Special Independent Contractor Issues

Employers such as motor carriers are required to complete I-9s for their employees, but NOT for people considered to be independent contractors. This appears straight forward enough, but things can quickly get complicated since calling someone an independent contractor does not necessarily make them an independent contractor. In fact, I believe that if memory serves me right, there is case law that says states that this is “just a label” and means nothing more.

And if you counter with the ‘But your honor, we issue them a 1099 each year.” Once again, I believe there is case law that states that all this means is that the you as the employer did not deduct any monies and nothing more.

The definition of an independent contractor depends on many factors centered on how independent the worker really is. For example, can the worker set his/her own hours and work methods, do they bring or utilize their own equipment or tools, do they work for others alco, etc.

These are just some of the factors to consider, and they may sound familiar since they are also used by the IRS to determine a person is self-employed for tax purposes. However, the fact that the IRS considers a worker to be self-employed does not necessarily mean that the worker will be considered an independent contractor or subcontractor for I-9 verification purposes.

State Laws

What escapes everyone is the various State laws. Every state has three (3) departments; the Unemployment Dept, the Wage and Hour Dept, and the Workers’ Compensation Dept.

Even though these three departments are all in the same state. They do not necessarily have the same guidelines as to who is an employee and who is an independent contractor.

There are more lawsuits filed under any of these three than all the rest of state laws.

Liability Concerns Using Contractors

Assuming that the worker is an independent contractor the company could still be liable for penalties if it uses the subcontractor or independent contractor with the knowledge that they are unauthorized. See 8 CFR, section 274a.5. What constitutes this type of “knowledge” will be a case-by-case determination.

Back in 1986, the Immigration Reform & Control Act (IRCA) was signed into law. The IRCA provides that “knowing” includes “constructive knowledge” and defines constructive knowledge as “knowledge which may be fairly inferred through notice of certain facts and circumstances which would lead a reasonable person, through exercise of reasonable care, to know about a certain condition.”

8CFR section 274a.1(j). An employer could be held to be on such knowledge when it shows reckless and wanton disregard for the consequences of letting a contractor into its workforce, such as where the employer knows that a contractor has supplied it or others with unauthorized aliens in the past. If the company is using a contractor with a checkered past, then it should take precautionary steps to make sure the contractor now has its house in order. 

There ae a variety of contractual provisions which a company might use to protect itself. Employers should consider using contract language imposing on the contractor the duty to comply with all the immigration laws, state and federal, and to require indemnification for any fines or legal fees incurred by the employer because the independent contractor’s employees are not authorized to work in the US. 

Note however that IRCA prohibits requiring such a bond or indemnity from an individual employee. Counsel should be used to draft the appropriate language. Other contract provisions could include requiring independent contractors to furnish their I-9s and other documentation, or require the contractor to submit to an audit.