9 Ways to Reduce the Risk of Worker Classification Disputes

The Patient Protection and Affordable Care Act (ACA) links the number of employees a business has to that business’s healthcare coverage responsibilities and penalties. As such, the ACA focuses new attention on the already tricky area of law governing the definition of “employee” and the proper classification of workers as either employees or independent contractors.

The ACA’s focus on “employee” status presents a good opportunity for businesses to re-evaluate their workforce classifications. In doing so, businesses should carefully consider the factors under the common-law right to control test. In addition, following the steps below may help reduce the risks of worker classification problems:

  1. Establish written policies for engaging independent contractors and utilize a clear independent contractor agreement to which both parties adhere
  2. Select independent contractors with specialized skills to perform — over a fixed term — specialized services that are distinct from those rendered by employees
  3. Engage independent contractors who are incorporated or otherwise have an established trade or business
  4. Ensure a mutual understanding of the worker’s independent contractor status, including the contractor’s assumption of responsibilities for licensing and insurance
  5. Restrict the provision of training, traditional benefits, tools, work space, and reimbursement provided to the independent contractors
  6. Do not restrict the independent contractors’ ability to provide services to others
  7. Avoid using terms common to employment and wage payment
  8. Avoid disseminating an “Employee Manual” to contractors
  9. Do not issue business cards, identification, voicemail boxes, or e-mail addresses to contractors

Businesses should consider more feasible alternatives, if appropriate, if there is doubt as to the proper classification of a worker as an independent contractor. Although the worker may not qualify as an independent contractor, he or she may qualify as a part-time employee or even a seasonal employee, which would still reduce potential exposure, including limiting the business’s number of full-time employees for purposes of determining the amount of the potential penalty under the ACA. Also, businesses must always consider the potential impact of including the workforce at any related companies.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Latham & Watkins LLP | Attorney Advertising

Written by:


Latham & Watkins LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.