by Creative Communications | Nov 28, 2023 | Industry News
Misclassification isn’t always intentional, but there can be severe penalties if caught either way.
By Ben Young, Christie Vu and Greg Boornazian
Small to mid-size businesses often assume they can fly under the radar when it comes to worker misclassification. But the reality is a realized claim that an independent contractor is really an employee can happen in just about any industry, to just about any business, with just about any scenario you can imagine. Here are three claims scenarios and lessons learned.
1) What does eight years of driver misclassification cost?
Joint logistics employers Parts Authority and Diligent Delivery Systems paid $2.8 million each in back wages and liquidated damages, as determined by the U.S. District Court for the District of Arizona.[1]
From April 2012 to March 2020, it was determined that the companies misclassified almost 1,400 drivers as independent contractors and failed to meet minimum wage requirements, pay time-and-a-half for hours over 40 in the workweek, and keep required timekeeping records.
2) Are golf caddies contractors or employees?
The sports and athletics industry is flush with misclassification court cases, from referees to security guards, cheerleaders to arena crew members. A few cases involving golf caddies in New York[2] and New Jersey[3] were filed in late 2022 and early 2023, bringing into question whether caddies are employees or independent contractors. Let’s take a look.
CONTROL: At the clubs in these cases, the caddie master was responsible for assigning caddies to golfers, taking the control of their own schedule away from the caddies. At the same time, caddies were unable to reject any assignments, violating the independent contractor’s right to perform work when and in the manner they see fit.
ECONOMIC DEPENDENCY: While caddies are free to work at as many clubs as they like, caddies who demonstrate loyalty to a particular club have been known to benefit by having more golfers assigned to them, obtaining higher compensation as a result. Golf clubs also tend to set bag fees, which serves as the caddie’s rate.
THE RELATIONSHIP: Most golf clubs require golfers to use caddies, and the service the caddies provide is directly related to the clubs’ central business. This suggests an employee-employer relationship.
3) Who pays the cost when workers are misclassified?
A complaint was filed against Wellfleet Communications on behalf of its sales telemarketers, who claimed to receive less than minimum wage, and as little as $3 for an entire work week.[4] The Department of Labor (DOL) investigation showed that over 1,300 call center workers, who worked a minimum of 32 hours per week for Wellfleet, were misclassified as independent contractors and therefore paid only when they made sales.
The company owners were held personally liable after the DOL investigation.[5] The ruling ordered the company to pay over $1.4 million in back wages and liquidated damages.
Why proper classification matters
The government’s definitions for what is an employee and an independent contractor can be somewhat confusing and vague, but know that misclassification is receiving increased attention by both the current White House administration, and at the state level as well. The benefit to the worker is clear, but the consequences for the employer are not always acknowledged.
Misclassification is not always an attempt at avoiding insurance coverage and other benefits to employees, like the government might fear. When the standards are unclear, employers are more likely to inadvertently misinterpret the guidelines.
The cost for this misinterpretation can be significant for employers, ranging from fines to jail time. Engaging employment practice expertise and tightening up processes and procedures can save businesses from time-consuming audits and expensive settlements.
For more insight on today’s evolving employment landscape, check out our eBook: Knowing the Difference Between Employee & Independent Contractor and Why It Matters.
[1] U.S. Department of Labor “News Release: Department of Labor Obtains Judgment Ordering Auto Parts Seller, Logistics Company to Pay $5.6M to 1,398 Misclassified Drivers,” January 12, 2023.
[2] Bloomberg Law “NY Golf Club Misclassified Caddies, Owes Wages, Lawsuit Says,” January 23, 2023.
[3] Patch “Employee Sues Morristown Golf Club Over Labor Wage Dispute,” October 13, 2022.
[4] Las Vegas Review-Journal “Las Vegas telemarketer sued for shorting workers’ pay,” October 20, 2016.
[5] U.S. Department of Labor “Federal Court Finds Las Vegas Company Shortchanged Employees, Orders $1.4M in Back Wages, Damages Paid to 1,328 Call Center Workers,” November 2, 2021.
