Agreement under Section 4 of the Federal Arbitration Act (“FAA”).

In response, Oliveira argued that (despite the signed Agreement) New Prime cannot compel arbitration because Section 1 of the Federal Arbitration Act expressly excludes “contracts of employment of …seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” This is commonly known as the transportation workers exclusion.

The Federal District Court in Massachusetts ruled that the transportation workers exclusion does not extend to independent contractors (and therefore ordered the parties to conduct discovery as to whether Oliveira was an independent contractor or an employee).

On appeal, the First Circuit Court of Appeals (“First Circuit”) overturned the Federal

District Court’s holding that the transportation workers exclusion does not apply to independent contractors. The First Circuit looked at the historic meaning of the statutory phrase “contracts of employment” as used in 1925! when Congress first enacted the Federal Arbitration Act.

U.S. SUPREME COURT FOCUSED ON TWO LEGAL ISSUES: The United States Supreme Court decided to hear the New Prime case on appeal. The Court focused on two legal issues:

1. Should a court determine whether a Section 1 exclusion to the Federal Arbitration Act applies before ordering arbitration where the parties’ contract contains a delegation clause? and,

2. Does the transportation workers exclusion apply to independent contractors as well as employees? [especially considering the use (in the Federal Arbitration Act) of the term “contracts of employment”].

The U.S. Supreme Court answered “Yes” to both legal issues (with no dissent!) Justice Gorsuch wrote the opinion for the U.S. Supreme Court. Justice Kavanaugh recused himself, and Justice Ginsburg submitted a brief concurring opinion.

MEANING OF “CONTRACTS OF EMPLOYMENT”: The U.S. Supreme Court looked back to the meaning of “contracts of employment” as that phrase was used at the time when the Federal Arbitration Act was adopted in 1925. The U.S. Supreme Court sought to avoid attaching new meanings to “old statutory terms” in a way that would improperly change legislation as passed by Congress.

The U.S. Supreme Court concluded that the phrase “contracts of employment” was intended by Congress back in 1925 to cover any “work,” such as work by independent contractor owner-operators, not just work in a formal employer-employee relationship. The Court looked at early twentieth-century decisions and laws that interpret this phrase “contracts of employment” to broadly cover work agreements involving independent contractors.

So, Oliveira won, and the U.S. Supreme Court turned down New Prime’s claim for arbitration. New Prime is the first Supreme Court decision in years to ultimately reject a claim for arbitration. (Note that the U.S. Supreme Court took no position as to whether Oliveira should be classified as an independent contractor or an employee.)

The U.S. Supreme Court’s decision in New Prime in no way extends the transportation workers exclusion to cover workers in other industries. The transportation workers exclusion in the Federal Arbitration Act is narrowly limited by Congress to transportation workers in interstate commerce.

Also, New Prime only focuses on Federal law and arbitration (and the transportation workers exclusion). The New Prime holding did not address whether courts may enforce arbitration agreements under other areas of legal authority, such as state arbitration laws.

STATE ARBITRATION STATUTES: It is predictable that courts presented in the future with arbitration agreements involving transportation workers in interstate commerce may need to determine the enforceability of the arbitration agreements under state law.

The New Prime decision will now encourage trucking companies to consider relying on state arbitration law or state contract law. One obvious and vexing problem with a state law-based collection of decisions is lack of uniformity from state to state. In any event, trucking companies should consider adding broad severability clauses in their arbitration agreements. And class and collective action waivers still are recommended by many attorneys for trucking companies in their arbitration agreements, even if these waivers must be evaluated under state law.

In New Prime, the U.S. Supreme Court did not address (at all) whether New Prime could use a state statute to compel arbitration. The First Circuit stated in its decision: “We emphasize that our holding is limited: It applies only when arbitration is sought under the Federal Arbitration Act, and it has no impact on other avenues (such as state law) by which a party may compel arbitration.”

Many states have arbitration enforcement statutes that do not exempt contracts involving transportation workers in interstate commerce. Whether or not those state statutes’ are preempted by the Federal Arbitration Act’s exemption for transportation workers is an important legal question to be decided by courts in the future.

GIG ECONOMY: Some legal analysts speculate as to whether the New Prime decision impacts the gig economy (Uber, GrubHub, Lyft, et al). “On-demand companies” are likely to insist that New Prime does not apply to their drivers as they do not participate in “Interstate Commerce.” Many on-demand companies will likely argue that the transportation workers exclusion does not apply to their workers and therefore their arbitration agreements (with class action waivers) are enforceable.

CONCLUSION: The key legal outcome of New Prime is that interstate truck drivers operating as employees or independent contractors cannot be compelled to arbitrate work-related claims (at least not under the Federal Arbitration Act).

