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  • June 21, 2019

    Consequences of Misclassifying Workers as Independent Contractors

    Independent contractor misclassification is a growing issue in Wisconsin, and can lead to complications when a worker is injured on the job. Matthew Lein discusses the potential consequences of misclassifying workers in Wisconsin.

    Matthew C. Lein

    concerned construction worker

    Wisconsin workers’ compensation lawyers are seeing a growing number of cases where injured workers have been misclassified as independent contractors, denying them access to workers’ compensation benefits.

    Unfortunately, abuse of the system is most often found in the construction industry and some of the state’s other dangerous occupations. Very few of these workers are legitimate independent contractors; most are entitled to workers’ compensation benefits as a matter of law.

    Injured workers who are improperly classified as independent contractors may even have a legitimate third-party liability claim against an employer after being injured on the job.

    In 2017, Harvard Business Review reported that employee misclassification skyrocketed with the rise of the gig economy. The number of independent contractors increased by more than 40 percent in the last decade as misclassification has become a widespread problem, impacting millions of workers, according to the Internal Revenue Service. The rise of the digital economy has exacerbated the problem, as companies like Uber have been forced into $100 million settlement agreements for misclassifying their workforces.

    But the issue of misclassification makes seeking qualified legal help essential for injured employees seeking to collect benefits – which is not what the law intended when it was established more than a century ago.

    Employers gaming the system are opening themselves up to significant legal liability as the legal community continues to grow more adept at deploying measures to protect hardworking Wisconsin families.

    Workers’ Compensation and Independent Contractors

    The Wisconsin Workers’ Compensation Act (Wis. Stat. section 102.01) was adopted in 1911. It requires employers to promptly compensate workers for injuries suffered on the job, regardless of fault.

    Matthew C. Lein Matthew C. Lein, Marquette 2011, is a partner with Lein Law Offices, LLP, in Hayward, where he practices in consumer, personal injury, and workers’ compensation law.

    The law is meant as an “exclusive remedy,” which generally means employees are prohibited from suing an employer for additional damages. The intent of the law was to provide injured workers with medical benefits and lost wages in a timely fashion, while protecting employers from the ruinous effects of personal injury or wrongful death judgments.

    Classifying workers as an independent contractor denies them such benefits, by claiming workers are self-employed (and thus are responsible for their own benefits).

    But employers can’t have it both ways: an injured independent contractor is not prohibited from filing a third-party liability lawsuit for damages, which proceeds in the same manner as a traditional personal injury or wrongful death lawsuit.

    Defining an Independent Contractor

    In reality, few Wisconsin workers meet the qualifications for classification as an independent contractor.

    Under Wisconsin law, an independent contractor must run his or her own business and perform work for hire.

    Wis. Stat. section 102.07(8) outlines a number of conditions that must be met to consider an employee an independent contractor. A worker must meet each condition to be classified as an independent contractor:

    • maintain a separate business, including filing a federal employment identification number (EIN) or self-employment income tax return with the Internal Revenue Service;

    • operate under contract or piecework rate, with control over the time and method of performing the work;

    • be responsible for their own operating expenses;

    • be responsible for satisfactory work performance;

    • be subject to profit or loss from performance of contract work;

    • incur business liabilities or obligations; and

    • succeed or fail based on business income and expenses.

    Failure to satisfy any one of these conditions means the worker is not an independent contractor, but an employee entitled to workers’ compensation benefits.

    The Wisconsin Department of Workforce Development offers a number of resources to help employers determine if workers are independent contractors.

    Consequences of Misclassification

    Unfortunately, it’s not a lack of understanding that results in many workers being misclassified, but rather a cost-cutting move by employers who game the system by not purchasing workers’ compensation insurance. Misclassification also allows unscrupulous businesses to sidestep wage and hour laws, avoid paying overtime or unemployment benefits, and ignore safety regulations.

    In cases of misclassification, these businesses are exposing themselves to additional liability, as third-party liability claims can seek damages for pain and suffering and other noneconomic not available through a traditional workers’ compensation claim. Violations of employment and tax laws may also lead to legal liability and allegations of tax fraud.

    However, misclassification puts the responsibility upon injured workers to seek qualified legal help in order to obtain all of the benefits to which they are entitled under the law.

    This article was originally published on the State Bar of Wisconsin’s Litigation Section Blog. Visit the State Bar sections or the Litigation Section web pages to learn more about the benefits of section membership.

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    Litigation Section Blog is published by the State Bar of Wisconsin; blog posts are written by section members. To contribute to this blog, contact Matthew Lein and Heather L. Nelson and review Author Submission Guidelines. Learn more about the Litigation Section or become a member.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

    © 2024 State Bar of Wisconsin, P.O. Box 7158, Madison, WI 53707-7158.

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