Independent Contractors, Leased Employees, and Other Contingent Workers

By Dan Feinberg and Jeffrey Lewis Lewis, Feinberg, Lee, Renaker & Jackson, P.C. 1330 Broadway, Suite 1800 Oakland, California 94612-2519 I. Types of Contingent Workers Todays workforce includes many workers in non-traditional categories. These contingent workers generally fall into the following groups: A. Independent Contractor. An independent contractor is a self-employed worker hired to perform services for another company. An independent contractor controls the manner and means of the services performed, is responsible for his or her own taxes, and is considered to be engaged in a business. Independent contractors are the most familiar type of contingent worker, and most of the tests of worker status were designed to distinguish between independent contractors and regular employees. B. Leased Employee. A leased employee is a worker paid by an employee leasing company (sometimes called an employment agency, a temp agency, or a professional employer organization (PEO)) to perform services for a client of the leasing company. This is a broad term applied to any worker working pursuant to such a three-way arrangement, and can be used in several different circumstances. Individuals referred to as leased employees in this broad sense may or may not fall within the Internal Revenue Code definition of leased employee found in Internal Revenue Code 414(n). Moreover, although leased employees are generally assumed to be the legal employees of the leasing company and not the client company, many individuals labeled as leased employees may be common law employees of the client company but not the leasing company, or may be common law employees of both entities under the joint employer doctrine. C. Temporary Employee. A temporary employee is a worker performing services for a company on a shortterm basis, often working on a particular project. A temporary employee may be 1

an independent contractor, a leased employee, or a regular (albeit short-term) employee. This label is sometimes applied to workers who stay at a company for a long period of time, in which case the individual is sometimes referred to by the oxymoron perma-temp. Estimates of the number of contingent workers vary, depending upon how the term is defined. If you include independent contractors, leased employees, and temporary, on-call and short-term employees, then contingent workers made up approximately 13.6% of the U.S. workforce as of February 1999. This percentage is likely significantly higher today. Many workers who are classified as contingent workers are, in fact, common law employees. A 1989 GAO study found that 38% of the contingent workers examined were misclassified as independent contractors. II. Who is an Employee The label applied to a worker does not determine his or her legal status. Indeed, courts have even disregarded written agreements signed by workers in which the workers acknowledge independent contractor status. See, e.g., Vizcaino v. Microsoft, 120 F.3d 1006 (9th Cir. 1997) (en banc), cert. denied 522 U.S. 1098 (1998); but see Boren v. Southwestern Bell Telephone Co., Inc., 933 F.2d 891 (10th Cir. 1991); Laniok v. Brainerd Maunfacturing Co. Pension Plan, 935 F.2d 1360 (2d Cir. 1991). Instead, a variety of legal tests must be employed. A. Common Law Test (Right to Control). The most important test used to determine whether a worker is an employee or a contingent worker is the common law, or right to control test. This test originates from common law principles of agency, and is focused on determining who has control over (or has the right to control) the services performed by the worker in question. This test is used by the IRS when determining liability for employment and payroll-related taxes, by many state tax, unemployment and workers compensation authorities, and by the courts in a variety of contexts (such as ERISA, the NLRA, and most civil rights statutes). While there are specific exceptions (e.g., Internal Revenue Code 3121, 3506, 3508), this rule applies in most situations. Factors relevant to this test can be found in the Restatement of Agency and in a wide range of cases. The best known case setting forth the common law test is Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 112 S.Ct. 1344 (1992), in which an insurance agent alleged that he was an employee of the insurance company rather than an independent contractor, and therefore his benefits under 2

a deferred compensation arrangement were subject to ERISAs vesting rules. In Darden, the Supreme Court summarized relevant factors as follows: In determining whether a hired party is an employee under the general common law of agency, we consider the hiring partys right to control the manner and means by which the product is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired partys discretion over when and how long to work; the method of payment; the hired partys role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. Darden at 323-24 (quoting from Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989)). Courts must consider all aspects of the employment relationship, with no single factor being decisive. Darden at 324. Besides case law such as Darden, the most commonly used source for the common law test is IRS Revenue Ruling 87-41, which sets forth a checklist of twenty factors. This checklist, excerpted from Rev. Rul. 87-41, 1987-1 C.B. 296, is reproduced below: 1. Instructions. A worker who is required to comply with other persons instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if the person or persons for whom the services are performed have the right to require compliance with instructions. See, e.g., Rev. Rul. 68-598, 1968-2 C.B. 464, and Rev. Rul. 66-381, 1966-2 C.B. 449. 2. Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner. See Rev. Rul. 70-630, 1970-2 C.B. 229. 3