If any readers want to discuss any aspect of the increasing trend to have mandatory Arbitration Agreements with Class Action Waivers (or want to discuss establishing such an agreement for their company), please contact Attorney Nancy E. Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Related Posts: Illinois Workplace Transparency Act, Arbitration Agreements and Class Action Litigation, Yes, Have Your Independent Contractors (Or Employees) Sign An Agreement To Arbitrate Disputes And Waive Their Rights To Class Action Suits!!, A NEW YEAR’S RESOLUTION TO AVOID EXTREMELY EXPENSIVE WAGE CLAIMS

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Independent Contractor

One Crucial Legal Difference Between An Independent Contractor And An Employee

One Crucial Legal Difference Between An Independent Contractor And An Employee

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Monday, July 15, 2019.

The IRS uses a Questionnaire called the IRS Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) to determine when a particular “worker” is an independent contractor and when the “worker” is an employee.

This Questionnaire has been used by the IRS for decades. One of the key questions on the IRS Form SS-8 is: Can the relationship be terminated by either party without incurring liability or penalty?

State unemployment insurance agencies across the United States have their own Questionnaires to determine when workers are independent contractors or employees. In Illinois, the Illinois Department of Employment Security (IDES) asks the question that almost every State asks which is: “Can the firm discharge the worker at any time?”

Another question almost universally asked by State unemployment insurance agencies is: “Can the worker terminate his/her services at any time?”

These questions, state and Federal, have the same legal purpose. The government agency is trying to figure out 1) whether the Company can end the relationship with the worker on a whim without giving any notice, and 2) whether the worker quit without giving any notice of any kind and without incurring any liability.

NO NOTICE INDICATES AN EMPLOYEE: Government agencies reason that if a worker can simply walk off the job (or if a company can fire a worker with no notice whatsoever), then that relationship is the classic employment-at-will relationship, not an independent contractor relationship.

IF NOTICE IS REQUIRED, IT POINTS MORE TO AN INDEPENDENT CONTRACTOR RELATIONSHIP: However, if the company has to give some kind of notice before firing the worker (or if the worker is contractually obligated to give some kind of notice before leaving), then that relationship is closer to an independent contractor relationship.

MAKE SURE INDEPENDENT CONTRACTOR AGREEMENT CONTAINS A NOTICE PROVISION: If a company uses independent contractors, the company should carefully review the Independent Contractor Agreement to see if the Agreement permits the parties to terminate the relationship at will with no notice or if the relationship can only be ended with a specified notice period.

If an Independent Contractor Agreement has a provision under which the independent contractor can quit at any time or the independent contractor relationship can be severed at any time, then that provision weakens independent contractor status.

If an Independent Contractor Agreement has a provision under which the parties must, for example, give one weeks’ notice before termination of the independent contractor relationship, then that notice provision strengthens independent contractor status.

MISCONCEPTION: These distinctions confuse many people because it is a commonly held belief (really a misconception) that if a worker is truly “free,” he can simply walk away from the job at any time. But the reverse is actually true-it is a stronger independent contractor relationship when the worker is contractually bound to a specified notice period.

To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors), please contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Related Posts: Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!, IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!, Psychological Counselors In Pennsylvania Found To Be Independent Contractors, Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act

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IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!

IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Monday, December 2, 2019.

The IRS SS-8 Program allows either a Company or a Worker to request that the IRS evaluate and determine whether the Worker is an employee or an independent contractor for Federal/IRS Purposes. The resulting Determination by the IRS SS-8 Unit is just the SS-8 Unit’s “opinion” (not an actual audit!).

Either party can start the IRS SS-8 request. Most frequently, it is a disgruntled Worker who submits the request by filing an IRS Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding). The Worker claims to the IRS SS-8 Unit that he/she was misclassified by the Company and therefore should not be asked to now pay self-employment tax.

NO REQUIRED WITHHOLDINGS FOR INDEPENDENT CONTRACTORS: When the Company classifies a Worker as an independent contractor, the Company does not make any withholdings from a Worker’s paycheck as the Company would do for a W-2 employee. When a Company uses independent contractors, the Company saves money on the payroll taxes and does not have the significant cost of employee benefits like vacation pay, profit sharing plans, bonuses, overtime costs, etc. The Company usually issues an IRS Form 1099 to the independent contractor.

WITHHOLDINGS REQUIRED FOR EMPLOYEES: On the other hand, if the Company classifies a worker as a W-2 employee, the Company must withhold certain Federal income taxes, Social Security, and Medicare taxes.

Employees (as opposed to independent contractors) pay 7.65% of payroll taxes and the employer pays its 7.65% share with the total amount paid being 15.3%. Independent contractors shoulder the entire 15.3% of payroll taxes.

LEGAL CHALLENGE: Companies may face a legal challenge if the Company classifies the Worker as an independent contractor, but the Worker believes he/she is really an employee. Often this issue arises if a “terminated” independent contractor/Worker files for unemployment insurance.

