Independent Contractor Definition in Florida
The criteria for determining the distinction between independent contractors and employees have evolved, both in judicial decisions and by statute. Historically, courts were more inclined to find that a particular worker was an employee, as opposed to an independent contractor. This was the case even though the employer might not perceive the worker as an employee. Today, the tendency is to find independent contractors in all but very close relationships.
Section 440.02(15)(c), Florida Statutes, provides a list of factors to consider when determining whether a person is an independent contractor. The notion is that one and only one factor must be met to allow a finding that a person is an independent contractor. However, the factors can be read to mean that all will usually be considered, meaning that multiple factors may apply to a given situation. An independent contractor is defined as a person who performs services in the course of an independent enterprise or business. As to such individuals, the statute lists, in part, the following factors:
Also , the statute addresses the generally recognized independent contractor common law test and directs that, if a judge decides that a worker is an independent contractor, the statute becomes inapplicable.
The statute provides a specific exemption in favor of real estate salespersons and brokers who are independent contractors working under a broker’s supervision. Such workers are authorized to perform those activities usually assigned to independent contractors, whether the hearing officer believes they are independent contractors under the common law test or statute.
The statute also addresses relationships and types of workers that are not considered independent contractors. This list includes: (1) a person who is employed by an employer and not an independent contractor, (2) a person who qualifies as an independent contractor, but is deemed an employee, (3) a person who is an independent contractor, but is treated as an employee, and (4) a person who has been elected or appointed to public office or is a member of a legislative body.
Florida’s ABC Test and Provisions
Generally, unless the dependencies exist, the courts, state and federal, apply the common law right of control test. However, the Florida Legislature has enacted a statutory test applicable to workers’ compensation claims and unemployment claims, with respect to the department of revenue with regard to tax liability and corporate business owners and directors and in wage theft ordinances enacted in some municipalities.
A. The ABC Test
The "ABC" test is intended to be a simplified standard for the determination of independent contractor status and to provide some uniformity in the determination of that status.
The criteria are:
A. That the individual is free from control or direction by the employer in connection with the performance of the service;
B. That the service is performed outside the usual course of business of the employer; and
C. That the individual has an independently established trade, occupation, profession, or business.
The Department of Economic Opportunity shall give equal weight to Criterion (B) as to the other two criteria. Only if all three criteria are established can it be found that an individual is not an employee of the person for whom services are performed.
B. Other Standards
- Workers’ Compensation
- Unemployment Compensation
- Tax Liability
Independent Contractors’ Rights and Obligations
In Florida, independent contractors have a set of rights and responsibilities that are distinct from those of regular employees. Since independent contractors are self-employed, they assume a range of obligations that employees do not bear, but they also receive protections unique to their work arrangement.
A major responsibility of independent contractors in Florida is to file their income taxes according to their 1099 deadline. Unlike W-2 forms, 1099 forms are issued when an individual or business makes a non-employee payment of $600 or more. Employers (the clients of independent contractors) must issue a 1099 if they made such a payment, and the independent contractor is then responsible for reporting the income to the IRS on his or her tax returns.
While Florida does not have a state income tax, independent contractors in Florida still owe self-employment tax. Independent contractors will have to pay a self-employment tax of 15.3% of their net income. This will then be deducted from their tax returns.
Further, Florida independent contractors must insure that they have all required local, state and federal business licenses. Depending on your area of business, you may need several licenses in different jurisdictions.
Like with all employment in Florida, Florida independent contractors have the right to be free from workplace discrimination in accordance with the Florida Civil Rights Act of 1992, which prohibits discrimination on the basis of race, color, religion, sex, national origin, age, handicap or marital status. Independent contractors also have the right to file for unemployment benefits when applicable under the Florida Unemployment Compensation Law.
The Florida Workers’ Compensation Law specifically provides that independent contractors have no right to file for workers’ compensation benefits. Employers should be aware of this distinction, because an independent contractor who files for workers’ compensation could be subject to penalties.
Independent contractors in Florida may also file for unemployment benefits in certain circumstances. For instance, if an independent contractor is terminated during a reduction in force and subsequently applies for unemployment benefits, he or she may be able to collect those benefits.
Contractual Obligations and Best Practices
When it comes to Florida labor agreements, whether for employees or independent contractors, we are strong proponents of having a written contract. There are some labels that lawyers use when drafting agreements that can be confusing, so let’s start with some definitions. An "Independent Contractor Agreement" is an agreement between a business and an individual who sells his or her services to the business. The nature of the agreement would be the same if the individual provided services on behalf of a company. A "Service Agreement" is similar but not completely the same. Typically, a "Service Agreement" is between a business and a company that provides services to the business. It is not clear that a "Service Agreement" with an independent contractor is truly a "service agreement," since the difference may or may not be the way the IRS recognizes the relationship. To avoid this confusion, we typically call an agreement between a company and a service provider – even if the service provider is a sole proprietor – an "Independent Contractor Agreement." However, there are many Contracts that are called "Service Agreements," which are not true service agreements.
