WHAT TO

DO BEFORE

AND WHEN TH

E

DEPARTMENT O

F

LABOR COMES

CALLING

Daniel D. PipitoneChairman – Energy & Maritime Section

DOES ANYONE WORK FOR THE UNITED

STATES DEPARTMENT OF LABOR?

EMPLOYEES VS. INDEPENDENT CONTRACTORS

PREVALENT USE OF INDEPENDENT CONTRACTORS

INDEPENDENT CONTRACTORS

Company MenDirectional DrillersField ConsultantsGate AttendantsLand MenPipeline ManagersPumpers

OTHER INDUSTRIESCable CompaniesCommercial TruckingJanitorial/Cleaning ServicesOvernight Mail DeliveriesPostal DeliveriesTaxisTelephone Line/Tower

Repair Services

REASONS FOR USE OF INDEPENDENT CONTRACTORSPersonal Preference of Independent

ContractorSpecialized SkillsPeriodic/Sporadic EngagementSpecialized/Expensive EquipmentRelinquishment of Control - LiabilityBusiness Model

PATIENT PROTECTION AND AFFORDABLE CARE ACT/OBAMACARE

FAIR LABOR STANDARDS ACT ENACTED IN 1938

Differentiates between Employees and Independent Contractors

Mandates Wage Rates and Overtime Wages for Employees

Provides Penalties for Noncompliance (Misclassification)

UNITED STATES DEPARTMENT OF LABOR

2009 ANNOUNCEMENT OF INITIATIVE

CONVERSION OF INDEPENDENT CONTRACTORS TO EMPLOYEESINTER-AGENCY COOPERATION

“Used intentionally by employers to…avoid various laws designed to create protections in the workplace.”

MISCLASSIFICATION IS PERVASIVE

THE MIGHT OF THE GOVERNMENT

AVOID INVESTIGATION AND PROSECUTION

PROTECTIVE MEASURES TO ENSURE COMPLIANCE

VULNERABILITY

BUSINESS DISTRACTION

AVOID BACK PAY AND PENALTIES

AVOID APPLICATION OF OTHER LAWS

FIVE FACTOR ANALYSISControl and Supervision Exerted over an

IndividualComparison of the Relative Investments of

the Individual and BusinessOpportunity for Profit or Loss by the

IndividualSkill and Initiative Required by the

IndividualPermanency of the Relationship

NO ONE FACTOR IS DETERMINATIVE

STATUS IS DEPENDENT UPON THE TOTALITY OF CIRCUMSTANCES

CONTROL AND SUPERVISION EXERTED OVER AN INDIVIDUAL

Independent Contractor AgreementAvoid Uniforms and Company Colors/LogosAvoid Job DescriptionsExercise Care with Respect to DirectivesQuality Control and SafetyAlter the Source of DirectivesTermination of RelationshipRelevant Licensing or Other LawsWebsite/Advertisement Terminology

MANAGE BUSINESS UTILIZING INDEPENDENT

CONTRACTORSSCRUTINIZE INDEPENDENT CONTRACTORS BEFORE

RETAININGCOMMUNICATE WITH

CLIENTS

COMPARISON OF THE RELATIVE INVESTMENTS OF THE INDIVIDUAL AND

BUSINESSConduct an AnalysisInclude Expenses Related to the Provision of a

Service?Marketing and Administrative Expenses?Factor in Depreciation – Depreciation not

Applicable to All Assets

Shift Burdens to Alter Analysis

OPPORTUNITY FOR PROFIT OR LOSS BY THE INDIVIDUAL

Amount of Compensation Should be Negotiable

Volume/Frequency of Work by Independent Contractor

Management of Expenses is Responsibility of Independent Contractor

Availability of Tax Deductions to Independent Contractor

Side Businesses of Independent Contractor

Subcontractors of Independent Contractor

SKILL AND INITIATIVE REQUIRED BY THE INDIVIDUAL

Education and Vocational TrainingVocational/Professional LicensingExtent of Work ExperienceWork EthicAfford Discretion to Execute and InitiateAllow Innovation

PERMANENCY OF THE RELATIONSHIP

Independent Contractors have Freedom to Work for Others

Independent Contractors are Empowered to Renegotiate Terms of the Relationship

No Retaliation if Independent Contractor Terminates the Relationship or Declines an Assignment

Duration of Relationship Varies between Independent Contractors

1099s vs. W-2s

ENFORCEMENT TACTICSInexperienced InvestigatorsUnannounced/Early AppearancesDemands for Documents without SubpoenaPersonal DocumentsPredisposition of Liability – Rush to JudgmentInvestigators Calculate Damages Prior to

Conclusion of Investigation Investigators Conduct no Background Check of

Whistleblowers/Witnesses

ENFORCEMENT TACTICSInexperienced InvestigatorsUnannounced/Early AppearancesDemands for Documents without SubpoenaPersonal DocumentsPredisposition of Liability – Rush to JudgmentInvestigators Calculate Damages Prior to Conclusion of

Investigation Investigators Conduct no Background Check of

Whistleblowers/WitnessesInvestigators Selectively Utilize EvidenceInvestigators Motivated by Bonus System

THE RIGHT-TO-KNOW RULE

Company Reporting Requirement to United States Department of Labor

Enumerate Employees and Independent Contractors

Explain/Justify Characterization as Independent Contractor

United States Department of Labor Analyzes and Determines Whether to Pursue Enforcement

First considered by Secretary Hilda Solis - implementation delayed for Presidential Election – Nominee Thomas Perez strong advocate.

Incorrect AnalysisUnintentional AdmissionsBoth shall provide evidentiary value in subsequent

enforcement action

Focus should be upon Five Factor AnalysisCreate Favorable EvidenceUtilize Well-Versed Professionals

EXERCISE CARE

DON’T LAY DOWN!!!!

Negotiation approach of the United States Department of Labor is to first require admission of misclassification before discussing back pay and overtime wage amounts, as well as penalties

Availability of the JudiciaryFinancial and Emotional Wherewithal Required –

Might of the GovernmentProactive vs. Reactive – “The best defense is a

good offense”United Stated Department of Labor Appearance of

Invincibility has been Eroded

GATE GUARD SERVICES, L.P. VS. THE UNITED STATES DEPARTMENT OF LABOR

First United States Department of Labor Misclassification Loss in Seventy-Five Years

Wall Street Journal, Forbes Magazine, Fox News, Houston Business Journal, Trade Journals, Newspapers

Initiate Litigation for Advantages as Plaintiff

Whistleblower/Witness Investigation – Pedophile, KKKInvestigator without Experience and Rushed to Judgment – Bar

Acquaintance

United States Army Corps of EngineersIndependent Contractor Agreements – Preference

GATE GUARD SERVICES, L.P. VS. THE UNITED STATES DEPARTMENT OF LABOR

(CONT.)IRS ReturnsStatements of ClientsStatements of Independent ContractorsEmails, Memos and Letters of Direction to Independent

ContractorsAnalysis of Relative InvestmentsIndependent Contractors formed CorporationsSubcontractors of Independent ContractorsRelief“Snow birds”

AURA OF INVINCIBILITY OF UNITED STATES DEPARTMENT OF LABOR ERODED

COURT COSTS AND ATTORNEYS’ FEES SOUGHT

“WINNING TAKES CARE OF EVERYTHING.”

- NIKE / TIGER WOODS