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Contract Employee's Newsletter
Helping Contract Professionals
Manage Their Careers
Vol. 3, No. 9
April 25, 2003
Edited by James R. Ziegler
A Companion to:
The Contract
Employee's Handbook
www.cehandbook.com
Sponsored by:
P.A.C.E. - Professional
Association for Contract Employment
www.pacepros.com
About The Contract Employee's Newsletter
The Contract Employee's Newsletter is a free online publication
for technical and professional contractors containing news, commentary,
tips, links to useful resources, nuggets of wisdom submitted by
readers, and anything else that seems appropriate at the time. The
CENewsletter is published bi-weekly or whenever issues warrant and
time allows. The subscriber list is confidential and will not be
disclosed outside this organization.
In This Issue
Read recent
issues of The Contract Employee's Newsletter.
News and Views
The Case Against H-1B Visas
There is a lot of heated discussion lately about American
companies sending high tech jobs overseas (offshore outsourcing)
and bringing low-paid foreign labor into the United States (H-1B
and L1 visas).
Here are links to two papers that provide excellent
overviews of the subject of H-1B visas.
Norm Matloff is a computer science professor at UC/Davis.
He also publishes the "age discrimination/H-1B/L-1 e-newsletter".
As an expert on the subject, he is frequently asked to describe
the H-1B issue in a nutshell by journalists, and by voters who wish
to educate their senators and representatives. His response to these
requests is a 7-page, easy-to-read position paper written in very
concise, bulleted format. You can download it in PDF form at:
http://heather.cs.ucdavis.edu/H1BSummary.pdf
Matloff's paper describes the situation, and then makes
specific recommendations on how to reform the current system to
support American workers and prevent abuse.
The next article, "How to Underpay an H-1B",
is an excellent case study that details how one large employer (Bank
of America) is systematically dumping its American technology workers
in favor of cheaper foreign labor. You can read the case history
on the Programmers Guild Web site at: http://www.programmersguild.org/Guild/h1b/howtounderpay.htm
Return to Table of Contents.
Kudos and Testimonials
What People Are Saying About The Contract Employee's
Project
I wanted to thank you profusely for all the time and effort you
put into making this information available to all of us who contract
our services for a living! -- Adam
Return to Table of Contents.
Ask Dungaree Dan
An Ethically Challenged Contractor?
Q: Dear Dan -- I have a few questions regarding filing a
lawsuit for back benefits due to employee misclassification. My
story is basically this:
I was hired in 97 by colleagues from a former job to work for a
small software company. I was labeled a "consultant" but
was doing the same work as an employee. I worked more or less full
time. I received hourly compensation and no benefits.
I was mailed a 1099 form at the end of the year. I prepared my
own taxes and never paid self employment tax because I didn't feel
the IRS criteria for "independent contractor" fit my situation.
This went on for 2 years and then I was told that I could no longer
be an independent contractor but had to become a regular employee.
All this happened around the time that our company was purchased
by a very large company. I said fine, and became a regular employee
with full benefits package.
A year or so later I received a very large bill from the IRS for
back self employment taxes plus penalties. I called them up (IRS)
and said I didn't feel that I fit the criteria for independent contractor
and thus didn't owe self employment taxes. They sent me an employee
classification determination form to fill out.
The IRS determined that I was indeed a "common law employee"
and not an "independent contractor" I was given W-2 forms
for the periods and paid the back FICA.
About 6 months later I was laid off due to the downturn in software
industry. I held off looking into seeking back benefits for the
years that I was misclassified because I was told by direct supervisor
that I could be rehired depending on what products they decide to
go [with].
Now it's been over a year, my unemployment has run out and I found
out from a colleague that I have been "black listed" from
any future employment by the company due to the classification determination.
So Finally! my questions are:
Is this an easy case IYO?
Is there a statue [statute] of limitations - can I still try and
recoup benefits from 5 years + ago?
Is it worth it for 2 years? The benefits package = Medical, Dental,
employee contribution to 401(k) mutual funds with company match
but with a percentage vesting that went up every year. -- Signed:
Work'n The System
A: Dear Work'n -- It looks to me like you tried to get out
of your self-employment taxes by not paying them and then, when
the IRS caught on to your scam, you successfully avoided one-half
of your tax obligation by getting the IRS to reclassify you as an
employee of the client. You ended up paying the employee's share
of FICA, and the employer (your client) ended up paying the employer's
share.
