Reclassifying Appraisers as Employees
Classifying Appraisers as Independent Contractors – an Issue for Appraisal Firms and Maybe AMCs Too
A hot legal issue that is beginning to more often affect appraisal firms and similar businesses, such as inspection and field service management firms, is the classification of workers as independent contractors, rather than as employees.
In some lawsuits, plaintiff workers argue that they were improperly classified by firms as independent contractors and then claim that, if they had been treated properly as employees, they would have been entitled to compensation for overtime, as well as reimbursement for expenses. In other situations, the issue is a governmental audit for unpaid taxes or disability/unemployment contributions.
I have addressed this subject for appraisal firms in a recent article that appeared in the Appraisal Institute’s Valuation magazine. The article entitled “Independent Minded” is available digitally at this link.
In the article, I’ve summarized a case that should be considered by any companies engaged in “vendor management.” The result of the case was the re-classification of scores of “workers” (some of the workers were individuals but others had incorporated their own businesses) who worked as independent contractors to a nationwide field services management company. What happened in the case?
After four years of litigation, the federal court ruled on summary judgment that any California field service vendor to the defendant company who derived more than 70% of his or her income from the company should be classified as an employee and was thus entitled to overtime and reimbursement of expenses. The essential reasoning was that the company had the right to so closely control the work of its contractors (and also exercised that right) and the contractors were so dependent on the company that the contractors were employees under California law.
With liability established, the issue was then how much did the company owe its reclassified contractors? Last summer, the damages claimed by the named plaintiff and 10 class members went to trial. The jury awarded over $2 million just to those 11 individuals for unpaid overtime, unpaid expenses, penalties and interest. The award to the named plaintiff was a striking example: the jury determined that he worked 4,845 hours of overtime from 2010 through 2016 for which he should recover $98,615 in overtime payments (on top of the payments he actually received for doing the work) and that he should be awarded $168,746 for his unpaid expenses ($95,247 for mileage alone). It’s estimated that there are 150-200 remaining class members potentially entitled to the same types of damages – the total liability to the reclassified independent contractors could be $10-$20 million.
because, although the defendant company was engaged in field service management, the fact pattern is very close to some AMC operations. The evidence in the case included:
The case is entitled Bowerman v. Field Asset Services, LLC (U.S. District Court, N.D. Cal., 2013).