Also, a disgruntled worker who is classified as an independent contractor (but believes he/she should be an employee) will sometimes contact the IRS to file an IRS Form SS-8 (which is a four page questionnaire), asking the IRS to make a determination as to whether the Worker is an employee or an independent contractor.

FILING AN IRS FORM SS-8: The IRS Form SS-8 cannot be filed anonymously. The IRS only issues determination letters based on actual real life Worker/Company relationships. The IRS SS-8 Unit evaluates real facts as described in detail by the parties.

Most companies (wisely) do not initiate an SS-8 request (most of the evaluations by the IRS SS-8 Unit find that the Worker is an employee and not an independent contractor).

WHEN A COMPANY RECEIVES AN IRS SS-8 FILED BY A WORKER: The Company can either fill out the IRS Form SS-8 or choose to not respond. It is in essence a voluntary process for both parties.

When the Company doesn’t respond, then the only information the IRS SS-8 Unit gets is from the Worker making the complaint. This of course gives the SS-8 Unit a very one- sided view of the alleged independent contractor relationship (which greatly increases the likelihood that the SS-8 Unit will find that the Worker is misclassified).

IRS FORM SS-8 DETERMINATION: After gathering detailed information, the IRS applies the law regarding independent contractor status and renders a detailed written decision called a Determination (and that written Determination will be sent to both the Company and the Worker).

This Determination letter will not request a specific amount of money to be paid or even a specific action which must be taken. It is written in a strange tone of voice which is largely in the form of a suggestion rather than a legal mandate.

SECTION 530: Companies involved in an IRS SS-8 controversy should be aware that if the Company is entitled to Section 530 of the Internal Revenue Act of 1978 (also called “Safe Haven” or “Safe Harbor”), this powerful relief is still available regardless of the legal conclusion of the IRS SS-8 Unit as announced in the Determination. When Section 530 relief is available, the IRS cannot force the Company to reclassify the affected workers to employee status.

Also be aware that neither the IRS SS-8 Determination process nor the review of any records in connection with the Determination constitutes an official IRS tax audit. Strangely there are not official procedures to appeal or protest an IRS SS-8 Unit Determination.

This is a complex legal issue. Before a Company ventures forth with a response to an IRS SS-8 request letter, consult with an experienced attorney to understand your options.

Questions?: For further information on this issue and various strategy steps to take in the face of such an IRS request or any independent contractor questions or concerns, please contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Related Posts: Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!, Psychological Counselors In Pennsylvania Found To Be Independent Contractors, Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act, Independent Contractor Surgeon Cannot Sue Hospital For Discrimination Under Title VII

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Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!

Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Friday, December 13, 2019.

Many clients are convinced that it is “hopeless” to protest the often disappointing results of an Illinois Department of Employment Security (IDES) audit and then win at a Hearing before an IDES Hearing Officer.

It is true that IDES Hearing Officers (called Administrative Law Judges) are employees of the IDES. Therefore, clients often believe that because the Hearing Officers are employees of the IDES, they cannot be objective and unbiased, but rather these Administrative Law Judges will always agree with the IDES auditor and not the Company who has been audited (and then assessed for back “contributions” to the IDES-i.e., back unemployment insurance taxes).

This is surprisingly not true. Over the many years that I have worked with companies in protesting IDES audits and then weathering the experience of an IDES Hearing, I have found that if the Company has sufficient evidence and testimony to convince an IDES Hearing Officer that the workers at issue are independent contractors under Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act (legal definition of independent contractor), then the IDES Hearing Officer WILL usually cancel the Determination & Assessment (i.e., the tax bill), in whole or in part.

This article is about a very satisfying total legal victory that one of our law firm’s clients (fictitious name, Champion Builders) enjoyed last month. Our client is an Illinois general contractor who builds various commercial projects. Champion Builders manages the project, bids the jobs and is involved in design interpretation services.

Champion Builders uses independent contractors who perform various specialty functions such as spray foam insulation, installation of countertops, painting, installation of cabinets, striping of parking lots, roofing, etc.

SECTION 212: Champion Builders was audited by the IDES for the years 2011 and 2012. The IDES auditor then reclassified the independent contractors to employees, finding that the Company did not meet its burden of proof under Section 212(A), (B), and (C) of the Illinois Unemployment Insurance Act. Section 212 is the strict three-part test evaluating when workers are exempt from employment, in other words are independent contractors under Illinois unemployment insurance law.