This information is intended for informational purposes only. Protector Plans Executive Liability is not liable for any loss or damage arising out of or in connection with the use of this information.
by Creative Communications | Nov 21, 2023 | Industry News
Defining an independent contractor is no longer all about control; now economic dependency is what matters most.
By Ben Young, Christie Vu and Greg Boornazian
The pandemic greatly influenced the growth of the gig economy, upending the traditional 9 to 5 working experience and increasing social reliance on home delivery. Over the last five years, the gig economy has grown from a $204 billion industry to over $455 billion in 2023,[1] with more and more joining the work-for-themselves ranks every day.
The U.S. Department of Labor (DOL) proposed a new rule in October 2022 to redefine who is considered an employee versus who is an independent contractor.[2] After a more relaxed approach to classification under the previous White House administration, this change seeks to align the written law with how case law currently addresses employee classification, and this reversal is already impacting workers and employers across multiple industries.
With this new rule, the DOL seeks to primarily protect workers from the harms of misclassification, but misclassification can also be a challenge to businesses. On top of back wages that may need to be paid if a DOL investigation is found in favor of the worker, a business and its leaders may face federal and state penalties, tax and payroll fines, and even potential jail time.
While a 6- to 12-month grace period is expected, businesses who currently incorporate independent contractors into their employment strategies or are considering that business model will need to take into account the revised classification process once it’s approved in order to avoid the aforementioned penalties.
The old control factor
The definitions set forth by common law for employee and independent contractor are not crystal clear on the surface. An employee is defined as “any individual employed by an employer,” where “employ” is defined to include the words “suffer or permit to work.”[3]
Under the current Employee or Independent Contractor Classification Under the Fair Labor Standards Act, employers are generally required to provide nonexempt employees at least the federal minimum wage for all hours worked and at least one and one-half times the employee’s regular rate of pay for every hour worked beyond the 40-hour workweek. Employees often receive health benefits and are protected against employment discrimination and retaliation.
These protections do not apply to independent contractors however, who are considered self-employed or freelancers. While the IRS does not explicitly define an independent contractor, they are recognized as workers who control “what will be done and how it will be done.”[4]
Determining whether an employer and employee relationship exists under common law cannot be done on definitions alone. Traditionally, the IRS has used a series of tests known as the “common law” or “control test” to determine if workers are employees or independent contractors. These tests evaluate behavior control, financial control, and the relationship between the parties involved.[5]
Sample considerations (as per the IRS) include:
BEHAVIORAL CONTROL: Does the company control — or have the right to control — how the worker accomplishes their tasks?
FINANCIAL CONTROL: Are the business aspects of the workers’ job (such as how they are paid or who provides the tools and supplies) controlled by the payer?
TYPE OF RELATIONSHIP: Are there written contracts or the exchange of employee benefits such as a pension plan, insurance or paid vacation time? What is the length of the relationship, and are the services considered a key activity of the business?
Previous guidance from the DOL on how to apply these control factors in the evaluation of a worker’s status designated the level of control over the work and the opportunity for profit or loss as the “core factors,” which carried the most weight in the determination.
Economic dependency: the now factor
In the courts, and drafted into the new rule, the control test is no longer the primary factor when evaluating worker classification. Instead, the focus is on economic dependency through an economic reality test.
The new question is primarily: Is the worker economically dependent on the employer for work, or are they in business for themselves?
Being economically dependent on the employer includes multiple factors, such as the following:
- Does the independent contractor’s income come solely from the company?
- Does the independent contractor claim to be in business for themselves?
- How is the independent contractor being compensated? Is it by project or time?
- Does the independent contractor control when and where they complete the work?
For a business to classify a worker as an independent contractor, they must establish that the worker is operating as a separate independent business, provides services to other businesses, has their own insurance, and operates like a subcontractor. While the economic dependency angle may not be enforced universally yet, once the final rule is issued, companies will need to have a tighter grip on their classification processes.
