Yesterday, the Seventh Circuit became the first federal appeals court to extend protections of Title VII to discrimination on the basis of sexual orientation. The decision gives an Indiana professor, as well as other gay, lesbian, and bisexual individuals, the right to sue under Title VII over discriminatory employment practices based on their sexual orientation. According to the Court, “… it is actually impossible to discriminate on the basis of sexual orientation without discriminating on the basis of sex …”
This landmark decision is critical support for the EEOC’s interpretation that Title VII prohibits discrimination on the basis of sexual orientation and gender identity. It also increases the likelihood that the Supreme Court will decide whether Title VII does, in fact, prohibit discrimination on these grounds. Until the Supreme Court rules, however, employers in Illinois, Wisconsin and Indiana should consider the risk of sexual orientation or gender identity discrimination claims under Title VII (in addition to claims under applicable state and local laws prohibiting such discrimination) when making employment decisions. We will keep you posted on further developments relating to this issue.
Two recent developments are a good reminder that companies who have independent contractors are under increased scrutiny and face a high bar in establishing that independent contractors are properly classified as such — and not employees.
On July 15th, the Department of Labor issued a guidance saying that most workers qualify as employees under the Fair Labor Standards Act (FLSA) regardless of what the worker and the company may have agreed to. The guidance doesn’t announce a new test for independent contractor status. Instead, it starts with the “economic realities” test for independent contrator status that courts regularly use and a reads it together with a broad view of the FLSA’s definition of employ to reach a conclusion that most independent contractors are misclassified and should, instead, be treated as employees.
The DOL’s guidance was close on the heels of a decision by the Seventh Circuit Court of Appeals, which reversed the lower court and ruled that FedEx delivery drivers are employees under Kansas state law, not independent contractors. In making its decision, the 7th Circuit certified the question of whether the drivers were employees under the Kansas Wage Payment Act to the Kansas Supreme Court. The Kansas Supreme Court, applying a 20-factor test, found that the drivers were employees because FedEx, among other things, assigns drivers their routes; requires them to check in with FedEx managers at the start of their day; regulates their appearance; and decides whether to hire a driver after the driver submits resumes and references like any other employee.
So what are the consequences of misclassification? Companies that misclassify employees as independent contractors face penalties for failing to pay employment taxes, for failing to withhold taxes from pay, for failing to comply with wage and hour requirements (such as overtime), for failing to contribute to unemployment compensation, and for failing to comply with other employment-related laws. In addition, the Affordable Care Act opens companies that misclassify workers to significant penalties — both based on failure to offer coverage to the required portion of the workforce and where a misclassified worker obtains coverage on an exchange.
In light of these developments, we strongly recommend that any company that has independent contractors work with counsel to determine if these workers are properly classified. A thorough review now could save you lots of money, time, and aggravation later.