Edward A. Lenz, Esq., senior counsel, American Staffing Association
Brittany Sakata, Esq., general counsel, American Staffing Association
Background
Industrial workers are increasingly being placed on job assignments through app-based job platforms and paid by the platform as 1099 workers instead of W-2 employees. Such workers cost much less because the platform provides no benefits and does not pay payroll taxes and other labor costs. This poses significant legal risks for the end users of the workers’ services, who could end up on the hook for those costs, and the workers, who are exposed to potential workplace hazards without workers’ compensation insurance coverage.
Some platforms legitimately may claim that the workers they place are independent contractors relative to the platform. But the end user client of the platform generally cannot make that claim, especially in the case of lower-skilled industrial workers. Industrial workers assigned through job platforms are not in business for themselves and do not exercise independent judgment in performing their jobs. On the contrary, their work is supervised and controlled by the platform client which could find itself on the hook, as a joint employer, for unpaid payroll taxes, overtime wages, and other employment-related costs.
Legal Risks of Misclassification
The legal risks of misclassification are major. Last year, in a case brought by the U.S. Department of Labor, a federal court fined a staffing agency $7.2 million in back overtime wages and damages for misclassifying health care workers as independent contractors. In a news release, the department said it “will not hesitate to bring legal action, pursuing all available remedies, when it finds that an employer has willfully violated the law. Just last month, San Francisco filed a lawsuit against a shift-booking job platform alleging “wholesale misclassification” of hospitality workers and “systemic wage theft with grievous consequences for workers, law-abiding businesses, and the public alike.”
Clients also have found themselves implicated in lawsuits brought against job platforms resulting in costly defense efforts. See, e.g., Perry v. Arise Virtual Solutions, No. C 11-01488 YGR (Jan. 9, 2013) (N.D. Cal.).
Advantages of W-2 Model
A big advantage of using a W-2 staffing agency—which the vast majority are—is that clients do not have to worry about workers’ compensation, unemployment insurance, liability coverage, and withholding payroll taxes for the temporary workers assigned to them. As employers, agencies take care of those obligations, relieving end users of the headaches and potential legal exposure.
Businesses considering using an app-based job platform to obtain workers should verify whether the platform withholds and pays federal and state payroll taxes, provides workers’ compensation insurance, offers minimum health insurance coverage as required by the Affordable Care Act, and issues the workers W-2s at the end of the year. If the platform does not assume those obligations, the user may be responsible as an employer.
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