DENIS S. KENNY ATTORNEY, SCHERER SMITH & KENNY LLP

2016: THE CURRENT & FUTURE STATE OF INDEPENDENT

CONTRACTOR COMPLIANCE & USAGE

AGENDA • Effects and implications of U.S. Department of

Labor Administrator’s Interpretation No. 2015-1 • Misconceptions that lead to misclassifications: “on

demand companies” in the “sharing” or “gig” economy

• Consequences and ways to reduce risks of misclassification

• Prognostication for 2016 and beyond. . .

EVOLVING & DIVERSE LEGAL STANDARDS

No Single Federal or State Test

“NEW” WAGE & HOUR ADMINISTRATOR’S INTERPRETATION

• On July 15, 2015, United States Department of Labor, Wage and Hour Administrator issued Administrator’s Interpretation No. 2015-1 (“Interpretation”).

• This test looks to whether worker is economically dependent on or independent of the hiring company (the “Company”)

• Interpretation’s message is clear: most workers are employees under FLSA, not independent contractors.

REAL LIFE EXAMPLES

Agencies, courts and juries frequently apply the same test with differing results.

MISCONCEPTIONS • “The worker wants to be an independent contractor.” • “The worker created a LLC or S-Corp to do business

with us.” • “We have a written contract.” • “The worker only performs occasional services for us.” Reality: Classification is a legal determination that parties cannot displace by a written contract. “Form over substance” will not be allowed.

WHY IS THIS TOPIC IMPORTANT RIGHT NOW?

CAUSE: $2.7B “Tax Gap” EFFECT: Government Focus on misclassification and enforcement

Increased legislation at federal and state level • Inter-agency (state and

federal) cooperation is growing.

• Upsurge of audits tied to DOL budget increases

LESSONS FROM THE UBER & LYFT CLASS ACTIONS

• Comments from “the bench.” • Settlements without closure. • RESULT: misclassification tests are antiquated

and uncertainty remains!

CONSEQUENCES OF MISCLASSIFICATION Everyone is a potential adversary • Government agencies • Plaintiff lawyers • Customers • Unions • Workers’ compensation carrier • Contractors themselves

POSSIBLE PENALTIES & COLLATERAL DAMAGES Overview of Possible Penalties and Collateral Damages • Total of Unpaid Taxes • Penalties • Fines • Punitive Damages • Compensatory Damages • Liquidated Damages • Equitable Relief • Back-Pay • Reinstatement • Expenses including attorneys’ fees and costs (even a “win” will be costly!)

SINGLE WORKER MISCLASSIFICATION CASE Defense of case: Expect to pay $200,000+ in your attorneys’ fees, alone!

$$$

PROGNOSTICATION: WHAT MIGHT THE FUTURE HOLD

Pending State and Federal Legislation • The California 1099 Self-Organizing Act (AB 1727) • H.R. 2483: Independent Contractor Tax Fairness and

Simplification Act of 2015 The Future: Need for Legislative Creation of a “New” Type of Worker? • The “Dependent Contractor” • Licensed or certified “self employed” worker(s)

QUESTIONS?

Please feel free to email or call me with any follow-up questions or comments

about this presentation. Thank you,

Denis Sullivan Kenny (415) 433-1099

140 Geary Street, 7th Flr., San Francisco, CA 94108 denis@sfcounsel.com

http://www.sfcounsel.com/