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Articles Posted in Employment Law

Recently in a Seventh Circuit Court of Appeals case, Verkuilen v. Mediabank, LLC, the court analyzed the administrative employee exemption to the Fair Labor Standards Act (“FLSA”). 646 F.3d 979 (7th Cir. 2011). Penny Verkuilen was an account manager for Mediabank, which “provides computer software to advertising agencies.” An account manager’s job is to “go out, understand [the customer’s requirement], build specifications, [and] understand the competency level of [the] customers.” Penny spent much of her time on the customers’ premises, training their staff on the software and answering any questions that came up.
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This past summer, the National Labor Relations Board (“NLRB”) issued a series of decisions regarding whether employees were unlawfully discharged for making comments about their employment on Facebook. In all of the cases, the NLRB determined that the employees’ comments were not protected under the National Labor Relations Act. In each case, the NLRB found that the employee’s comments were not considered “concerted activity,” a protected activity where employees may sustain an allegation of unlawful discharge if they are fired for talking with other employees seeking to induce some action regarding their employer.

In Martin House, an employee of a residential facility for homeless and mentally ill patients was fired after making comments on Facebook regarding patients. (Case 34-CA-12950) 2011 WL 3223853 (N.L.R.B.G.C. 2011) . While on duty, the employee had a short online “conversation” on Facebook with a friend. In it, the employee said of a patient, “I don’t know if shes laughing at me, with me or at her voices . . . I don’t need to restrain anyone, we have a great rapport . . . .” The employee was fired shortly after the employer was made aware of the comments, with the employer citing reasons of protecting patients from stigma and protecting their privacy. The NLRB said these comments were not “concerted activity” because the employee did not discuss her comments with co-workers. Co-workers also did not respond to her posts. She was “merely communicating . . . about what was happening on her shift.” For these reasons, NLRB determined she was not unlawfully discharged.
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Review of the IRS 20-Factor Test

The 20 factors identified by the IRS and reported in the publication Joint Committee on Taxation, Present Law and Background Relating to Worker Classification for Federal Tax Purposes (JCX-26-07), May 7, 2007 are as follows:

1. Instructions: If the person for whom the services are performed has the right to require compliance with instructions, this indicates employee status.

2. Training: Worker training (e.g., by requiring attendance at training sessions) indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates employee status).

3. Integration: Integration of the worker’s services into the business operations of the person for whom services are performed is an indication of employee status.

4. Services rendered personally: If the services are required to be performed personally, this is an indication that the person for whom services are performed is interested in the methods used to accomplish the work (which indicates employee status).

5. Hiring, supervision, and paying assistants: If the person for whom services are performed hires, supervises or pays assistants, this generally indicates employee status. However, if the worker hires and supervises others under a contract pursuant to which the worker agrees to provide material and labor and is only responsible for the result, this indicates independent contractor status.

6. Continuing relationship: A continuing relationship between the worker and the person for whom the services are performed indicates employee status.

7. Set hours of work: The establishment of set hours for the worker indicates employee status.

8. Full time required: If the worker must devote substantially full time to the business of the person for whom services are performed, this indicates employee status. An independent contractor is free to work when and for whom he or she chooses.

9. Doing work on employer’s premises: If the work is performed on the premises of the person for whom the services are performed, this indicates employee status, especially if the work could be done elsewhere.

10. Order or sequence test: If a worker must perform services in the order or sequence set by the person for whom services are performed, that shows the worker is not free to follow his or her own pattern of work, and indicates employee status.

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Deficits are high, and taxes need to be higher to pay the high costs of government. But raising taxes is politically difficult. So, where can the IRS look to increase revenues? The “tax gap”.

The Tax Gap Misclassification Solution

On February 4, 2009, “TIGTA” (Treasury Inspector General for Tax Administration) issued a report and recommendation noting, among other things, that the IRS has not done a comprehensive study of work misclassification since 1984. In that year, the IRS had estimated that misclassified employees accounted for understatement of FICA, federal withholding, and unemployment taxes of approximately $1.6 billion. According to the TIGTA report, that underpayment is now estimated to be around $2.72 billion. This is one of the reasons that the TIGTA report recommended that the IRS should conduct a study (meaning audits):

Recommendation 2: The Deputy commissioner for Services and Enforcement should consider conducting a formal National Research Program reporting compliance study for employment taxes that includes measuring the impact of worker misclassification on the tax gap.

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Effective July 1, 2011, Indiana’s much disputed Senate Bill 590 became law. This bill has been hotly contested since its inception for its harsh response to illegal immigrants in Indiana and those who employ them. Certain provisions are still being litigated in court. Although the bill has been watered down from its most extreme provisions, it still contains many changes to Indiana’s existing law. The hallmark of this Bill is the E-Verify Program, a program electronically verifying the work authorization status of newly hired employees. As of July 1, 2011, all state agencies, political subdivisions, businesses seeking more than a $1000 grant from a state agency or political subdivision, and all contractors and subcontractors entering into or renewing a public contract are required to enroll in and participate in this program for all new hires. Some businesses falling within the purview of participation in E-Verify also have to sign an affidavit stating they do not knowingly employ an unauthorized alien. Many also have to provide documentation of their participation in E-Verify. If businesses with public contracts do not comply with this new program and requirements, that contract will be terminated after thirty days, or as soon as is feasible, if this violation is not remedied. The business will then be liable for actual damages. The government may also file a civil action for reimbursement of unemployment insurance benefits paid to an employer that knowingly employed an unauthorized alien.
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