Employee fired for filing Form SS-8 may sue

A worker who was fired after admitting to his employer that he filed Form SS-8 with the IRS to determine his status as an independent contractor or employee can continue his lawsuit for unpaid overtime, a federal trial court has ruled. (Coats v. Nashville Limo Bus, LLC, U.S.D.C., M.D. Tenn, No. 3:10-0759, 2010)

It’s independent contractor status or nothing

A corporation treated its drivers as independent contractors. One driver filed an SS-8 form with the IRS to determine his status as an independent contractor or employee. The IRS concluded that he was an employee.

The employee admitted to a manager that he filed the SS-8. The manager told him the company would shut the business before paying overtime to employees. The employee was never again asked to drive for the company. His wife continued to drive until managers got wind of the lawsuit.

The workers brought a class-action lawsuit against the corporation and its managers individually for retaliation for filing the SS-8 and for unpaid overtime.

The managers wanted the individual case dismissed, arguing that under state law, they couldn’t be held liable for the corporation’s actions. The trial court ruled for the employees.

Court: The Fair Labor Standards Act (FLSA) imposes individual liability on managers. At this point in the litigation, the employees have alleged sufficient facts to allow the case to proceed.

Why this case is important, now

This case is at a very early stage, and the company and its managers may yet prevail. However, this case presents some key points:

• Even if the IRS concludes at the end of an SS-8 investigation that workers are employees, employers can continue to treat them as independent contractors if they qualify for Section 530 safe-harbor relief (i.e., employers timely file Forms 1099-MISC and have a reasonable basis for treating the workers as independent contractors). The FLSA has no similar safe-harbor relief, so workers who are determined to be employees must be put on the payroll.
• The tax code doesn’t contain any anti-retaliation provision; the FLSA does.
• Corporate managers can be personally liable for FLSA violations if employees prove that they exercised sufficient control over the corporate operations, and that they were directly involved in the failure to pay employees their correct wages and overtime. The tax code has no similar provision.

THE TAKEAWAY: This case serves as a reminder that the tax code isn’t all-powerful, and that it can be trumped by the FLSA. Certainly, employees’ lawyers will see it that way.

Take some time now to review the status of your contingent workforce. Under the FLSA, workers are employees if their services are integral to the business, the relationship between them and the business appears to be permanent, they don’t invest heavily in facilities and equipment, the business asserts control over them and they have limited opportunities to make a profit or incur a loss, as well as limitations in the amount of initiative, judgment or foresight in open-market competition they can exert.