I see no evidence in what you have written that would indicate
that the client acted in bad faith by employing you as an independent
contractor. I do, however, see evidence that you acted in bad faith
by agreeing to be employed as an independent contractor, and then
not accepting the responsibility to honor your legal obligation
to pay your self-employment taxes.
The world can be divided on moral and ethical grounds into two
populations. The first population consists of those who intrinsically
understand the difference between what is right and what is wrong.
Members of the first population operate from a position of integrity.
The second population consists of those amoral individuals who
are crippled by an inability to discern right and wrong. These unfortunate
soles must rely exclusively on their understanding of what is legal,
what is illegal, and what they can get away with.
I believe that you, sir, belong to the second population.
Now that you have achieved some relief from your tax obligation,
you want to go after the employer to "recoup benefits from
5 years + ago", including "medical, dental, employee contribution
to 401(k) mutual funds with company match with a percentage vesting
that went up every year."
What, pray tell, did this employer ever do to you to warrant such
predatory behavior on your part? That is, other than refusing to
rehire you for seeking a reclassification from independent contractor
status in order to get out of paying your legal tax obligation?
I have no compunction against counseling a contractor to seek reclassification
to employee status when the client acts in bad faith and exploits
its position in order to take advantage of the contractor. But what
you are doing reeks of the contractor taking advantage of the client,
and I don't like the smell of it.
Both you and the original company where you worked were naive regarding
the difference between employee status and independent contractor
status.
As an independent contractor, you should have known that you owed
self-employment taxes on all earnings from your revenues as a self-employed
independent contractor.
As a client, the original company should have known that it was
obliged to treat you as an independent contractor and not as one
of its own employees. The company that bought the original company
was obviously more savvy about the risk factors associated with
hiring contingent workers, and it brought you on in good faith as
a regular employee with full benefits.
One of you was destined to get burned, and the reality is that
the IRS and other government agencies almost always burn the company
and opt to reclassify the worker as an employee of the company where
that worker worked. You seem to have won the showdown, and the new
company that purchased the original company is the one that will
take the hit.
Of course the company doesn't want to hire you now. Who would blame
them? The company hiring managers would have to be idiots to welcome
you back into their company. This whole thing started because you
didn't pay the self-employment taxes that you would have owed as
a self-employed independent contractor. Now you want the new company
to pay for your mistake (or greed, or attempted fraud), even though
you were originally OK with the idea of being an Independent Contractor
and not paying your self-employment taxes. Geesh.
You got yourself reclassified as an employee of the original company,
not because that is what you always thought you were, but because
that is how you could avoid paying the taxes you would have owed
but did not pay as a bona fide, and self-respecting, independent
contractor.
You ask, "Is this an easy case IYO?"
Yes, it's a piece of cake, if you can get a labor law attorney
to take the case. There may even be a class-action lawsuit here
that would make a lot of money for an aggressive and litigious lawyer.
Would it be the "right thing" to do? In your case I don't
think so. In my opinion you are taking advantage of a situation
for your own benefit in order to receive additional (unearned) compensation
for back benefits that you should have purchased for yourself out
of the revenues you received as an independent contractor.
You ask, "Is there a statue [sic] of limitations- can I
still try and recoup benefits from 5 years + ago?"
Your attorney will be able to tell you how far back you can go.
If you wanted to be an employee with benefits you certainly had
lots of time to join a company as an employee. The fact that you
persisted as an independent contractor tells me that you preferred
that status, and that you wanted to be responsible for providing
your own benefits. That you are now going after compensation for
back benefits is to me unconscionable, even though you may be entitled
to do so by the reclassification that you have obtained from the
IRS.
You ask, "Is it worth it for 2 years? The benefits package
= Medical, Dental, employee contribution to 401K mutual funds with
company match but with a percentage vesting that went up every year."
If there is a basis for a class-action lawsuit then an aggressive
labor law attorney may want to go after it. I would point out that
even in the famous Microsoft vs. Viscaino case the plaintiffs wanted
back benefits, including retirement, but the judge threw out that
claim and only awarded the contractors back benefits for the discounted
stock purchase plan that the contractors were denied access to.
On the other hand, the court did award back retirement to the agency
temps that were hired by the Metropolitan Water District of Southern
California, but that occurred because they had been laid off as
regular employees and rehired as temps without benefits.