For more insight on today’s evolving employment landscape, check out our eBook: Knowing the Difference Between Employee & Independent Contractor and Why It Matters.
[1] Statista “Projected gross volume of the gig economy from 2018 to 2023 (in billion U.S. dollars),” September 30, 2022.
[2] U.S. Department of Labor “US Department of Labor Announces Proposed Rule on Classifying Employees, Independent Contractors; Seeks to Return to Longstanding Interpretation,” October 11, 2022.
[3] U.S. Code “Title 29 – Labor,” 2021.
[4] IRS “Independent Contractor Defined,” November 2, 2022.
[5] IRS “Independent Contractor (Self-Employed) or Employee?,” April 5, 2023.
This information is intended for informational purposes only. Protector Plans Executive Liability is not liable for any loss or damage arising out of or in connection with the use of this information.
by Creative Communications | Nov 14, 2023 | Industry News
Employing independent contractors can come with huge benefits — or consequences, if you misclassify them.
By Ben Young, Christie Vu and Greg Boornazian
With a growing number of U.S. workers choosing non-traditional employment via gig work and the fact that 29.5% of total employer compensation costs account for benefits,[1] the appeal of using independent contractors versus full-fledged employees is clear. Complications emerge when a company does not ensure their working relationships are clearly defined, or adhere to classification requirements laid out by the Department of Labor (DOL) as well as their state.
Here are four steps to ensure compliance with independent contractor classification.
- Audit your employment practices. Before making any moves, businesses who currently operate with independent contractors will want to work with an Employment Practices Liability attorney to perform a full audit of their current employment practices, as neither the “control test” nor the economic reality test are fool-proof methods for classifying employees.
TIP: Don’t dwell on any mistakes or misunderstandings made in the past; instead, focus on identifying which laws and tests apply to your business today, your current classification practices, and whether your classification decisions are properly supported.
- Get your documentation in order. One of the most important parts of both the audit and how you move forward will be documentation. It cannot be said enough: document, document, document.
Organizing the documentation you already have on current independent contractors will help support classification decisions if they are questioned. If you do not have this information already on file, gather insurance, business license and payroll information for all workers currently providing services for your business.
If you’re in an industry that involves hazardous operations, ensure your policies and procedures are in compliance with Occupational Safety and Health Administration (OSHA) standards, and that all workers — both full-time employees and independent contractors — are properly trained, and establish proof of this training.
TIP: As time progresses, documentation will continue to be crucial. Establish employment practices that feed into a robust and organized documentation system, and require proper documentation before any work is performed.
- Employ an independent contractor contract. A written contract between your organization and the independent contractor you’re hiring is one of the crucial documents needed to prove independent contractor status since it clearly defines the working relationship between the business and the independent contractor. The information in the contract will indicate whether or not the worker is an employee eligible for benefits or an independent contractor.
Contracts should include details regarding:
- Scope of work/services being provided
- Project duration and/or deadline for provided services
- Payment
- Tax payments and indemnity clauses
- A list of requirements of the contractor, including business insurance and any training or supplies needed for the job
- Confidentiality clauses, if they apply
Remember, determining independent contractor status is all about control and economic dependency. Therefore, a non-compete clause should never be present in an independent contractor’s contract — unless it’s narrowly written and allowed in the state where the independent contractor would be working (e.g., Florida). Non-disclosure or agreements to not solicit company clients, on the other hand, are acceptable.
It’s essential to factor in the working conditions and relationship between the employer and person hired when determining if someone is actually an employee or independent contractor. Some employers take advantage of the independent contractor option, when those workers should legally be classified as employees. These employers are playing with fire and could face back wages, fines and jail time.
TIP: A company cannot include the means and manner by which independent contract work is accomplished within the contract’s scope. It can, however, include the expected quality and outcome of the work.
- Establish a cycle of due diligence and review. Like any other operating process within the business, employment practices for independent contractors should be consistent and followed by every member of the organization. This includes individuals with significant authority who may feel their power allows them to dictate rules as they see fit.
