Independent contractor suing for overtime pay

[fandor]

What is the name of your state (only U.S. law)? Florida

We are a small company with little over 20 independent contractors working for us. One of the independent contractors who has been working for us for the last 3 years has recently filed a lawsuit requiring overtime pay, citing 3 hours overtime per day for the last 3 years. We did analysis of the working hours and found his claims absolutely false. We documented this analysis. At the court day, our layer appeared to mishandle the case and did not present our analysis document to the judge. Instead, we entered the arbitration proceedings, where the worker's lawyer demands $20,000 settlement. We are very reluctant to pay this amount since we operate on very tight budget from month to month.
Any advice on how to proceed in this case?

 

[swalsh411]

So don't pay it. Make him prove his case in court.

 

[fandor]

The problem is that law dictates us to be represented by a lawyer. So far the lawyers we contacted are $60000 a case. That's a huge expense on our side. Any way we can be assigned a state gov. lawyer? Or get any option in non-profit area for smaller fee?

 

[Beth3]

Any way we can be assigned a state gov. lawyer? No. The State does not have a crew of lawyers they employ to represent parties involved in civil litigation.

Or get any option in non-profit area for smaller fee? You're free to see if you can negotiate a lower fee with your current lawyer or a new one.

Your choices are pretty clear:

(1) Pay the $20,000
(2) See if you/your attorney can negotiate a lower settlement
(3) Fire your current lawyeer and retain a new one who is competent.
(4) Go to court and see what a judge decides.

Looks like you're going to have to make a decision many employers are forced to make, which is whether to settle the claim out of court at the lowest amount you can negotiate or spend the money and go to trial.

 

[ESteele]

OP, your post raises several questions and/or issues. First, if the twenty individuals “working” for you are indeed independent contractors, how has this aggrieved individual succeeded in claiming that your company owes him overtime? It appears that he has apparently argued that he is, in fact, an employee, not independent contractor. If all of your “independent contractors” are actually employees, your company may have much larger financial concerns to address in settling the forthcoming claims which may be forthcoming.

Second, did this individual sue the company in court or initiate arbitration? Are you currently in arbitration or mediation?

Third, depending on the merits of his claim, your company may want to settle the instant matter. If his “hourly wage” was at least $7.67/hr and he worked three hours of overtime a day for three years, then your company would owe him over $25K without consideration of any interest and statutory penalties. Moreover, his attorney may be able to recover his attorney’s fees in addition to overtime, interest and penalties. Consequently, your company’s exposure could far exceed $20K.

Fourth, as stated by another responder, the government does not provide small businesses with litigation assistance. Your company should endeavor to engage private counsel on an hourly basis in an effort to negotiate a settlement here.

Finally, as stated above, if this plaintiff’s situation is indicative of the other contractors’ circumstances, you will want to contain this situation as much as possible. You do not want any or all of your other contractors to be encouraged to bring similar litigation.

 

[ecmst12]

Were you correctly classifying this person as an independent contractor?

 

[Andy0192]

OP - Just the fact that you are tracking an independent contractor's "hourly" time is indicative that they're more likely to be judged an employee than a true independent contractor.

It might be worth your time to read up on what the IRS says about an independent contractor is before you decide if you should fight this or settle.

http://www.irs.gov/pub/irs-pdf/p1779.pdf

Trouble is, if this guy is successful, you can bet he won't be the last one to sue for overtime pay. You might need to change your business strategy.

 

[justalayman]

OP - Just the fact that you are tracking an independent contractor's "hourly" time is indicative that they're more likely to be judged an employee than a true independent contractor.
.

not true. Many IC's are paid on an hourly basis.

 

[LdiJ]

not true. Many IC's are paid on an hourly basis.

And the vast majority of the IC's that are paid hourly are actually employees under the IRS definition of employee.

Look up form SS-8 and read through it. You will get a lot of information on what defines an employee vs an independent contractor.

 

[justalayman]

And the vast majority of the IC's that are paid hourly are actually employees under the IRS definition of employee.

Look up form SS-8 and read through it. You will get a lot of information on what defines an employee vs an independent contractor.

Not true at all. When hiring oneself out, you can contract for a set amount (bid) or work on an hourly basis. In itself, it does not push this either way.

I've read the SS-8 and associated literature as well as dozens of other sources of information concerning this issue. Nowhere that I have found does anything state that being paid by the hour is reason to consider a person an IC or employee.

Independent Contractor Defined


People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.

If you are an independent contractor, you are self-employed. To find out what your tax obligations are, visit the Self-Employed Tax Center.

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.

If an employer-employee relationship exists (regardless of what the relationship is called), you are not an independent contractor and your earnings are generally not subject to Self-Employment Tax.

However, your earnings as an employee may be subject to FICA (Social Security tax and Medicare) and income tax withholding.

So, the lawyer you pay per hour, the plumber you pay per hour, the accountant you pay per hour are employees because you pay them on a per hour basis?

 

[Andy0192]

Not true at all. When hiring oneself out, you can contract for a set amount (bid) or work on an hourly basis. In itself, it does not push this either way.

That part I'll agree with - it's one part of the equation, not the whole story.

So, the lawyer you pay per hour, the plumber you pay per hour, the accountant you pay per hour are employees because you pay them on a per hour basis?

Difference would be that the lawyer, plumber, and accountant have other clients than just you.

It would appear that the OP has 20+ people working soley for them, and is paying them by the hour. I'm standing by my original statement.

 

[LdiJ]

That part I'll agree with - it's one part of the equation, not the whole story.



Difference would be that the lawyer, plumber, and accountant have other clients than just you.

It would appear that the OP has 20+ people working soley for them, and is paying them by the hour. I'm standing by my original statement.

In addition, all of these people are working enough hours for him that they are exceeding 40 hours a week and believe that they are entitled to overtime pay. That shreaks of "employee" rather than contractor.

And...if this particular IC loses the case, I would just about bet that the IC WILL fill out an SS-8 and ask the IRS to investigate to determine whether or not those 20 plus people are really IC's or employees.

The IRS currently has an amnesty program going on to allow employers to reclassify their misclassified contractors as employees without as much "pain" as would normally be involved. I strongly recommend that this particular employer look into that program.

 

[justalayman]

That part I'll agree with - it's one part of the equation, not the whole story.



Difference would be that the lawyer, plumber, and accountant have other clients than just you.

It would appear that the OP has 20+ people working soley for them, and is paying them by the hour. I'm standing by my original statement.

this particular point (hourly pay) is aside of the OP's situation. While I will agree 20 hourly IC's does suggest something improper, in itself, being paid hourly isn't even part of the equation since hourly pay is not a determining factor. You are looking at the totality (what little has been presented) and coming to a conclusion based on your gut, not facts.

 

[commentator]

And you must remember, Florida is a state where they LOVE their employers, have quite lenient rules about making people independent contractors (think time share salespersons) so the state may be a bit more open to the IC status. But since they have no wage and hour department in the state, this person must have made complaint to the federal wage and hour,and if these folks think the IC has a case, then that's a bit impressive.