Independent Contractor or Employee in Pennsylvania? The Importance of Appropriate Legal Documentation

With Spring upon us, businesses look forward to showcasing their products at the highly anticipated Pittsburgh Home & Garden Show. This annual show features over 1500 vendors selling everything from air conditioning to yard sheds. Many of these companies staff their booths with their owners or employees, oftentimes their marketing and sales personnel. Some companies, however, opt to staff their display booths with independent contractors working on a flat-fee basis or on commission. While some of these independent contractors have their own businesses and serve the trade show circuit, others are hired through the company using a one or two-page independent contractor agreement. Those contracts, if challenged, will not hold up in court in the case of injury or any other calamity. Most recently, the independent contractor agreement issue came into question in a matter involving a Pennsylvania-based roofing company.

A couple who owned and operated three Pennsylvania-based roofing companies found out the hard way the difficulties that could arise with independent contractor agreements, when a Pennsylvania appellate court recently decided to uphold a verdict rendering them liable for commission not paid to a terminated marketing person. In Accurso v. Infra-Red Services, Inc., 3d Cir., No. 18-01583, the Third Circuit, in an unpublished decision, upheld an award of more than $50,000 in wages to Peter Accurso after he brought action under Pennsylvania’s Wage Payment and Collection Law. Accurso sued the companies and the owners individually, as the Wage Payment Law allows for imposition of personal liability against individual owners, a liquidated damages award of 25% of the total amount of wages owed, and an award of attorney’s fees. Although the amount of fees that Accurso’s attorneys will receive is not yet known, the fees should easily surpass the amount of the original wage claim.

Marketing and salespeople can be employed as either independent contractors or employees. Determining which classification is best and which passes legal muster can be difficult. Independent contractors have long been a sore point for government investigators who contend that many of these workers are doing work that employees traditionally do. When businesses classify workers as independent contractors, they avoid taxes including the 6.2% of salary and wages that companies must pay for Social Security and the 1.45% they must pay for Medicare. They also avoid overtime payments to workers, the cost of workers’ compensation insurance, and payments into state unemployment compensation funds.

Ultimately, in the case at hand, the Court decided that the company and its owners exerted significant control over Peter Accurso’s work and that he should have been classified as an employee.

The Third Circuit majority found sufficient evidence to support the employee classification because Accurso was employed nearly full-time for the companies, working regular set hours, completing assigned tasks under instruction, covering assigned territories, providing regular reports, and performing tasks other than marketing such as invoicing and accounting.

Businesses, including small business owners, particularly if they engage in independent contracting and participate in shows such as the Home & Garden Show, should exercise caution when engaging a marketing or salesperson for marketing activities or when hiring casual labor for short-term projects. One call from an “independent contractor” to the Pennsylvania Department of Labor and Industry or The U.S. Department of Labor reporting a job termination or pay or injury complaint can trigger audits and the potential for liability which can bankrupt a business and, in some cases, even its owners.

If you have questions about this recent decision, or about independent contractor contracts, worker classification and status, or the Pennsylvania Wage Payment and Collection Law, please contact Kimberly J. Kisner. Kim is a Partner with Leech Tishman and a member of the firm’s Employment & Labor, Alternative Dispute Resolution, Litigation and Real Estate Practice Groups. Kim is based in Leech Tishman’s Pittsburgh office and can be reached at 412.261.1600 or via email at kkisner@leechtishman.com.

Leech Tishman’s Employment & Labor Practice Group can help clients ensure compliance with complex and technical employment laws and can assist clients with defending against civil or administrative actions.

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, aviation & aerospace, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, internal investigations, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in El Segundo, CA, Chicago, Los Angeles, New York, Sarasota and Wilmington, DE.