3. Integration. Integration of the workers services into the business operations generally shows that the worker is subject to direction and control. When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business. See United States v. Silk, 331 U.S. 704 (1947), 1947-2 C.B. 167. 4. Services Rendered Personally. If the services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the results. See Rev. Rul. 55-695, 1955-2 C.B. 410. 5. Hiring, Supervising, and Paying Assistants. If the person or persons for whom the services are performed hire, supervise, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status. Compare Rev. Rul. 63-115, 1963-1 C.B. 178, with Rev. Rul. 55-593, 1955-2 C.B. 610. 6. Continuing Relationship. A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals. See United States v. Silk, 331 U.S. 704 (1947), 1947-2 C.B. 167. 7. Set Hours of Work. The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control. See Rev. Rul. 73591, 1973-2 C.B. 337. 8. Full Time Required.

If the worker must devote substantially full time to the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor, on the other hand, is free to work when and for whom he or she chooses. See Rev. Rul. 56-694, 1956-2 C.B. 694. 9. Doing Work on Employers Premises. If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. Rev. Rul. 56-660, 1956-2 C.B. 693. Work done off the premises of the person or persons receiving the services, such as at the office of the worker, indicates some freedom from control. However, this fact by itself does not mean that the worker is not an employee. The importance of this factor depends on the nature of the service involved and the extent to which an employer generally would require that employees perform such services on the employers premises. Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required. See Rev. Rul. 56-694. 10. Order or Sequence Set. If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the workers own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. Often, because of the nature of an occupation, the person or persons for whom the services are performed do not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person or persons retain the right to do so. See Rev. Rul. 56-694. 11. Oral or Written Reports. A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control. See Rev. Rul. 70-309, 1970-1 C.B. 199, and Rev. Rul. 68-248, 1968-1 C.B. 431. 12. Payment by Hour, Week, Month. 5

Payment by the hour, week, or month generally points to an employeremployee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indicates that the worker is an independent contractor. See Rev. Rul. 74-389, 1974-2 C.B. 330. 13. Payment of Business and/or Traveling Expenses. If the person or persons for whom the services are performed ordinarily pay the workers business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regulate and direct the workers business activities. See Rev. Rul. 55144, 1955-1 C.B. 483. 14. Furnishing of Tools and Materials. The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship. See Rev. Rul. 71-524, 1971-2 C.B. 346. 15. Significant Investment. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship. See Rev. Rul. 71-524. Special scrutiny is required with respect to certain types of facilities, such as home offices. 16. Realization of Profit or Loss. A worker who can realize a profit or suffer a loss as a result of the workers services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. See Rev. Rul. 70-309. For example, if the worker is subject to a real risk of economic loss due to significant investments or a bon fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor. The risk that a worker 6

will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor. 17. Working for More Than One Firm at a Time. If a worker performs more than de minimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor. See Rev. Rul. 70-572, 1970-2 C.B. 221. However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement. 18. Making Service Available to General Public. The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship. See Rev. Rul. 56-660. 19. Right to Discharge. The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which causes the worker to obey the employers instructions. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications. See Rev. Rul. 75-41, 1975-1 C.B. 323. 20. Right to Terminate. If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer-employee relationship. See Rev. Rul. 70-309. In applying these factors, the right to control the worker is as important as the actual exercise of such control. Treas. Reg. 31.3121(d)-1(c)(2), 31.3306(i)-1(b), 31.3401(c)-1(b). There is no specific number of factors that must be met; rather, the employment relationship must be considered as a whole, with the appropriate weight being given according to the context. B. Economic Realities Test.