An honorable person would do the right thing and accept accountability
for being a self-respecting independent contractor with all of the
responsibilities and obligations that go with being self-employed.
You can do the right thing, or you can do what you can get away
with. It's your choice. -- Signed: Dungaree Dan
Questions for Dungaree Dan
Send your questions about contract employment to Ask
Dungaree Dan. We will try to answer all of your questions, and
we will publish the most interesting ones in The Contract Employee's
Newsletter.
Return to Table of Contents.
Contract Employee's
Glossary
Terminology For Contract Professionals
More terms from Appendix
B: Glossary of Terms for Contract Professionals of The
Contract Employee's Handbook.
Noncompete agreement
Also called a noncompete clause, noncompetition clause, and covenant
not to compete. Companies use different types of contract language
in an attempt to keep their employees from going to work for the
competition. The contract clauses fall into three categories:
- Nondisclosure
- Nonsolicitation
- Noncompetition
Nondisclosure clauses protect the employer from a former employee
disclosing proprietary and confidential information to a competitor.
Examples are “trade secrets”, customer lists, internal
reports and documentation, computer code, design specifications,
and the like.
Nonsolicitation clauses protect the employer from a former employee
actively recruiting existing employees and clients of the employer
for the employee's new company.
Both nondisclosure and nonsolicitation clauses offer reasonable
protections against unfair competition. Employees should have no
difficulty abiding by such provisions so long as the language is
not overly broad and the employee behaves ethically.
Noncompetition clauses are troublesome because they prohibit an
employee from working for the competition or for a client or vendor
of the competition within an arbitrary radius and time limit. Such
clauses are frequently seen in the employment agreements of professionals
such as beauticians, accountants, attorneys, and physicians, where
one individual may have a dedicated clientele.
For example, it is common in most states, with the notable exception
of California, for medical practices to require that member physicians
agree not to work within 100 or 200 miles of the original practice
for a duration of one or two years. This is because physicians generally
have a dedicated clientele, which the practice has developed at
great expense. These patients would undoubtedly follow a physician
to a new practice resulting in significant loss of income to the
original practice.
Temp agencies are notorious in their use of intimidating and overly
broad “covenants not to compete”. Aggressive covenants
not to compete are routinely included in vendor agreements with
subcontracting agencies and independent contractors, and in the
employment agreements of staff employees, temporary employees, recruiters,
and executive personnel.
Return to Table of Contents.
The Contract Employee's
Project
The Contract Employee's Project is the larger context under which
the following interrelated vehicles operate to promote and defend
the interests of Contract Professionals:
Copyright and
Publication Info
Copyright (c) 2003, James R. Ziegler. All rights reserved.
You may copy or forward this free publication provided it is left
intact with all links and this notice unchanged. Any unauthorized
duplication, including republication in part or in full for commercial
use, is an infringement of copyright.
Published by:
P.A.C.E. - Professional Association for Contract Employment
1355 Willow Way, Suite 244
Concord, CA 94520
USA
http://www.pacepros.com/
Editor:
James R. Ziegler, Ph.D.
Executive Director
P.A.C.E. -- Professional Association for Contract Employment
(925) 680-0200
CENewsletters@pacepros.com
Return to Table of Contents.
Disclaimer
The Contract Employee's Newsletter is designed to provide information
in regard to the subject matter covered. Use is granted with the
understanding that the publisher and authors are not engaged in
rendering legal or financial advice. If expert assistance is required
you should seek the services of a competent professional.
The purpose of this information is to educate and entertain. The
publisher and contributors shall have neither liability nor responsibility
to any person or entity with respect to any loss or damage caused,
or alleged to be caused, directly or indirectly, by the information
contained in this Newsletter or by information contained in any
web site or resource referenced by citation or hypertext link within
the pages of this Newsletter.
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Sign-off
I hope you have found the information in this newsletter to be
interesting, informative, and provocative. I encourage you to share
the CENewsletter with your friends, colleagues, coworkers, clients,
and agency recruiters.
Why clients? Because you need every ally you can get. Why agency
recruiters? Because they need to know the jig is up.
Wishing you success in your contracting career,
James R. Ziegler, Ph.D.
Executive Director
P.A.C.E. -- Professional Association for Contract Employment
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