In an Appeal Board decision, certain tutors for The Learning Shop, Inc. (the “Company”) were found to be employees and not independent contractors. As a result, the Company was liable for unemployment insurance related tax contributions for years covering the audit period. Each misclassification case depends on the facts and the nature of the parties’ working relationship. This blog post generally discusses the Learning Shop decision issued in 2013 but the lessons can be valuable for other industries.
The Company had contracts with 23 school districts in Westchester County and provided tutoring services to homebound students. The Company hired state certified teachers who passed criminal background checks with the Department of Education to provide said services. These certified teachers provided over 90% of the Company’s workforce and there was not dispute that they were employees. The misclassification dispute focused on whether certain tutors for foster care children in a different program were employees or contractors. Under that program, the Company did not use certified state teachers as tutors. During the recruiting process, the Company required the tutors at issue to travel to the Company’s office to complete an employment application providing an employment history and references. The Company also interviewed the tutors and verified their references similar to an employment process. Only after the tutors completed an orientation session were they assigned the tutors for assignments. The Company also provided tutors with rules and procedures contained in an orientation packet. They also provided the lesson plans, time sheets and instructions on how to complete said documentation. The orientation packet and documentation coupled with the Company’s instructions and protocol were critical and showed the level of control and direction that the Company placed on these workers.
Indeed, the Appeal Board stated that the record contained “sufficient evidence that the employer exercised, or reserved the right to exercise, sufficient supervision, direction or control over [the tutors] to establish an employment relationship.” Furthermore, consistent with an employee relationship, the tutors (i) could not assign their responsibilities to a third party; (ii) had to submit regular time sheets; and (iii) were provided a pay rate that was unilaterally set by the Company.
In this case, the critical factors were how the Company treated the tutors at issue. The Appeal Board found that they treated them like employees and, as a result, they were responsible for unemployment insurance tax contributions. This type of finding can have a significant impact for a business aside from the obvious requirement to pay the contributions. For example, a company that was found to have misclassified workers could face additional government inquiry by federal (e.g., IRS) and state agencies and face a lawsuit by the workers. Finally, a company may have to consider adjusting its business model and viability moving forward.
In these cases, it is critical to get experienced counsel from the outset. Our Award-Winning New York Employment Law Attorney has defended companies in misclassification cases and helped to create best practices to prevent such claims. This decision does not mean that every tutor will be considered to be an employee; rather, the nature of the working relationship will be examined closely in every case. There are other cases regarding misclassified as tutors and they will be discussed in future blog posts. One final note, it is worth correcting a common misperception. Even if the Company had a signed independent contractor agreement between it and the tutors that would not have been dispositive. A signed agreement is merely one factor of many and it is not controlling.
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