Below is the text of Section 212:

“Service performed by an indi­vidual for an employing unit, whether or not such individual employs others in connection with the per­formance of such services, shall be deemed to be employment unless and until it is proven in any proceeding where such issue is involved that –

A. Such individual has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and

B. Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

C. Such individual is engaged in an independently established trade, occu­pation, profession, or busi­ness.”

CLIENT PROTESTED DETERMINATION & ASSESSMENT (TAX BILL): Since the IDES auditor reclassified the independent contractors to employees, although Champion Builders tried very hard to persuade the auditor otherwise, Champion Builders received a Determination & Assessment (tax bill) from the IDES. Champion Builders protested the Determination & Assessment within the strict 20 days allowed by law, and requested a Hearing before an IDES Hearing Officer.

IDES HEARING OFFICER’S DECISION: After five years passed from the date of the Notice of Determination & Assessment, a telephone Hearing was held in July 2019.

In November 2019, the IDES Hearing Officer issued a fair and very well-reasoned written Decision and concluded that Champion Builders met its legal burden with respect to proving that the workers at issue were independent contractors and not employees under Section 212 of the Illinois Unemployment Insurance Act. The IDES Hearing Officer’s findings included the following:

  • Section 212A (direction and control): The IDES Hearing Officer noted (with approval) that the independent contractors at issue were given no tools, training, materials or specific instructions by Champion Builders. The Hearing Officer noted that under Section 212(A) of the Illinois Unemployment Insurance Act, Champion Builders may control the outcome of the work (ok for an independent contractor), but not the manner or means in which the work is completed (as would be the case with an employee). The Hearing Officer noted with further approval that the independent contractors bid on work in a competitive process in which they choose whether to take the work offered, thus demonstrating the entrepreneurial posture of an independent contractor, not an employee.
  • Section 212B (course or place of business): The IDES Hearing Officer found that the independent contractors at issue did not perform the “same or substantially similar” work as Champion Builders. All had specialties and offered the kind of services that Champion Builders does not offer. This analysis by the IDES Hearing Officer was crucial to the legal victory for Champion Builders. If Champion Builders flunked Section 212(B), the entire case would have been lost. Section 212(A), (B), and (C) is a three-part test. All three parts must be passed to result in a legal finding of independent contractor status.
  • Section 212C (independently established): The IDES Hearing Officer found that the independent contractors at issue all held themselves out to the public as working for their own or other companies. The Hearing Officer noted that Champion Builders offered as evidence business cards, t-shirts, signs on trucks, Internet listings and websites for each of the independent contractors at issue. Additionally, some of the independent contractors also had contracts and 1099s from other general contractors (showing that the independent contractors worked for other companies as well as Champion Builders).

Happily, the IDES Hearing Officer decided that the entire Determination & Assessment issued against Champion Builders should be cancelled in total. Naturally the client was very pleased at this result.

IMPORTANCE OF ESTABLISHING AND MAINTAINING INDEPENDENT CONTRACTOR FILES: Note that in this case, Champion Builders had a great deal of evidence for each of the independent contractors to show that the independent contractors were well established businesses in their own right. The auditor didn’t properly appreciate the wealth of evidence of independent contractor status, but the IDES Hearing Officer (a licensed attorney) was able to properly evaluate it.

When I work with clients on reducing their liability and risk in using independent contractors, I always recommend they set up and maintain an independent contractor file on each independent contractor filled with proof of self-employment.

This article is intended to convey a powerful lesson: Yes, an Illinois company can successfully protest the results of an IDES audit, but it is important to have well maintained independent contractor files so that you can prove at an eventual IDES Hearing that the independent contractors are self-employed entities.

For assistance with IDES audits, hearings, and independent contractor agreements (or for consultations on limiting your liability in the use of independent contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Related Posts: IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!, Psychological Counselors In Pennsylvania Found To Be Independent Contractors, Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act, Independent Contractor Surgeon Cannot Sue Hospital For Discrimination Under Title VII

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Psychological Counselors In Pennsylvania Found To Be Independent Contractors

Psychological Counselors In Pennsylvania Found To Be Independent Contractors

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Wednesday, October 9, 2019.

In July 2019, a state appeals court, the Pennsylvania Commonwealth Court (hereinafter “Court”), decided that psychological counselors (who provided services to clients) had been properly classified as independent contractors. [The case is Pathways Counseling Services LLC v. Commonwealth of Pennsylvania et al., Case Number 1332 CD 2018.]

Pathways Counseling Services LLC (hereinafter “Company”) referred clients to the independent contractor psychological counselors. The Company vigorously defended itself from the charge that it was the employer of the independent contractor psychological counselors for state unemployment insurance purposes.

Pennsylvania Unemployment Compensation Law uses a two-prong legal test to determine whether an independent contractor is properly classified as an independent contractor. The two-part test is:

  • The individual (i.e., psychological counselor) has been and will continue to be free from control or direction over the performance of the services involved, both under the contract of service and in fact, and
  • As to such services, the individual (i.e., psychological counselor) is customarily engaged in an independently established trade, occupation, profession or business.