The second test used to determine whether a worker is an employee or a contingent worker is the economic realities test. This test is usually applied in FLSA cases. However, it has sometimes been used in EEO cases as well. See, e.g., Eyerman v. Mary Kay Cosmetics, Inc., 967 F.2d 213 (6th Cir. 1992); Knight v. United Farm Bureau Mutual Insurance. Co., 950 F.2d 377 (7th Cir. 1991). The economic realities test is more liberal than the common law test, and is focused on whether the worker is economically dependent on the recipient of the workers services. Factors relevant to this test are set forth in relevant case law, and include: the degree of control exercised by the company; the degree of skill required; the relative investments of the worker and the company; the length and exclusivity of the relationship; and the workers opportunity for profit or loss. See, e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947); Martin v. Selker Bros., Inc., 949 F.2d 1286 (3d Cir. 1991); Carrell v. Sunland Construction., 998 F.2d 330 (5th Cir. 1993); Krause v. Cherry Hill Fire District 13, 969 F. Supp. 270 (D.N.J. 1997). C. Joint Employer Issues. In subcontracting and employee leasing situations, application of the employee status tests described above can result in a determination that a worker is an employee of two entities. See 29 C.F.R. 791.2 (FLSA); Rivas v. Federacion de Associaciones Pecuarias de Puerto Rico, 929 F.2d 814 (1st Cir. 1991) (Title VII and ADEA); Magnuson v. Peak Technical Services, 808 F. Supp. 500 (E.D.Va. 1992) (Title VII); Boire v. Greyhound Corp., 376 U.S. 473 (1964) (NLRA); In re Vizcaino v. United States District Court for the Western District of Washington, 173 F.3d 713 (9th Cir. 1999), cert. denied, 522 U.S. 1098 (2000) (employee benefits). If a company for whom a worker provides services is deemed to be an employer of that worker under such a joint employer theory, the company may face liability for unpaid taxes, benefits, or in other matters. This is particularly relevant where companies use leased employees or employees from temporary agencies. III. Potential Effects of Misclassification A. Payroll Tax, Unemployment. One of the most potentially costly consequences of employee misclassification is liability for unpaid payroll taxes (income tax withholding, FICA, FUTA, and state equivalents). Employers can be subject to retroactive tax payments, interest, 8

and even penalties. (However, liability can be reduced if Internal Revenue Code 3509 is applicable.) There is less risk for companies using leased employees instead of independent contractors, given that leasing companies are more likely to comply with tax requirements than individual independent contractors (and are easier to monitor). Moreover, Internal Revenue Code 3401(d) provides that generally the entity with control over payment of wages will be considered the employer even if the recipient of the workers services may legally be that workers common law employer. However, if the leasing company fails to comply with payroll tax requirements, the IRS may pursue the leasing companys client for payment. See In re Earthmovers, Inc., 96-2 U.S.T.C. 50,549 (M.D.Fla. 1996). In the event that an audit determines that employees were misclassified as nonemployees, employers may be eligible for safe harbor protection under Section 530 of the Revenue Act of 1978, and may thus avoid retroactive tax assessments. Section 530 provides protection when a company can show that it had a reasonable basis for treating the workers as non-employees (e.g., reliance on a court case, published ruling, letter ruling, determination letter, past audit, longstanding industry practice, or even the advice of an accountant or attorney). See, e.g., Smoky Mountain Secrets, Inc. v. United States, 910 F. Supp. 1316 (E.D.Tenn. 1995); Hospital Resource Personnel, Inc. v. United States, 68 F.3d 421 (11th Cir. 1995). However, Section 530 treatment can be denied if the employer treated other workers in substantially similar positions as employees. Section 530(a)(3). State wage and hour requirements are usually similar to federal standards. However, states are not bound by findings that employers are entitled to Section 530 protection. An additional consequence of a finding by the IRS that employees were misclassified as non-employees is that the affected workers may be galvanized into claiming rights to company-provided benefits previously denied them. See, e.g., Vizcaino v. Microsoft, 120 F.3d 1187 (9th Cir. 1997), cert. denied 522 U.S. 1098. (1998). These workers may seek to use the IRS determinations as evidence in their favor. B. Workers Compensation.