There are legal and financial consequences to inconsistency. Training is a great example for businesses with hazardous operations. If independent contractors are not required to verify proper training for the tasks they will perform at your organization, OSHA can hold the business liable for any reported incident. You have to prove that you trained, or collected proof of training, before the contractor was put to work. The same can be said for proof of insurance.
For industries like healthcare, where independent contractors such as dentists may bring in their own staff of dental assistants, the contract and documentation requirements extend to each of these additional contractors.
TIP: If resources allow, dedicate staff to ensure proper adherence to and maintenance of your independent contractor employment practices. Steps are less likely to be missed or processes overlooked when it is made clear who is responsible.
In a world where freelancing continues to thrive and where the distinction between employees and independent contractors can have significant financial and legal implications, it is imperative for businesses to take proactive steps to avoid incorrect categorization. By auditing employment practices, meticulously documenting crucial information, establishing clear independent contractor contracts, and maintaining a consistent cycle of due diligence and review, companies can safeguard themselves from the potential pitfalls of misclassification and foster stronger, more transparent working relationships.
For more insight on today’s evolving employment landscape, check out our eBook: Knowing the Difference Between Employee & Independent Contractor and Why It Matters.
[1] U.S. Bureau of Labor Statistics “Employer Costs for Employee Compensation Summary,” June 16, 2023.
This information is intended for informational purposes only. Protector Plans Executive Liability is not liable for any loss or damage arising out of or in connection with the use of this information.
by Creative Communications | Nov 2, 2023 | Industry News
How a few distinctions could impact your business model
The pandemic greatly influenced the growth of the gig economy, upending the traditional 9 to 5 working experience and increasing social reliance on home delivery. Over the last five years, the gig economy grew from a $204 billion industry to over $455 billion in 2023. It’s estimated that about 50% of the U.S. workforce will be freelancing by 2027.
At the same time, the U.S. Department of Labor (DOL) proposed a new rule in October 2022 to redefine who is considered an employee versus an independent contractor.3 After a more relaxed approach to classification under the previous White House administration, this change seeks to align the written law with how case law currently addresses employee classification.
This reversal is already impacting workers and employers across multiple industries, from health care to trucking, construction and delivery.
With this new rule, the DOL seeks to primarily protect workers from the harms of misclassification, but misclassification can also be a challenge to businesses. On top of back wages that may need to be paid if a DOL investigation is found in favor of the worker, federal and state penalties, tax and payroll fines, and even potential for jail time can cause additional challenges for the business and its leaders.
While a 6- to 12-month grace period is expected, businesses who currently incorporate independent contractors into their employment strategies or are considering that business model will need to take into account the revised classification process once it’s approved in order to avoid such penalties.
Check out the rest of our e-book to find out what you need to know.
This information is intended for informational purposes only. Protector Plans Executive Liability is not liable for any loss or damage arising out of or in connection with the use of this information.
by Creative Communications | Oct 2, 2023 | Industry News
By Greg Boornazian, Christie Vu, and Ben Young
High interest rates, rising bankruptcies and increased insurance claims highlight the importance for business owners and directors to secure comprehensive liability coverage. You want to work with an experienced team that offers tailored products, personalized service, and quick turnaround to safeguard businesses from a range of liabilities across various industries.
Directors and officers, as well as business owners and operators of private companies and nonprofits, are being challenged by an array of factors in the world today.
Current high interest rates are impacting the cash flow of small businesses and their ability to borrow,[1] and commercial bankruptcies increased by 19% from the first quarter of 2022 to 2023.[2] Bankruptcies often lead to more directors and officers (D&O) insurance claims, and it’s predicted that cyber and employment practices liability (EPL) claims will rise, too.[3]
These headwinds have led to higher premium costs for business owners, which increased 41% in 2020 and another 38% in 2021 alone.[4] D&O insurance rates have flattened across many standard industry classes for underwriters, but the healthcare, technology and consumer discretionary industries are likely to still pay the highest rates.[5]
With so many potential threats to your company’s success, it’s critical to work with an insurance company that understands your business and the D&O market. Understanding potential exposures, terms and conditions of the policy, and what is considered adequate limits based on each business’ unique risks and exposures, can mean the difference between a steady, growing business and a shaky one. Having the right partner is key.
