My employer turned us all into contractors. As soon as he got a government bailout, we all got canned. Is that legal?

Q: After coronavirus hit, my employer changed a dozen of us to contractor status. None of us understood why or what it would mean. At first it seemed like a good thing as we wound up with more cash every payday without payroll taxes coming out of our checks.

My employer then applied for and got government bailout money. As soon as that happened, we all got canned. We later learned employers can fire contractors without being in violation of the loan terms.

Initially, my family and I were able to get by on unemployment, but then our car went on the blink, and we had other unexpected expenses. We’re now surviving on handouts; I’m standing in line at food banks to feed my kids. The food I’m given feeds my family but eats my dignity. Is what my employer did legit?

A: Possibly not. If your employer simply relabeled multiple employees as contractors without changing their job duties, your employer may run afoul of both the Department of Labor and the Internal Revenue Service.

Contractor versus employee status is a big deal, particularly now with so many furloughed, laid off or fired employees working in the gig-economy as independent contractors. Employers don’t need to pay independent contractors minimum wage, overtime or provide them with the benefits of employees.

FisherBroyles management-side employment attorney Eric Meyer notes that employers can easily misclassify employees as independent contractors. According to Meyer, seven of the most significant factors in determining whether a worker is an employee or independent contractor include “the extent to which the services rendered are an integral part of the principal’s business; the relationship’s permanency; the amount of the worker’s own investment in facilities and equipment; the employer’s nature and degree of control; the worker’s opportunities for profit and loss; the amount of initiative, judgment or foresight the worker uses in open market competition; and the nature of the contractor’s organization and operation.”

Meyer states, “if your employer only changed your title from employee to contractor but didn’t also change your job duties, your degree of independent judgment or control, or their operation, it’s a red flag to government regulators. Further, your employer’s misclassification may expose them to significant liability. Among other things, the FLSA requires covered employers to pay nonexempt workers a minimum wage of not less than $7.25 per hour and overtime pay at a rate not less than one and one-half times the regular rate of pay after forty hours of work in a workweek. If a business has an hourly employee that it relabels an independent contractor and the worker works over forty hours per week, the employer will likely owe that worker overtime even if it has labeled the worker an independent contractor.”

You’ve mentioned your employer did this for a number of former employees, and Meyer reports that “it gets worse if the company has misclassified several employees in the same job classification as independent contractors. If that happens, one employee suing could spawn a collective action. The employer could also face harsh tax implications.”

Meyer adds that the U.S. Department of Labor and multiple states “have taken a keen interest in taking on employers that misclassify employees as independent contractors. Additionally, the Internal Revenue Service and the U.S. Treasury won’t take kindly to businesses that attempt to reclassify employees to manipulate forgiveness on a CARES Act loan.” Meyer urges your former employer to strongly consider talking this over with their legal counsel, particularly once this newspaper column publishes.

What can you do? First consider whether your employer had a legitimate business reason for changing your status and whether they also changed your duties and how they interacted with you. If so, they may be able to justify what they did. “If the transition allows you to set your own hours, use your own tools and equipment, work for other businesses, and operate under less supervision,” says Meyer, “then you now exercise more control in your job. These are indicia of independent contractor status.”

You might also want to get on the Department of Labor’s website. On September 22, DOL proposed a new Fair Labor Standards Act rule that adopts an “economic reality” test to clarify how the Department views contractors versus employees.

Finally, if you believe your employer changed you to contractor status to more easily able to lay you off, you might want to chat with your former employer or your state Department of Labor.

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Lynne Curry | Alaska Workplace

Lynne Curry writes a weekly column on workplace issues. She is author of “Managing for Accountability”; “Solutions” and “Beating the Workplace Bully” and Curry is President of Communication Works Inc. Send your questions to her at or follow her on Twitter @lynnecurry10.