Both parts of the two-part test must be passed to have an independent contractor relationship.

NO DIRECTION AND CONTROL: The Court found that the Company did not direct and control the psychological counselors because the psychological counselors set their own work schedules, had the right to reject or accept clients, and obtained and paid for their own professional licenses and liability insurance.

The Court further noted that the Company provided no training, meetings, or tools to the psychological counselors, thus indicating an independent contractor relationship. The psychological counselors were not subject to supervision by the Company, also bolstering independent contractor status.

INDEPENDENTLY ESTABLISHED: As to the second prong of Pennsylvania’s two-part test, the Court found that the psychological counselors were independently established professionals who “held themselves out to the public” as providing their professional services as psychological counselors. Therefore, the independent contractors passed both parts of the Pennsylvania two-part independent contractor test (and the Company won its argument that they were not the employer).

PENNSYLVANIA’S TWO-PART TEST IS EASIER THAN ILLINOIS’ THREE-PART TEST: Readers who are familiar with the brutal three-part legal test for independent contractor status under the Illinois Unemployment Insurance Act will know that Illinois uses an additional and very burdensome prong [Part B of the Section 212(A), (B), (C) test] where the Company must prove a different course or different place of business (meaning that the Company and the independent contractor must be in a different type of business or a different place of business). Pennsylvania companies who use independent contractors are fortunate they don’t have Illinois’ dreaded “course of business/place of business test.”

Interestingly, the insurer for the Company in the Pennsylvania unemployment insurance case required that the independent contractor psychological counselors provide their services right at the offices of the Company, but the Court noted that this requirement as to place of business was imposed by the insurer and not by the Company. Therefore the Court found this requirement was not direction and control by the Company over the independent contractor psychological counselors. Had this case been in Illinois, there may well have been an insurmountable legal issue with Illinois’ place of business/course of business prong.

Strategy Tip on Establishing a Different Place of Business: Charging a fixed rental for use of office facilities is a solid way to dramatically strengthen independent contractor status. Employees do not pay rent to their employers to work in an office owned by the employer. I have handled several legal challenges where my client charged rent to the independent contractors, and it was extremely persuasive to the auditor or Hearing Officer in reaching a finding that the independent contractors enjoyed their own place of business (by paying rent).

To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors), please contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Related Posts: Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!, IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!, Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act, Independent Contractor Surgeon Cannot Sue Hospital For Discrimination Under Title VII

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Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act

Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Wednesday, September 18, 2019.

Under the Illinois Unemployment Insurance Act (hereinafter “Act”), there are certain kinds of workers (for example, real estate appraisers, direct sellers, certain kinds of newspaper delivery people) who are exempt from employment (i.e., independent contractors) as long as the specific legal requirements are met.

If your company uses any of these types of workers, it is important to know the details of the specific exemption under the Act so that you don’t unwittingly fail to meet the requirements of the exemption.

As an illustration, in Illinois, truck owner-operators are exempt from employment under Section 212.1 of the Act, but specific legal requirements must be met in order for the truck owner-operator to be exempt from employment. If all six parts of Section 212.1 are not met, then the truck owner-operator will be considered an employee and not an independent contractor under the Act.

The following is a list of some of the many industry specific and other exemptions under the Illinois Unemployment Insurance Act:

  1. Persons free from the employer’s control and direction who are engaged in an independent trade, occupation, business or profession and who perform services which are outside the course of the employer’s business or performed outside the place of business. (Section 212) Note: This is the general legal test for independent contractor status.
  2. Owner-operators of their own trucks but only under certain specified circumstances as provided in the Act. (Section 212.1
  3. Direct seller engaged in the trade or business of selling, or soliciting the sale of, consumer products to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis in the home or in an establishment other than a permanent retail establishment, if: Substantially all the remuneration (whether or not paid in cash) for the performance of the Direct Seller’s services is directly related to sales or other output (including the performance of services)-rather than to the number of hours worked, AND the services performed by the Direct Seller are performed pursuant to a written contract between the Direct Seller and the entity for whom the services are performed (and the written contract states that the Direct Seller will not be treated as an employee for federal tax purposes).(Section 217) – Nickname: “Tupperware Test”
  4. Real estate salesmen to the extent that such services are compensated for by commission. (Section 217) Tip: So…don’t pay them by the hour!
  5. Real estate closing agents when their contract with the title insurance company specifies that they are not employees and they are paid on a per closing basis. (Section 217.1) Tip: Have a written independent contractor agreement.
  6. Real estate appraisers whose written employment contract provides that they are paid on a fee-per-appraisal basis and that they are free to accept or reject appraisal requests from that entity or from other entities. (Section 217.2) Tip: Have a written independent contractor agreement.
  7. Persons under the age of 18 who deliver newspapers or shopping news and any persons who deliver newspapers or shopping news to the ultimate consumer, if substantially all of their remuneration is on a “per piece” or output rather than an hourly basis and they work under written contracts that indicate they are not to be treated as employees for federal tax purposes. Freelance editorial and photographic work for newspapers is also exempt from employment. (Section 225)
  8. Insurance agents who are paid solely by commission. (Section 228) Tip: So…don’t pay them by the hour.
  9. Golf caddies if they are full-time students under the age of 22 and are paid directly by a golf club member or by the golf club on behalf of a member. (Section 232.1)

