The Maine legal blog Maine at Work recently provided an example of how costly purposefully misclassifying employees can be.
The case comes from Lincoln County Superior Court where Skip White found out he was not eligible for worker’s compensation after a horrendous work-related fall. Lawyer Jeff White explains what he calls Groton Construction Company’s “$500,000 mistake”:
White had fallen 15 feet from a step ladder onto some granite ledge while working on a waterfront residence in East Boothbay. The pictures of the accident were horrific. Even nearly a week later, White’s face looked like he had gone 15 rounds with Muhammed Ali.
Not knowing anything about the case, it took me a while to figure out what was going on. White had worked for Groton every day for four years. By all accounts, Groton was an excellent place to work, providing steady employment, competitive wages, and teaching White the intricacies of becoming a master craftsman.
White clearly believed he was Groton’s employee, and almost certainly was. Groton had controlled the terms and conditions of his employment, dictating where White worked, when he started and finished, etc. Groton paid White by the hour, and Groton furnished all the major pieces of construction equipment. So, naturally, as soon as White was injured, he filed a workers’ compensation claim. But, to White’s amazement, Groton denied the compensation claim, taking the position that White was an “independent contractor” rather than Groton’s employee. Why? So Groton would not have to pay workers’ compensation and unemployment insurance or contribute to Social Security and Medicare in White’s behalf. Not to mention the savings on overtime.
The dangers of misclassification are countless. On this blog we typically focus on the affected worker and the impact on government through lost tax revenue, but employers engaging in this practice are leaving themselves as vulnerable to expensive lawsuits as their workers are to fiscal burden. Once viewed with a wide lens it is clear that misclassification is a losing proposition for all parties.
For Groton Construction, the expenses surrounding the fall could have been minimized if they had simply labeled White an employee and provided him the deserved benefits of that relationship from day one:
Had Groton purchased workers compensation, the insurer would have paid White’s medical bills and White would have received about $600 a week while he was out of work. Instead, because Groton misclassified White, and because of the jury’s verdict $500,000 (plus interest) in White’s civil case against Groton, Groton itself wound up being liable for all of White’s hospital and doctor’s bills, and all of his past lost wages, PLUS Groton is paying White far more in future damages than White ever would have received in workers’ comp benefits over his lifetime.
The Department of Labor has ramped up its oversight of misclassification across the nation but some companies will still refuse to make the necessary behavioral changes. Sadly, for these companies, saving a few dollars with crossed fingers is worth the health risk of a few Skip Whites.