Articles | Cases

High costs of misclassifications

Independent contractors
Cases regarding the misclassification of independent contractors are unfolding throughout the country. The cases involving FedEx are among the most high profile, which collectively represent more than 27,000 drivers, seeking reimbursement of all the expenses – including wage and other employment-related taxes – they've been forced to pay as a result of being misclassified, a liability that experts estimate exceeds $1 billion. The first summary judgment was issued in June in Illinois and found that the drivers were employees because their delivery work was an essential and necessary part of FedEx's business.

In a separate recently-settled suit, FedEx Ground was cited by the Massachusetts Attorney General's Office for allegedly violating the state's Independent Contractor Law by failing to provide a proper pay stub or Workers' Compensation, and by neglecting to deduct and withhold state income taxes and not paying correct overtime. Under terms of the settlement, FedEx Ground, which denies liability, has agreed to pay more than $3 million, including the significant underpayments, back to Massachusetts' General Fund. Money will also go to the 13 drivers named in the original citation.

Fraudulent misclassification
The owner of a South Hadley, MA roofing company was indicted by a grand jury on July 15 for defrauding his insurance company of more than $107,000 in Workers' Compensation premiums by misclassifying his employees.

Allegedly, the owner lied to his insurance company so he could save money on his Workers' Compensation premiums. The Massachusetts Attorney General indicated that he put the “health and well-being of his workers at risk if any of them were ever injured on the job."

An investigation of the roofing company began after the Massachusetts Insurance Fraud Bureau received a tip from the insurance company regarding the alleged misclassifications.

The investigators found that over a four-year period between May 2004 and May 2008, the roofing company owner had allegedly misclassified his workers as carpenters instead of roofers to avoid paying higher Workers' Compensation insurance premiums.

After he was notified of the “discrepancy,” the owner allegedly told his insurance company that he had a carpentry business and that any roofing was subcontracted to other businesses. The investigators discovered that the owner had employed full-time roofers since his first policy with the insurance company in May 2004 and that in doing so, he had defrauded the insurance company of more than $107,000 in Workers’ Compensation premiums. A court date for the case has been set for October.