In most situations, the services of actors, actresses, singers, musicians, models and other “talent” constitute employment, not independent contractor status. However, a talent or modeling agency that is licensed under the Private Employment Agency Act is not the employing unit with respect to the performance of services for which an individual has been referred by the agency. (Section 204)

The moral of the story here is to look over the kinds of independent contractors you use and be ready to prove these exemptions if you are counting on that legal defense. If you are ever audited by the Illinois Department of Employment Security and can prove the exemptions, then you will not owe any back unemployment insurance contributions (taxes) to the IDES on the workers who meet the requirements of the exemption(s).

For assistance with IDES audits, hearings, and independent contractor agreements (or for consultations and overall evaluations on limiting your liability in the use of independent contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Related Posts: Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!, IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!, Psychological Counselors In Pennsylvania Found To Be Independent Contractors, Independent Contractor Surgeon Cannot Sue Hospital For Discrimination Under Title VII

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Independent Contractor Surgeon Cannot Sue Hospital For Discrimination Under Title VII

Independent Contractor Surgeon Cannot Sue Hospital For Discrimination Under Title VII

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Thursday, August 15, 2019.

If an individual is found to be an independent contractor under Title VII of the Civil Rights Act of 1964, that individual cannot sue for discrimination under that law because they are not an employee. Only employees can claim legal protection under Title VII. A surgeon recently discovered this legal reality when she sued the hospital for discrimination. She sued because the hospital revoked her medical practice privileges. She claimed to be an employee (and not an independent contractor), and therefore sued the hospital as her employer under Title VII on the basis of her sex, religion and ethnicity.

U.S. DISTRICT COURT RULED THE SURGEON WAS AN INDEPENDENT CONTRACTOR: The U.S. District Court for the Northern District of Illinois granted summary judgement in favor of the hospital because that Court found the surgeon was an independent contractor physician-not an employee of the hospital.

SURGEON APPEALED TO U.S. COURT OF APPEALS FOR THE SEVENTH CIRCUIT: The surgeon then appealed to the U.S. Court of Appeals for the Seventh Circuit. The surgeon argued that she should be classified as an employee of the hospital (and therefore she was entitled to have legal protection under Title VII). She pointed out that she was subject to “peer review” by other doctors so she was surely an employee. The U.S. Court of Appeals for the Seventh Circuit did not agree with the surgeon; the Court found her to be an independent contractor-not an employee of the hospital. Levitin v. Northwest Community Hospital, No. 16-3774 (7th Cir. May 8, 2019)

FACTS PROVING INDEPENDENT CONTRACTOR STATUS: The U.S. Court of Appeals for the Seventh Circuit ruled that the surgeon was self-employed (and an independent contractor-not an employee of the hospital) because she owned her own medical practice, billed her patients directly, filed her taxes as a self-employed physician, did not receive any traditional employee benefits from the hospital, paid her own professional licensing dues, set her own schedule and hours, could obtain medical practice privileges at other hospitals, and could use her own medical staff in surgeries.

COMPLIANCE WITH REGULATORY & STATUTORY REQUIREMENTS DOES NOT ESTABLISH CONTROL: The U.S. Court of Appeals for the Seventh Circuit noted that compliance with regulatory or statutory requirements does not by itself establish control by the hospital over the surgeon for purposes of Title VII of the Civil Rights Act of 1964. In other words, the kind of control and direction that an employer would exercise over an employee is not the same kind of control that involves mere compliance by the hospital with regulatory or statutory requirements.

To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors), please contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com. Nancy Joerg can also help you modify your independent contractor agreement and website, as well as defend you in audits and investigations.

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The IDES Has Sprung To Life !!: Important News For Illinois Companies Who Use Independent Contractors

The IDES Has Sprung To Life !!: Important News For Illinois Companies Who Use Independent Contractors

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Wednesday, July 24, 2019.

Over the many years in which I have represented Illinois companies before the Illinois Department of Employment Security (IDES), I have seen the activity level of the IDES ebb and flow.

In some years, the IDES is very energetic and active, sending out its army of IDES auditors to audit Illinois businesses (making sure these businesses are paying the proper amount in taxes called contributions). In other years, especially recently, the IDES has been much less active, with audits and hearings scheduled at a much slower pace. But currently the IDES has done much hiring of auditors and hearing officers, with a resulting burst of audits and hearings!