Requirements under workers compensation statutes vary widely from state to state. Some states may require companies to provide coverage to certain nonemployees, and others may adopt a common law employee standard. One important consequence of using independent contractors is that such individuals are generally exempt from workers compensation requirements and thus retain the right to sue in tort for work-related injuries. C. FLSA. The Fair Labor Standards Act (FLSA) sets minimum wage levels and overtime requirements. Its provisions are enforced by the Wage and Hour Division of the Department of Labor. The FLSA covers employers with business of at least $500,000. Employer is defined as any person acting directly or indirectly in the interest of an employer in relation to an employee. 29 U.S.C. 203. Because of this broad statutory definition, companies can be held responsible for ensuring that leased employees are paid in compliance with FLSA requirements, regardless of whether the workers are properly classified as leased employees. Reich v. Circle C Investments, 998 F.2d 324, 329 (5th Cir. 1993). As a result, a company utilizing leased or agency employees of any kind should make sure that the leasing company complies with FLSA requirements. However, the FLSA does not cover independent contractors. As discussed above, the FLSA employs the economic realities test to determine whether a worker is an employee or independent contractor. If, in fact, a worker is misclassified, the employer can be liable for past due wages, interest, attorneys fees, costs, and liquidated damages. 29 U.S.C. 216. Employers can be sued for FLSA violations by the Department of Labor and by employees. Id. Although state wage and hour laws vary, their requirements are generally similar to federal law. D. Employment Discrimination, FMLA, NLRA, and Related Laws. Classification of employees is critical to many aspects of employment and labor law. For example, common law employees must be counted when determining the jurisdiction of laws applicable only to companies with certain minimum numbers of employees (e.g., Title VII, ADEA, COBRA, FMLA and so on). Moreover, misclassified employees may be entitled to enforce the substantive requirements of these laws.

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Generally these laws do not cover independent contractors. 42 U.S.C. 2000e3(a); Kern v. City of Rochester, 93 F.3d 38 (2d Cir. 1996); Spirides v. Reinhardt, 613 F.2d 826 (D.C.Cir. 1979). However, under certain circumstances, they may cover leased employees. See, e.g., Reynolds v. CSX Transportation, Inc., 115 F.3d 860 (11th Cir. 1997), vacated, 524 U.S. 947 (1998) (remanded for further consideration on a separate issue in light of Faragher v. City of Boca Raton, 524 U.S. 775 (1998) (client of staffing agency liable as employer under Title VII because exercised supervisory control). In determining whether or not a worker is an employee covered by labor and employment laws, courts have utilized both the common law test as well as the economic realities test. Requirements of state laws can vary considerably. E. OSHA. The Occupational Safety and Health Act (OSHA) was designed to provide workers with protection from workplace hazards. The Occupational Safety and Health Review Commission (Commission), charged with implementing OSHA, has seemed less concerned about the legal niceties of employee status than about determining whether an employer has control over hazards in the workplace. Generally, a company will be required to meet OSHA requirements if it is responsible for creating the workplace hazard or exercises sufficient control over the workplace to control the hazard, especially in the context of a multiemployer worksite (such as a construction site). Frolich Crane Service, Inc. v. OSHRC, 521 F.2d 628 (10th Cir. 1975); Brennan v. OSHRC, 513 F.2d 1032 (2d Cir. 1975). However, in the leased employee context, the Commission has indicated that its focus will be more on whether the company exercises control over the worker, using a common law type test. F. Employee Benefits. Most employee benefits are regulated by the Employee Retirement Income Security Act of 1974 (ERISA), the provisions of which are enforced by the Department of Labor. ERISA covers most retirement and welfare benefit plans. In addition to meeting ERISAs requirements, employee benefit plans must comply with numerous requirements set forth in the Internal Revenue Code in order to obtain favorable tax treatment. Employers are not required to offer employee benefit plans, nor need they include all of their employees in such plans. Abraham v. Exxon, 85 F.3d 1126 (5th Cir. 1996); Clark v. E.I. DuPont de Nemours & Co., Inc., 1997 U.S. App. 11

