Please check out my article, reproduced from the Boulder County Bar Association May 2018 Newsletter
Written Independent Contractor Agreement
A “totality of circumstances” approach is used to determine proper worker classification. Industrial Claim Appeals Qffice v. Softrock Geological Services. Inc.. 325 P.3d 560 (Colo. 2014). The presence or absence of any one factor is not dispositive of the nature of the relationship. For written agreements, C.R.S. § 8-70-115
(c) provides a list of nine factors, which if incorporated into a written agreement, may create a rebuttal presumption of an independent contractor relationship. Specifically, the contract should state that the company does NOT:
1. Require the individual to work exclusively for it;
2. Establish a quality standard (other than providing plans and specifications)
3. Pay a salary or hourly rate (must pay a fixed or contract rate);
4. Terminate the work during the contract period unless the worker breaches the contract or fails to produce specified results;
5. Provide more than minimal training for the individual;
6. Provide tools or benefits to the individual, except that materials and equipment may be supplied;
7. Dictate the time of performance, except that that parties may agree upon a completion schedule and work hours;
8. Pay the individual personally (instead, makes the checks payable to the trade or business name;
9. Combine his business operations with the individual’s business, but instead maintains such operations as separate and distinct.
To create a rebuttal presumption of an independent contractor relationship, a written independent contractor agreement must expressly disclose, in large, underlined or bold-faced type, that the worker is not entitled to unemployment compensation and must pay all federal and state employment taxes. Varsity Tutors, LLC v. Indus. Claims Appeal Office, _ P. 3d _, 2017 WL 3184555 (Colo. App., July 27, 2017).
New Standards for Evaluating Independent Contractor Relationships
In recent years, earnest efforts have been made to consider how technology and the internet have changed independent contractor relationships. In the Colorado Court of Appeals case Varsity Tutors, the alleged employer provided an online platform to connect tutors with prospective students on its website. Varsity took responsibility for connecting prospective students and tutors. Significantly, Varsity and the tutors agreed upon how much Varsity would pay the tutor in advance of arranging the tutoring relationships, and Varsity charged the student a different rate – around twice as much – as compensation for Varsity. The relationship between Varsity and the tutors was governed by written agreements that contained clear disclaimers limiting the extent of Varsity’s control over the tutors. Thus, the only issue was whether the tutors were engaged in an independent business.
The Appeals Panel below had concluded that the workers were NOT engaged in an independent business, by looking at traditional indicia: did they have business cards, websites, actually work for others, have a financial stake in the business etc. From that perspective, the workers would be considered employees, because they lacked those indicia. Of the 22 Colorado employees, most worked a few hours per week and had other “day jobs,” making tutoring more of a hobby business. Nonetheless, considering the totality of the circumstances, the Court of Appeals concluded that the tutors were engaged in independent businesses and were thus properly classified as independent contractors.
In 2016, the unemployment eligibility statute was amended to mandate that the CDLE improve the process of determining worker classification. C.R.S. § 8-70-115(4) was added, requiring the CDLE develop employer guidance, provide additional employer resources, and review and monitor audit results.
Improper Worker Classification Costs
If an independent contractor is later determined to be an employee, a company may be liable for minimum wage and overtime compensation (usually hard to disprove due to a lack of recordkeeping), unemployment and workers’ compensation coverage, penalties for failure to provide those insurances, for vacation pay and employment benefits, for the employer portion of Social Security and Medicare taxes, statutory penalties and liquidated damages under state and federal wage and hour laws, and recordkeeping penalties. Recently, the Colorado Supreme Court clarified that upon termination of employment, a worker may only seek wages that accrued within two years of the date of termination, or three years if for a “willful violation.” Hernandez v. Domenico Farms,_ P. 3d _, (Colo. March 5, 2018, reh’g denied, April 9, 2018).
Prior to Hernandez, C.R.S. § 8-4-109 was interpreted by some to allow departing employees to sue for all wages accrued and unpaid at any time during employment. Effective January 1, 2015, there is a new process for collecting wage claims up to $7,500.00, and there are new penalties, including one for $250.00 per employee per month, up to $7,500 total, for failure to keep itemized payroll records for all employees, for the preceding three years. C.R.S.§ 8-4-103(4.5), C.R.S. §§ 8-4-111 and 111.5. While the Hernandez and Varsity Tutors decisions provide some good news, the landscape remains dangerous for those seeking to avoid the trappings of the conventional employment relationship.
Patricia S. Bellac is a former Co-Chair of the Employment Law section of the Boulder County Bar Association. She can be reached at email@example.com.