It is of course important to the financial health of the State of Illinois that the IDES auditors collect all contributions that Illinois employers should have paid. Auditors fulfill a very important political and economic function in Illinois. Hearing officers serve a crucial role in the protest process.

AUDIT PROCESS CAN BE COMPLICATED: When an Illinois company finds out that it is going to be audited by the IDES, much anxiety often results, and many companies wisely seek legal counsel prior to participating in an IDES audit. The audit process can be complicated. There can be many legal issues.

A common legal issue that arises during an IDES audit is whether the company properly classified its workers as independent contractors during the designated audit year.

PROTESTING THE TAX BILL: If the auditor finds the company liable (for example, because the company misclassified workers as independent contractors), the company will receive a Notice of Determination & Assessment (which is the tax bill that arises out of the audit). If the company disagrees with the Determination & Assessment, the company has only 20 days in which to protest the Determination & Assessment and request a Hearing.

IT CAN TAKE YEARS TO GET A HEARING: Sometimes companies who protest have to wait a surprisingly long period of time to get a Hearing about its protest. It can take many years! I had a client who (after three years of waiting) thought the IDES had lost the file and thought they would never receive a Notice of Hearing. But the client eventually received a Notice of Hearing. Fortunately for that client, they won at the Hearing and their entire assessment from the audit was cancelled.

In recent years, waiting three years for a Hearing (amazingly) seems like a short period of time. Several of my clients have been waiting five years or more for a Hearing! This means that now, in 2019, there are audits from 2011 and 2012 that are just now coming up for a Hearing.

With the IDES springing back to life very recently, I am seeing more and more companies finally receiving their Notice of Hearing. I am also seeing more companies being audited by the IDES.

INCREASED ACTIVITY OF THE IDES: This new level of increased activity by the IDES should be noted by any company that has protested a Determination & Assessment and is awaiting a Notice of Hearing.

Also, Illinois companies who use independent contractors should be aware that their chances of being audited have now increased. Therefore, they should take all reasonable steps to protect themselves in their use of independent contractors.

Any readers who want to review the basic IDES test for independent contractor status and the IDES questionnaire that IDES auditors use to question companies about their use of independent contractors can receive free copies by contacting Legal Assistant Tammy Nelson at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at tanelson@wesselssherman.com.

For assistance with IDES audits, hearings, and independent contractor agreements (or for consultations on limiting your liability in the use of independent contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

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Illinois Trucking Companies Who Use Owner-Operators Should Do Self Audits!

Illinois Trucking Companies Who Use Owner-Operators Should Do Self Audits!

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Friday, June 14, 2019.

Many Illinois trucking companies have independent contractor agreements for owner-operators (to help establish an independent contractor relationship between the Illinois trucking company and the owner-operators who perform services as truck drivers for the trucking company).

Illinois has an usual and precise legal definition of owner-operator of trucks as laid out in Section 212.1 of the Illinois Unemployment Insurance Act. Section 212.1 went into effect in August 1995.

Since then, the Illinois Department of Employment Security (IDES) and its auditors, Hearing Officers and officials have evaluated the independent contractor of truck owner-operators according to this highly unique law which is essentially a very strict six part test. All Illinois trucking companies who use independent contractor owner-operators should do a careful self-audit to make sure they don’t violate Section 212.1. If they are in violation of any part of Section 212.1, the trucking company will be found to have employees instead of legitimate independent contractor owner-operators.

So let us look at the key points of a self-audit under Section 212.1:

  1. The Illinois trucking company must have an owner-operator lease contract. One of the two parties must be licensed as a motor carrier.
  2. There must not be a non-compete agreement, provision or restriction of any kind in the owner-operator lease contract/independent contractor agreement.
  3. The Illinois trucking company cannot regulate the scheduling for the owner-operator except where a customer needs to be accommodated.
  4. The owner-operator has to hold title to his/her own truck or lease purchase the truck from an unrelated third party.
  5. The owner-operator must pay all costs directly associated with licensing and operating the truck, AND
  6. The owner-operator must have his/her business name and address on his/her truck.

If readers want to review the specific do’s and don’ts of Section 212.1 of the Illinois Unemployment Insurance Act, contact Legal Assistant Tammy Nelson at 630-377-1554 for a free copy of Section 212.1, its strict Regulations, and also the Questionnaire that IDES auditors use to determine who is and who is not an independent contractor under the Illinois Unemployment Insurance Act.

To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors) or for assistance with drafting or modifying an independent contractor agreement, please contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

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States Vary Widely In Their Respective Independent Contractor Legal Tests

States Vary Widely In Their Respective Independent Contractor Legal Tests

By Nancy E. Joerg of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. posted in Independent Contractor on Wednesday, March 13, 2019.

