Client Alert - Employment Law Update
Federal Court Assesses Significant Penalties Against Corporate Officers for Misclassifying Workers as Independent Contractors
The U.S. District Court for the Northern District of Illinois recently entered a $200,000 judgment against an Illinois business and its officers for failing to pay overtime to misclassified workers.
The case of Solis v. International Detective & Protective Service, Ltd., No. 09 CV 4998 (May 24, 2011) began when the U.S. Department of Labor (DOL) investigated a local, closely-held security services company for compliance with the Fair Labor Standards Act (FLSA). The DOL concluded that 57 security guards were actually employees, and not independent contractors. As a result, they were entitled to overtime pay under the FLSA. The DOL filed suit against the company, its president/sole shareholder, and the chief operating officer.
As discussed in an earlier Client Alert, courts look beyond labels to determine if a worker is an employee or independent contractor, and apply a multi-factor test. Thus, agreements signed by the security guards, intending to designate them as independent contractors, provided no defense. The Court conducted the factor analysis, and found the security guards to be employees.
However, the Court went further. The definition of "employer" under the FLSA is broad. Because of this, courts have found individuals with significant ownership interests, day-to-day control of operations, and involvement in the supervision and payment of employees to be personally liable under the FLSA. It was no surprise, therefore, that the officers were each held individually liable for the $200,000 judgment because of their leadership positions and daily oversight of operations.
What to Do
This decision illustrates the serious ramifications of misclassifying workers to both employers, and their owners and members of management. Employers should evaluate their use of independent contractors to minimize not only the risk associated with investigations by government agencies, but also potential liability under employment statutes.
If you would like more information about this decision, or have questions about your employment policies and practices in general, please contact Mr. Gonzalez at 312-558-9779 or at egonzalez@elvisgonzalezltd.com.
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