W-2 Employee or IRS 1099 Independent Contractor: What Are You and Why Does it Matter?

July 30, 2019

Often times employers classify an “employee” as an “independent contractor,” for reasons that may center on financial gain (avoiding the payments of benefits and taxes) and to avoid exposure for liability of that person’s negligence.  If a company has the green light to skirt liability for their agent’s negligence simply based on their own (often times unilateral and self-imposed) designation, the agent themselves could be left holding the bag and/or be personally liable for issues that arise from their work on a jobsite.

This misclassification and the ramifications of the same are inherently important to many of FWY’s clientele, such as workers in industries regulated by the Occupational Safety and Health Administration (OSHA).  This includes, but is not limited to, the fields of construction and maritime.  You may be reporting to work every day unsure of your classification.  If you’re being paid by an IRS Form 1099, your employer will most likely deem you an “independent contractor.”  Since many of our clients put themselves on the line every day by working in these demanding, often dangerous fields, it is imperative to let those workers know that they may have legal grounds to challenge any misclassification.

Recently, a compliance safety and health officer for OSHA inspected a residential construction worksite in Sylvania, Ohio. J & M Miller Construction (“J & M”), a limited liability company based out of Fort Wayne, IN, was working on the site, and it had been alleged that some of J & M’s “employees” were violating various OSHA regulations.  The OSHA inspection resulted in citations for serious violations for failing to provide adequate/necessary fall protection (29 CFR 1926.501(b)(13)); failing to provide a training program regarding fall hazards (29 CFR 1926.503(a))); failing to provide adequate eye protection (29 CFR 1926.95); and failing to ensure that each scaffold was at least 18 inches wide (29 19226.501(b)(13).

J & M argued that they had no “employees,” but rather “independent contractors,” for whom they were not responsible for supervising.

While investigating J & M, compliance officers discovered that Mr. Miller was referred to as the “boss.”  The officer further obtained and reviewed an Independent Contractor Agreement between a general contractor (“GC”) and J & M which specified that J & M was to complete the job with their own “employees,” and also that J & M agreed not to assign or subcontract any portion of the work without the GC’s express consent.

The administrative law judge in the J & M matter rejected J & M’s defense, and instead balanced a number of factors (including but not limited to who is in charge and who provided direction).  It was held that there is a “totality of the circumstances” test that must be employed to determine whether an individual working for a company is an employee, or independent contractor.  As such, a mere agreement to be considered an independent contractor is not one of those circumstances.

You may be someone who is reporting to work every day and unsure of whether you, yourself could be held liable for a mistake made.  You may also be someone who is looking for work and has been told that you must sign something along the lines of an Independent Contracting Agreement, or told that you are an independent contractor because you receive a 1099 form as opposed to a W-2.  These actions may very well be violations of applicable Federal and/or state laws (MA state courts have recently made agent-favorable changes to the Independent Contractor Statute as well).

If your place of work has denied coverage to you because they deem you an “independent contractor,” or if you have been declined work because you refuse to sign an agreement akin to the one highlighted herein, give FWY a call today.