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Dangers of Misclassifying an Employee as an Independent Contractor Highlighted Once Again in New York Appellate Court Decision

Written by Michael Arnold

The issue of employee misclassification was once again on display, this time in Nance v. NYP Holdings, where a New York appellate court affirmed an earlier finding that the New York Post failed to classify one of its photojournalists properly.

Catherin Nance provided photojournalistic services to the New York Post as an independent contractor. After the Post no longer needed her services, she sought unemployment insurance benefits from New York State arguing that the unemployment insurance law covered her because, in actuality, she performed services as an employee and not as independent contractor. The Unemployment Insurance Appeals Board agreed with her and the Post appealed to New York’s Third Department Appellate Division – an intermediary appeals court, which affirmed the Board’s decision because Nance was able to offer substantial evidence that the Post had control over important aspects of the services she performed, even though she may have retained control over the work product and means of crafting it.

This case serves as a good reminder that federal and state agencies continue (and will continue) to aggressively pursue employers failing to classify their employees properly. The reason (mainly): to recover lost tax revenue and other social safety net subsidies (i.e. employment taxes, FICA, FUTA, workers' compensation and unemployment insurance funds). For example, according to a report, just a 1% misclassification rate costs New York State’s (currently insolvent) Unemployment Insurance Trust Fund nearly $200 million a year and New York’s Joint Enforcement Task Force on Employee Misclassification caught nearly 90,000 instances of misclassification in last 5 years.

This case also serves as a good reminder that New York instituted several changes to its unemployment insurance law last October. One of those changes states that except for good cause, employers will no longer be relieved of an account charge if the state makes an overpayment to a claimant where the employer failed to respond to a claim request in an untimely manner or with insufficient information. Employer should take steps to familiarize themselves with this and the other changes to the law, while taking care to classify the individuals they engage properly.

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