Since there is no formal training or licensing for independent contractors in Florida, hopefully an independent contractor agreement will make clear what activities and expectations the business has of the independent contractor. Even without independent contractor laws to apply, it is important to clarify the requirements for the relationship.
Generally, there are eight primary provisions that a good independent contractor agreement should have, in Florida, or elsewhere:
- Legal names of parties.
- Consideration or payment.
- Expenses to be paid by whom.
- What services will be performed.
- When the services are performed.
- Confidentiality obligations of independent contractor.
- Scope of work may need to be defined, and the term of the agreement may need to be defined.
- Compliance with immigration laws (the I-9 form).
Again, there are many other provisions that are important in a Florida Independent Contractor Agreement. A well-drafted agreement can avoid a lot of unfortunate problems and expenses later down the road. We hope this discussion of the background information and practical considerations will help you in recognizing important factors when drafting or implementing an Independent Contractor Agreement.
Potential Penalties for Misclassification
Misclassifying workers as independent contractors instead of employees carries quite a few consequences for companies. Frustratingly for companies, employees do not necessarily need to prove they were misclassified in order to successfully sue their employer. Instead, the burden on employees in an independent contractor misclassification lawsuit is much lower. The burden is on the company to prove it terminated its relationship with the worker when the workers hit the legal mark for overtime requirements (more than 40 hours worked in a week) as opposed to the worker being required to prove he or she did not meet the 40-hour weekly threshold. If the worker wins, the company has to pay unpaid overtime wages plus damages, attorneys’ fees, court costs, and any other damages the jury finds just and proper. If that sounds harsh, it gets much harsher if the federal Department of Labor on the state of Florida sues the company. This kind of lawsuit is called a "311 Complaint," derived from the statute giving the DOL the authority to crack down on unpaid over time. Not only does the company owe back overtime wages and other damages, the DOL will seek to pick up and remit to the United States government 100% of all damages awarded by the jury that would otherwise go to the employee. Again, this does not sound like much of a penalty, but there is one small catch. Companies always complain that lawyers get huge fees from lawsuits. Well, in the case of the DOL suing a company for unpaid overtime, the workers’ attorney gets the same fee as someone who successfully sues a company under the Fair Labor Standards Act. Plus, the company pays the DOL’s attorneys’ fees, which can be significant and often amounts to multiple thousands of dollars. Adding insult to injury, if the company is a repeated offender, the DOL seeks to put the company on its "hot list," preventing their company from ever winning government contracts again. This is true whether or not the independent contractors are at all involved with providing any services to the government. Furthermore, the DOL’s Office of Federal Contract Compliance Programs is another administrative agency that will add to the company’s headaches by investigating the company for discrimination charges brought by employees. Beyond just overtime issues, multiple employment issues are triggered by misclassifying workers as independent contractors. This includes questions about immigration laws, such as who can and cannot work legally in the United States; unemployment compensation; and workers’ compensation premiums. For example, misclassification of employees and workers’ compensation do not mix . Essentially, a workers’ compensation claim is filed by the employee with his or her workers’ compensation insurance company (either provided through the company or compulsory workers’ compensation). However, if the company misclassifies workers as independent contractors and instructs the insurance company to decline to cover the claim based on the fact the worker in question was an independent contractor, that can be problematic. This problem can become costly if the workers’ compensation insurance company (and policy) does not properly expire without a runoff period to pick up any new claims associated with the injury. If this happens, the workers’ compensation carrier will simply end up contesting the coverage, the company will be stuck on the hook for the medical bills, and the company will lose bad faith if the workers’ compensation insurance company successfully contests coverage. Likewise, the company cannot avoid other types of liabilities with employees by simply mislabeling them as independent contractors. Businesses frequently try to classify employees as independent contractors to save on un-reimbursed expenses, medical benefits, wage garnishments, and corporate taxes. However, misclassifying workers has real-life repercussions that far outweigh any short-term business advantages.
