Independence Day Takes on New Meaning

The assault against the use of independent contractors to perform work which can also be done by employees has long been a favorite crusade of the employment plaintiffs' bar and labor organizations, but now there is an impressive array of federal agencies, ranging from the IRS to the Department of Labor, which have joined the lineup. The latest evidence being relied on in this battle is an August 2009"Report to Congressional Requesters" entitled "Employee Misclassification: Improved Coordination, Outreach, and Targeting Could Better Ensure Detection and Prevention." The 69-page study contends, without any independent empirical study, that so-called "employee misclassification," while it is not itself a violation of the law, "is often associated with labor and tax law violations."

Supporting data are largely anecdotal or extremely dated, including a 1984 IRS survey. Eleven "stakeholders" were asked to participate, and nine responded to the structured survey which consisted of 19 "options" for change. Four of the 9 were labor unions; three were groups "that represent the views of small businesses, independent contractors, and those who hire them," one was part of "the tax preparation and advice community," and the last was a federal agency which uses contractors. None of the responses were separately identifiable, nor are we given the names of those groups which participated. You will note that others significantly affected by the subject - employer and HR organizations, and employers larger than the small business category, for example - were not asked to express their views. Separate comments were provided by the IRS and the Department of Labor.

We will not engage in any further characterization of the report, but you can expect it to be relied upon in litigation and investigations over the coming months and years. For a little light reading, see http://www.gao.gov/new.items/d09717.pdf.