Wait a minute: before you sit back and relax, hear this tale of woe. The company involved in this extended and complex matter tried to do it right, but has been embroiled in a legal battle with the state for more than a decade.
Happy Nails operates a chain of nail salons. Fourteen years ago, a consultant helped them set up their business so that the cosmetologists working for them would be treated as independent contractors, rather than as employees. Three years later, California’s Employment Development Department charged Happy Nails for unemployment contributions the company had failed to make (which would not be owed if they were treated as independent contractors).
Happy Nails disputed the assessment. After many years, plus a large chunk of attorney fees, the firm obtained a ruling that the cosmetologists were indeed independent contractors. Happy Nails was “off the hook,” or so they thought.
But those happy feelings didn’t last too long. In 2008, the DLSE entered the scene and assessed penalties against the firm for not giving its employee itemized wage statements. “Wait a minute,” Happy Nails attorney said, referring to the ruling described above. “The state has already determined that the people in question are properly classified as independent contractors.”
DLSE’s response? “We don’t care what that other state agency ruled, we think they are employees.”
Happy Nails requested a hearing, at which it presented the same evidence that years earlier had persuaded the EDD that the workers were contractors. But this time the hearing officer ruled the workers were employees. What did the hearing officer say about the prior contrary ruling from the EDD? Nothing at all.
So it was “off to court.” California Superior Court reviewed the decision and sided with the DLSE. Happy Nails then appealed to the California Courts of Appeal and finally got a favorable ruling. The appellate court told the state that it can’t have it both ways. The appeals court pointed out that “…the same issue had already been litigated between essentially the same parties and that, based on the legal doctrine of collateral estoppel, there was no reason to re-litigate it.”
Overall, good news for businesses. But, it’s still important to understand and comply with the rules for determining when your relationship with Mr. X is truly as an independent contractor, and not as an employee. You should consult with your attorney before making these types of decisions.
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