ROLE OF STATE LEGISLATURE: Surprising to many, state legislatures solely determine the legal test that is used in a particular state for evaluating whether a “worker” in question is an independent contractor or an employee (for purposes of obtaining state unemployment insurance benefits).

LEGAL BATTLE OVER CLASSIFICATION: For many years, I have defended companies who make the legal argument that the “worker” trying to get unemployment insurance benefits is really an independent contractor (and therefore the “worker” should not be eligible for unemployment insurance benefits). Often the legal battle over independent contractor status arises out of an unemployment insurance audit of a company (and the company argues that their independent contractors are correctly classified and are not employees).

ABC TEST IS THE STRICTEST: The strictest legal test for defining independent contractor status is commonly called the “ABC test.” Many states operate under this extremely tough legal test to define independent contractor status. Some of the states where their legislatures have adopted the ABC test include California (recent change), Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Vermont, Washington, and West Virginia. State legislatures change their test from time to time, so always research this issue to be sure what test the state is using at any given time.

CONTROL AND DIRECTION TEST: Some states have a more forgiving test for independent contractor status. It is therefore usually easier in these states for a company to defend the status of its independent contractors. Those states use a multi-factor “control and direction” test (also called common law test) to decide classification disputes, much like the famous 20 factor common law test used by the IRS. Some of the states using the common law test include Florida, Iowa, New York, Texas, and Virginia. In different states, courts interpret the common law factors quite differently.

This 20 factor legal test is generally easier for companies proving independent contractor status because the company does not have to be persuasive on each factor. With the 20 factor common law test, the company has to make a persuasive overall showing about the validity of the independent contractor relationship, with certain factors being more important than others, depending on the particular state and its case law and regulations.

UNIQUE TESTS: Still other states (such as Wisconsin) use a unique independent contractor test relying on several certain stated factors. Some states such as Maine have adopted very tough multi-factor tests. In Maine, for example, the “worker” must pass each of five factors and, in addition, pass another three factors from a list of seven factors in order to legally prove independent contractor status.

STATES CAN CHANGE THE TEST: To further complicate the overall situation, some state legislatures (often under political pressure and due to great efforts by lobbyists and business leaders) decide to change the state’s legal definition of independent contractor status for state unemployment insurance purposes. Very recently, California switched from the 20 factor common law test to the brutal ABC test, resulting in highly charged articles in nationwide press about California getting so much tougher on independent contractor status.

ABC TEST: The ABC test (as used in Illinois and many other states) is brutal for independent contractor status because all three parts must be met by proving certain facts. Here is the ABC test:

A. Such individual (i.e., independent contractor in question) has been and will continue to be free from control or direction over the performance of such services, both under his contract of service and in fact; and

B. Such service (i.e., by the independent contractor in question) is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

C. Such individual (i.e., independent contractor in question) is engaged in an independently established trade, occu­pation, profession, or busi­ness.

So, even if a “worker” is totally free from the company’s control and direction (Part A), if the company cannot also prove Parts B AND C, then that “worker” will likely be reclassified to employee status for state unemployment insurance purposes only, even if there is a valid independent contractor agreement between the company and the “worker.”

CERTAIN INDUSTRIES HAVE EXEMPTIONS: Of course, certain industries have special legal exemptions granting them “favored status” so that those industries can have independent contractors “by law” (who are therefore not eligible for state unemployment insurance benefits). State legislatures vote in these industry-specific exemptions. Lobbyists are often hired by certain industries (to put forward legislative exemptions under which certain kinds of workers are independent contractors by state law). Careful legal research is necessary to check out the possible exemptions from employment in a particular state. For example, Virginia has an exemption for fee-based licensed clinical social workers and certain other licensed counselors, for purposes of Virginia’s state unemployment insurance law.

IRS MAY CONSIDER THE WORKER AN INDEPENDENT CONTRACTOR WHILE THE STATE MAY CONSIDER THE WORKER TO BE AN EMPLOYEE: Some companies have safely passed IRS audits for their independent contractors, but then they later fail a state unemployment insurance audit evaluating the very same independent contractors. These companies need to develop careful legal strategies to deal with their complex worker classification issues.

To discuss your potential liability in using independent contractors (as well as strategies for reducing your liability in using independent contractors), please contact Attorney Nancy Joerg at Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

Related Posts: Yes, You Can Win Before an IDES Hearing Officer on the Issue of Independent Contractor Status!!, IRS Form SS-8 Continues To Upset And Confuse Employers Across The U.S.!, Psychological Counselors In Pennsylvania Found To Be Independent Contractors, Yes, There are Certain Categories of Workers Who Are Independent Contractors By Law Under the Illinois Unemployment Insurance Act

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