Each day, employers are faced with many dilemmas relating to operating both legitimately and lawfully. One of the most vexing issues is how to classify a worker. Recently, the decision made by the employer has reached heightened significance, seemingly in lockstep with agency enforcement efforts and penalties. More recently, I authored an article based upon my experience in employee classification matters relating to a pyrotechnics display operator. The article explained that many of the determinations made by the administrative law judge and, subsequently, the appellate court, are equally applicable to other display operators and, by extension, other groups of employers.
The case in New York was also the subject of examination at a recent industry gathering in Nevada, and I reviewed the seminar materials. It is my humble opinion that the thrust of the seminar seems to explain that, notwithstanding the decision from New York’s Appellate Division (essentially, a court of final review for most legal disputes in NYS), it is too risky for fireworks display operators to do anything other than classify all pyrotechnics workers as employees. While the safest and most expensive option may be to err on the side of caution, it is not likely to be the most sensible or rational legal option for everyone. I am fond of saying that a lawyer’s job includes identifying available options for a client to consider while it is the client’s prerogative to select the option to pursue based upon one’s appetite for risk; some clients are risk adverse while others are risk takers. The following thoughts should add clarity to the issue of determining employee classification.
The recent New York court decision finding certain workers with pyrotechnic skills and credentials to be independent contractors is not a panacea. Due to the reality that worker classification disputes are by their very nature fact specific the decision may be limited in scope to the facts before it but, interestingly, it has far-ranging significance for the industry. The ‘shared’ economy, led by Uber, is only heating up the world of worker classification, and the fireworks industry is not immune. While the department of labor may promulgate criteria to be used for determining whether or not a worker is an employee or, rather, an independent contractor, the courts, however, are ultimately responsible for interpreting the criteria and for applying it to the facts before it. The courts continue to put teeth to the guidelines regarding how to properly classify a worker. In New York, the agency’s administrative law judge and the state’s appellate court both agreed with the employer under the set of facts presented. This set of facts can be, and has been, successfully replicated, with businesses realizing savings far exceeding the modest costs of implementation.
Erring on the side of caution in terms of classifying all workers as employees has two substantial negative effects: one is increased payroll costs and the other is increased exposure to liability claims. Employers should evaluate every worker as both a real and ever-present expense and liability exposure and only a potential source of revenues. It should be evident that independent contractors are, more likely than not, less expensive to employ than adding another worker to the payroll as an employee. For example, administrative, training and retention expenses for employees are likely avoidable for independent contractors. Indeed, significant costs savings is one of the primary reasons that employers may prefer to classify a worker as an
independent contractor. In a competitive marketplace, savings in labor can be the difference between success and failure, and fireworks displays qualify as a labor intensive activity.
Many employees also present substantial and unnecessary liability exposure. Unlike independent contractors, every worker that is classified as an employee is a direct and ever-present source of liability; and, presumably, your weakest employees present the greatest risk of lability exposure. It is important, however, to understand that not every worker is performing an identical set of duties. Accordingly, it is essential, and highly valuable, to periodically conduct (every 3-5 years) a formal worker audit that takes into account all of the distinct activities that each worker actually performs as opposed to the skills each worker possesses.
Employers are likely to be throwing away good money by erring on the side of caution by dumping all workers into one group, as employees, especially when courts continue to determine that not every worker is an employee. A careful and prudent employer exercising business judgment can and should take advantage, as well as seek the protections, of judicial determinations to reap significant costs savings while also lessening its current exposure profile, insurance premiums and payroll obligations.
In conclusion, to err (on the side of caution) may be, as they say, ‘divine’, but there are more profitable ways to legitimately and lawfully operate a business. Consult with an individual experienced in employee classification matters to determine the savings to be derived through fine-tuning your worker classification profile.