4 characteristics to look for in an executive liability coverage team
Ideally, when selecting executive liability coverage, you’ll want a single carrier that can handle D&O and ancillary coverages for you to help minimize the potential for coverage gaps. It’s also important that the team exhibits the four main attributes listed below:
1. Experience. The team you choose should be seasoned, with years of experience in the executive liability space. Underwriting maturity is invaluable, as is product experience. The depth and breadth of a team’s experience make it easy for them to tailor the terms to your business, something large groups with inexperienced employees have a hard time doing. Ultimately, your company needs a carrier and an underwriter with a known and trusted name.
2. Flexibility. Because it’s not a given that your organization’s coverage will line up with your exposures, you need an insurer that can appropriately match your business with the proper coverage, regardless of the industry you’re in. You need a team who can tailor personalized coverage to ensure no gaps.
3. Service. As a company, you want a provider that can protect your team and assets and be available when you need it. You want to work with an in-house team that is dedicated to cultivating relationships and that can provide personalized, tailored service throughout the life cycle of a policy, from underwriting to claims.
4. Speed and limited distribution. You want to work with a team that has the personalized relationships and expertise that many automated quoting portals don’t have, but with individuals who can still match their turnaround times. You should expect a 24-hour turnaround from the time you submit an application for underwriting. Many insurance companies focus on the quantity of relationships they have, but quality is much more important.
Enter: Protector Plans Executive Liability Program
B&B Protector Plans’ Executive Liability Program provides coverage for all your business insurance needs. The program offers D&O liability, Employment Practices Liability, Fiduciary Liability, Employed Lawyers, Crime and Miscellaneous Professional Liability coverage for private and not-for-profit risks with up to $750 million in revenue and assets or 2,500 employees. Limits are up to $5 million per coverage section.
B&B Protector Plans has an AM Best Rating of A XV; policies include personalized, non-rescindable, duty to defend coverage. Coverage enhancements designed specifically for professional firms and healthcare are also available.
We cover dozens of industries with Executive Liability policies, including oil and gas, healthcare, hospitality/restaurants, technology, software, consulting, engineering, biotech/pharma and more. When it comes to Miscellaneous Professional Liability, we specialize in advertising services, event planner services, medical billers, printers, property management, travel agents and fulfillment firms.
For a full list of policy features and coverage appetite, and to submit, email [email protected]. Learn more about B&B Protector Plans on our website.
[1] Business News Daily “Interest Rate Increases: 4 Concerns for Small Businesses,” February 21, 2023.
[2] Epiq “Bankruptcy Filings Increase All Chapters in March; Commercial Filings Up 79 Percent Year-Over-Year,” April 3, 2023.
[3] Gallagher “Private and Nonprofit Directors and Officers Liability Insurance: A Transitioning Market,” February 2023.
[4] Risk Management “Boom or Bust: What’s in Store for the D&O Market in 2023?,” February 1, 2023.
[5] Insurance Business Magazine “Are D&O insurance rates “bottoming out” this year?,” June 7, 2023.
This information is intended for informational purposes only. Protector Plans Executive Liability is not liable for any loss or damage arising out of or in connection with the use of this information.
by Creative Communications | Oct 2, 2023 | Industry News
Having a process for when and how to refer patients for complicated cases can help protect your dental practice from potential litigation. Here are some tips for building out a trusted network of specialists and avoiding vicarious liability risks.
By Dr. Ty Galvin, D.D.S., and Dr. Mike Gile, D.D.S.
There is a fine line between when to refer to a specialist for a complicated procedure and when to perform the work yourself. Knowing your strengths and limitations — and those of your network of specialists — can help ensure that you make the best decision for your patients and your practice.
