Thus far in our series Triggers vs Findings of Fact we have focused on identifying events and practices that trigger employee misclassification inquiries and claims.

Triggers are important to recognize and avoid where possible because nobody wants to increase their odds of a formal complaint or inquiry or lawsuit claiming your company has misclassified an employee as an independent contractor. 

Managing Triggers is often difficult because not all triggers can be avoided or controlled by the hiring company.

And often the triggering event can seemingly come out of left field, with no warning.

But Findings of Fact are a very different kind of risk for freelancer hiring companies to manage. 

Findings for our context here are considered case documented evidence:

• About company management practices

• About treatment of a specific worker

• About company intent.

And because we are an optimistic group here at Bubty Compliance Services, let us first say that findings of fact can indeed be positive evidence that supports the company’s classification determination of a freelancer as an independent contractor.

When we consult with customers and partners and when we design compliance solutions, it is our shared goal for this to be the case each and every time!

However, more times than not, the findings of fact that we read about in the news are evidence cited in case summaries or judgements that contribute to or are dispositive to the impropriety of the independent contractor classification.

Understanding what the findings are, how they came to be, and how they negatively impact independent contractor classifications is how we learn and what we will focus on for the remainder of this newsletter series. 

What Do Findings Look Like?

In prior writings of this series, we delved into the various state and federal tests that courts and agencies apply to determine if a worker can or should be classified as an independent contractor or an employee.

Here is a quick recap of the primary factors that all the tests seek to determine in one fashion or another: 

1. Nature and Degree of Control: This is a central factor and seeks to determine which party has the right to and does actually exercise control in the relationship, including:

• How work is to be performed

• Training on integral skills to perform the work

• Supervision of worker

• Where work is performed

• When work is to be performed

2. Opportunity for Profit or Loss: This factor seeks to ascertain whether the worker can realize a profit or incur a loss based solely on how they deliver their work or manage their business. An employee is paid a wage regardless.

3. Integration of the Worker's Services into the Hiring Entity's Business: This factor looks at whether the worker's services are an integral part of the hiring entity's core business operations, if the services are critical or necessary to the business's primary function. If so, it suggests an employment relationship.

4. Permanency of the Relationship: This factor examines the duration of the working relationship and the expectation of continuity. The more permanent it appears the more it appears to be like employment.

5. Independently Established Business: This factor asks if the contractor has established a business and if they manage it accordingly, has the worker invested in the success of the business.

But how do findings of fact contradict these test factors? 

What do the courts and agencies cite as evidence that the above factors have indeed been violated or contradicted?

There is no single, simple answer to these questions.

The best we can do is to examine decided cases and see for ourselves what the courts and agencies call out as relevant and damning findings of fact to substantiate misclassification cases.

Here are several sample cases from a number of different sources that help us see the role findings of fact play in the final decision.

Note that not all relevant details are being presented here, only the case decision, the findings cited, and the test(s) applied. 

Summary & Findings

Instacart Settlement with San Diego (2023)

Instacart agreed to pay $46.5 million in restitution. The lawsuit alleged that Instacart misclassified its "Shopper" delivery workers as independent contractors rather than employees.  

Key Findings Supporting Misclassification 

• Control: Instacart exercised significant control over the Shoppers' work as evidenced by: performance monitoring, providing specific instructions for how to do the work, and setting delivery parameters the workers had to follow

• Integral Part of Business: The Shoppers performed work that was integral to Instacart's core business of grocery delivery.

Test Applied: California's strict "ABC test."

Feld Care Therapy, Inc.  (2023)

Feld Care Therapy was cited by the California Labor Commissioner’s Office for approximately $9 million for willfully misclassifying 1,280 speech, physical, and occupational therapists as independent contractors. 

Key Findings Supporting Misclassification

• Control: The company retained significant control over how the therapists performed their duties - scheduling, patient assignments, methods of therapy.

• Integral Part of Business: The therapy services provided by the workers were central to Feld Care Therapy's business operations.

• Usual Course of Business: The work performed was within the usual course of the hiring entity's business.

• Lack of independent business: The therapists were not operating independently established businesses (i.e. providing services to various clients). 

Test Applied: California's strict "ABC test."

Muniz v. RXO Last Mile Inc. (2024)

A federal district court in Massachusetts has preliminarily approved a $2.9 million misclassification class action settlement with RXO Last Mile delivery drivers. 

Key Findings Supporting Misclassification 

• Control: The company exercised direction and control in connection with how the drivers performed their services.

• Usual Course of Business: The delivery services performed by the drivers were found to be within RXO Last Mile's usual course of business (last-mile delivery and logistics). 

• Independent Trade: The drivers were not customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the service performed.

Test Applied: Massachusetts’ strict "ABC test."

U.S. Department of Labor (DOL) v. Holland Services (2021)

The Department of Labor’s Wage and Hour Division found that Holland Services, an oil and gas land services company, misclassified 700 employees as independent contractors. The company paid nearly $43.3 million in back wages and liquidated damages. 

Key Findings Supporting Misclassification

• Integral Part of Business: The services provided by the “landmen” workers were integral to the company’s business operations.

• No Opportunity for Profit/Loss: The landmen workers' opportunities for profit or loss were determined more by the company than by their own managerial skill or initiative.

• Business Investments: Workers had minimal investment in equipment or facilities compared to the company.

• Permanency of Relationship: The long term and apparent permanent or continuous relationship suggested employment.

• Nature and Degree of Control: The DOL concluded the landmen workers were economically dependent on Holland Services, which suggests control.

Test Applied: DOL’s “Economic Realities” test

Conclusion 

The cases referenced here provide ample evidence that there is more than one way to run afoul of the key classification test factors. 

And the adjudicating bodies leverage a variety of tests to identify and validate their findings of fact in support of misclassification.

Why were these findings found?

 Is there anything the companies could have done to prevent these judgements?

Hint: None of the findings noted above were inevitable or unavoidable.

Quite the opposite is true. 

Next Issue

In our next issue of The Compliance Capsule we will explore how your company can guard against all of these negative findings of fact.

Yes, ALL of them!

Until next Wednesday, stay compliant and be happy.