A few points to leave you with before I close this section. First, never think you are outside the risk of misclassification just because the lawsuit focuses on overtime issues. Federal law requires companies to pay overtime wages to anyone who works more than 40 hours per week or the salary for the week, whichever is greater. That means people in all kinds of jobs may be misclassified as independent contractors. It does not matter that you do not think you make enough money to be classified as an employee or to earn overtime wages. We regularly see overtime claims from seemingly odd parties, such as mortgage underwriters, loan applications reviewers and assistants, office assistants, computer programmers, truck drivers, custodians, maintenance workers, and lawn care workers. Indeed, some of the latest cases involve restaurant workers working less than 35 hours but still winning sizeable overtime judgments. Second, the misclassification consequences under Florida law vary more than federal law, often in favor of the employees. In Florida, an employee can collect wrongful termination damages, emotional distress, and front wages, all of which are usually not covered under federal law. For these reasons, employers in Florida must face serious risks when mislabeling workers as independent contractors.
Recent Case Law in Florida
In October 2018, the Eleventh Circuit Court of Appeals held in Dees v. Hydradry, Inc. (Case Number 16-12227) that the trial court failed to apply the appropriate legal standard when it found that a service technician was an independent contractor under Florida law. The plaintiff’s complaint alleged an unlawful kick-back scheme. He alleged that the employer-filing fees with the clerk functioned as a commission to the employee by artificially inflating the filing costs. The employee further alleged that he was entitled to those fees under Section 448.07(2) of the Florida Statutes because the employer paid the filing fee even when there were no underlying lawsuit. The court of appeals reversed and remanded for application of the proper legal standard because the trial court "effectively rejected the fact that the plaintiffs alleged a kick-back scheme."
On October 19, 2018, in Mendes v. Digital Dog Cards LLC, CASE NO. 3:17-cv-511-J-20PDB, 2018 WL 5263199 (M.D. Fla. 10/19/2018), the U.S. District Court for the Middle District of Florida, in considering the applicability of the FLMA claims against HD Supply, Inc., as a joint employer, evaluated the five-part "economic realities test" which includes: "1) the nature and degree of control by the employer over the manner in which work is performed; 2) the opportunity for profit and loss; 3) investment in the business by the worker; 4) whether the work performed requires special skill; and 5) the permanence or duration of the working relationship." The district court found that Digital Dog controlled work schedule and was in reality "boss[ ]" who made policies and procedures, and controlled "computer programing for assigning jobs, routing jobs, and tracking progress on jobs." The court also found that while Digital Dog did not pay for plaintiff’s supplies, plaintiff could not rent the heavy equipment necessary to complete the job without Digital Dog. The court concluded that Digital Dog’s control weighed in favor of finding an employer-employee relationship. Additionally, the court found that Digital Dog profited without risk of loss because "Digital Dog retrain[ed] workers and provides all necessary equipment and safety gear." The court further found that Digital Dog determined the workers’ compensation and paid unemployment insurance taxes for workers on an as needed basis. The court found that these factors, including the permanency and duration, supported plaintiff’s FLSA claims.
On November 5, 2018, in Harris v. Simmons Pet Food, Inc., CASE NO. 6:17-cv-900-ORL-31GJK, 2018 WL 5799504 (M.D. Fla. 11/05/2018), the U.S. District Court for the Middle District of Florida again evaluated the rule that "[a] subcontractor will be deemed a "joint employer" only if the totality of the circumstances shows that the contractor had meaningful control of the employees." The court found that that "at most, Simmons has an interest in the economic viability of Harris’s business because it pays Harris on the basis of the number of units shipped and has not provided Harris with a written termination policy." The court concluded, "Simmons’s purported input in these areas is typical of non-employers and does not suggest that Plaintiff has demonstrated a meaningful level of control.
Contractor Disputes and Legal Consultation
Disputes between independent contractors and the hiring companies can sometimes be difficult to navigate. While some may turn to labor organizations and other public service groups for guidance, not all companies agree with the arguments of those organizations. This has resulted in litigation. It is important to be aware of these events as they can affect you. A provisional labor organization has been formed in Florida that will act in a manner similar to the National Labor Relations Board. The organization is the Public Employees Relations Commission (PERC) and its function is to determine if an independent contractor is indeed an employee. In most cases, if there is a dispute between an independent contractor and a hiring company , one or the other would request a hearing before this new board to present their case regarding the employment status. A lawyer’s legal advice and representation is recommended to help you prove whether you are an independent contractor or an employee. The board will hold a hearing and make a determination based upon the evidence submitted. It will consider many factors when making a decision, including: A hearing will typically be held and the board will determine whether the contractor is an employee or independent contractor. If you believe that you were misclassified as a contractor, you can present the information in response to a claim by the hiring company. An experienced attorney can help you determine whether your complaint about misclassification is valid and what actions to take next. Many issues in labor law are highly complex, and it is always a good idea to seek the advice of a qualified labor law attorney to learn more about your rights and obligations in your current situation.