Consider the case of the dentist who worked on a patient’s implants for a bone density issue. The dentist used the wrong size implants, they didn’t integrate properly, and they were not solid in the bone. After the dentist spent more than a year trying to get them fixed and adjusted, the patient still had to have them removed and redone by another provider, which led to an $80,000 claim against the first dentist.
While the dentist in the above case should have referred the patient to a specialist familiar with bone density issues, referring a patient to a specialist’s office for a procedure or condition can also bring risks for the referring dentist. The greatest of those risks is a vicarious liability claim against the general dentist if something goes wrong with the specialist’s treatment. For this reason and more, it is important to select your specialists carefully.
The true costs of a vicarious liability lawsuit — or any other for that matter — lie in the often long and invasive litigation process. It can involve getting publicly served with the lawsuit at work and having documents from discovery available online that detail income, past lawsuit history, and other uncomfortable details. Not only is this embarrassing, dentists could lose work and face increased insurance rates and the potential for non-renewal in the future.
3 Steps for referring to specialists
Patients often trust their dentists’ recommendations when a referral is needed. Having a trusted team of specialists and a process for referrals can set you, your patient and the specialist up for success. Here are three steps to achieve just that:
- Know when to do the work and when to refer it out. Working with specialists allows a general dentist to focus on their own practice so they can perform procedures that best match their preferences and skill sets. If a procedure is not within your level of knowledge, technical skill, your office’s equipment, or lab and staff support, it is best to refer your patient. If you are unsure of what to do, evaluate whether or not the procedure has an inherent high risk of complications. Some scenarios you may want to consider referring out to a specialist include:
- Third molar extractions
- Implant fixture placements
- “All-On-Four” prosthetic restorations
- Intravenous sedation
A specialist’s office would more likely be set up for success and management of problems, should they occur.
- Develop a relationship with your specialists. Check their credentials, look at State Board disciplinary actions, listen to feedback from your own patients and meet the provider(s) before recommending that your patient visits him or her. Determine if they meet the following criteria, through referrals from your peers, past patient experiences and more:
- High quality of work
- Respectful to patients
- Good bedside manner
- Office works well and communicates effectively with your office
Maintain independence so you can ethically choose the best fit specialist as needed. Avoid having specialists buy you lunch or gifts that could have an air of impropriety. Know that kickbacks are illegal, whether they are box seats at a baseball game or a split fee.
- Communicate with the specialist and relay the information to patients. Take time to speak with the specialists who your patients will ultimately use. Have a conversation with the specialist to discuss the patient’s case, get their opinion and discuss the approach to care before referring them or doing the job yourself. This simple step can help prevent issues and resolve any potential problems more quickly.
Remember to convey that information to your patient so they know what to expect. Take time to explain why they are being referred, detail the procedure to be completed, and what they should expect. Educating patients will help them be better prepared for their visit and help avoid miscommunication.
Considering adding a service to your practice?
Many dental practices now are providing additional services such as Botox. Before offering a new service know what is required beyond initial training and certification. Determine how many annual continuing education requirements need to be met. In addition, put protocols in place to keep yourself and staff up to date on industry trends. Even though it is a new service for you, you are still held to the same standard of care for that procedure as other providers who are experts. Consider additional training to have more experience before offering new services to patients.
Review your liability insurance coverage with your agent to ensure it includes the additional services you want to provide. Adding new services or an additional office location to your policy may cost an additional fee.
Whether deciding to refer out to a specialist or to perform the work yourself, or considering adding a new service, keep in mind that the highest standard of care for your patients should guide you to the best approach.
For more information on protecting your practice, contact The Professional Protector Plan® for Dentists @ 800-922-5694, or through the website: protectorplan.com.
This information is intended for informational purposes only. Nothing contained in this publication is, nor is intended to be, legal or dental advice. Professional Protector Plan for Dentists is not liable for any injury, loss, damage or expense arising out of or in connection with the use of this information.
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