As a person who considers themselves to be among the ranks
of the independent contractor or solopreneur population, both my clients and I
have an interest in how to maintain that relationship legally. Indeed, I have
at various times had to sever or refuse relationships with clients that wished to control
me as an employee, while still paying me as an independent contractor.
In many cases, I have had a hard time explaining why and how
I make that distinction. To many users of so-called freelancers, just the mere
fact that their workers are offsite, or their services are covered by a contract is enough to justify 1099 status.
In all fairness to the client side of the equation, in many
cases they truly believe that anyone not occupying a desk in their offices or who has signed a contract is not an employee,
particularly if they engage the contractors services through one of the many
labor broker or middleman sites like Elance or other similar websites.
I, on the other hand, tend to define the relationship by how
much autonomy I have to produce the deliverables that serve the purposes they
want or need.
When I come across a client who actually advertises for a contractor on one of the middleman sites, or who after I contact them wants to work through one of those sites, the relationship becomes even more complicated than usual.
Needless to say, that can create significant
misunderstandings.
So, whenever a government agency takes a stab at clarifying
the differences, I am interested.
On July 15, 2015, the
U.S. Department of Labor's (DOL)Wage and Hour Division issued an Administrators
Interpretation, No. 2015-1 that for the first time seeks to clarify the
distinctions used to determine the legal status of workers for employment
classification purposes.
While declaring that the intent of the document is not to
discourage people from being legitimate independent contractors, it
nevertheless has an emphasis on attempting to crack down on misclassification
of workers.
Interpretation 2015-1 relies heavily upon defining the
somewhat ambiguous phrase "suffers or permits" in determining the
relationship of workers to the people benefitting from their work.
By citing numerous examples of legal precedent,
administrator David Weil seeks to explain the differences under consideration.
Among the many legal decisions cited, none directly address
the proliferation of so-called labor brokers, specifically businesses which depend
upon what could be termed "captive labor" i.e. people whose work product the
business needs to control in order to earn revenue.
However, on pages 14 and 15 of the interpretation, the
document does provide a hypothetical comparison of circumstances that
approximates a common scenario found in the actual operational model of the
labor brokerage business segment, as follows:
"Example: A
registered nurse who provides skilled nursing care in nursing homes is listed
with Beta Nurse Registry in order to be matched with clients. The registry
interviewed the nurse prior to her joining the registry, and also required the
nurse to undergo a multi-day training presented by Beta. Beta sends the nurse a
listing each week with potential clients and requires the nurse to fill out a
form with Beta prior to contacting any clients. Beta also requires that the
nurse adhere to a certain wage range and the nurse cannot provide care during
any weekend hours. The nurse must inform Beta if she is hired by a client and
must contact Beta if she will miss scheduled work with any client. In this
scenario, the degree of control exercised by the registry is indicative of an
employment relationship.
Another registered
nurse who provides skilled nursing care in nursing homes is listed with Jones
Nurse Registry in order to be matched with clients. The registry sends the
nurse a listing each week with potential clients. The nurse is free to call as
many or as few potential clients as she wishes and to work for as many or as
few as she wishes; the nurse also negotiates her own wage rate and schedule
with the client. In this scenario, the degree of control exercised by the
registry is not indicative of an employment relationship."
Whether this actually addresses the business practices of
such examples as Upwork, Elance, ifreelance, Demand Media, Creative Circle or
any other of the well-known middleman businesses currently in operation remains
to be seen.
In another section of the document concerning the control of
the worker by the other party to the relationship the document includes this
citation:
"…see also
Superior Care, 840 F.2d at 1060 (“An employer does not need to look over his
workers’ shoulders every day in order to exercise control.”)
Also addressed in the administrative interpretation is
whether the middleman or client's main business could exist without the exercise of
control over the worker, i.e. is the "control" factor an integral
part of the middleman or client's revenue from business operations.
In the case of those businesses that derive a significant
portion of their income only if a worker produces a billable deliverable for
the end buyer, that relationship becomes central to answering the question of
whether the worker is in fact, an employee of the labor brokering business.
For the millions of freelance writers, coders, programmers,
and others currently deriving the main portion of their income through their
association with the many middleman websites, this document is not likely to fully
answer their questions.
In my own case, I virtually quit even responding to clients that advertise for help on these sites, although several years ago I did have several wonderful clients that accessed my services in that way.
At first glance, the document would tend to support the
premise that most of the sites that control access to and/or place limitations
or impose standards upon how or even whether workers can access clients, could be in for a rough ride.
For those needing a concrete real world example of the differences addressed, sites
like Elance.com and its corporate progeny, Upwork.com would seem more akin to
the first example (Beta Nurse Registry) quoted above, while sites like flexjobs.com, craigslist.com or idealist.org more closely approximate the second scenario(Jones
Nurse Registry), essentially providing the same service as the classified ads
in your local newspaper.
Although the DOL is to be commended for trying to address
this issue, the resulting document does little to provide absolute clarity for
the millions of so-called freelancers, or the buyers of their services.
The actual status will probably be clarified on a case-by-case basis, only when
someone or some group specifically asks for a ruling or files a legal action
requesting clarification of employee status to obtain benefits or settle a tax
question.
Another interesting thing to watch will be how the sites
themselves react to this DOL paper.
Some already provide an option that allows contractors to
request that jobs be re-classified as W-2 positions rather than 1099 arrangements,
although the buyers are free to refuse. Others are creating subsets of what are
essentially employee/employer relationships within the main corporate
structure.
In the meantime, I will continue to structure my contracts so as to leave no doubt about my status.