LEXIS 321 (4th Cir. 1997). However, exclusions must be specified in the governing plan document, and should be based on nondiscriminatory criteria, such as a specific job category or geographic location. Moreover, plans will lose their favorable tax status if they fail to meet certain standards imposed by the Internal Revenue Code to prohibit excessive discrimination in favor of highlycompensated employees. Misclassification of employees as non-employees, or vice versa, can have drastic effects on employers and their benefit plans. This is a particular danger given that ERISA provides a private cause of action as well as enforcement procedures by the Department of Labor. Moreover, improper classification can result in action by the IRS. Misclassification can result in several potential problems. First, exclusion of individuals who turn out to be employees can result in plan disqualification, especially if the failure to provide benefits to those individuals causes the plan to fail to meet nondiscrimination standards. Kenney v. Commissioner, 70 T.C.M. 614 (1995). In addition, inclusion (as employees) of individuals who turn out to be non-employees can also result in plan disqualification. Professional & Executive Leasing, Inc. v. Commissioner, 862 F.2d 751 (9th Cir. 1988). Finally, misclassification of true employees as non-employees can give those employees a right to sue the plan for retroactive benefits. Treatment of independent contractors with respect to employee benefit plans differs somewhat from treatment of leased employees. While plan sponsors need not provide benefits to either category, the Internal Revenue Code imposes special rules relating to certain statutorily defined leased employees. Internal Revenue Code 414(n)(2) defines a leased employee as: [A]ny person who is not an employee of the recipient [of the workers services] and who provides services to the recipient if (A) such services are provided pursuant to an agreement between the recipient and any other person (in this subsection referred to as the leasing organization), (B) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least 1 year, and 12

(C) such services are performed under primary direction and control by the recipient. This definition is significantly narrower than the definition employed by many companies when categorizing their workers. Moreover, it specifically excludes those individuals who, although they may be called leased employees, are actually common law employees of the recipient. See Burrey v. PG&E, 159 F.3d 388 (9th Cir. 1998); IRS Notice 84-11, 1984-2 C.B. 469, Q&A-1. Workers who fall within the definition of leased employee set forth in Internal Revenue Code 414(n)(2) must be counted as if they were employees when plans are testing for compliance with non-discrimination requirements. (However, there is an exception for pension plans if the leased employees are covered by a money purchase pension plan sponsored by the leasing company.) As a result, misclassification of employees as leased employees is less likely to result in retroactive non-discrimination testing requirements (and potential plan disqualification) than misclassification of employees as independent contractors. Whether or not misclassified employees are entitled to benefits under an ERISA plan will depend in large part on the plans definition of the employees who are eligible to participate in the plan. If a Plans eligibility provisions refer to employees, common law employees, or incorporate the IRC definition of leased employee, then misclassified employees will have a strong claim for benefits. See, Vizcaino v. Microsoft, 120 F.3d 1006 (9th Cir. 1997) (en banc), cert. denied 522 U.S. 1098 (1998), and Burrey v. PG&E, 159 F.3d 388 (9th Cir. 1998). In Wolf v. Coca-Cola Company, 200 F.3d 1337, 1342 (11th Cir. 2000), however, the plan specifically excluded temporary employees and leased employees who perform services for the company under an agreement with a leasing organization. Thus, the fact that the plaintiff leased employee also may have been a common law employee of Coca-Cola under the joint employer doctrine did not make her eligible for benefits. In the wake of the Vizcaino decision, some employers are amending their ERISA plans to limit participation to workers deemed to be employees by the employer, whether or not the excluded workers may later be determined to be common law employees by the IRS or the courts. Such eligibility provisions may prevent misclassified workers from seeking past due benefits, but do not protect the employer from action by the IRS. In addition, the misclassified employees may still have an ERISA claim under ERISA 510. In recent years there have been an increasing number of suits for benefits by individuals claiming to have been improperly classified as independent contractors or leased employees, or claiming that they have otherwise been 13

wrongfully excluded from employee benefit plans. The results of these cases have been divided, with the larger number in favor of the defendants, but with some of the more recent cases in favor of the plaintiffs. In addition, the Department of Labor has recently taken a pro-plaintiff position by filing its own suit on behalf of workers at Time Warner. See, Herman v. Time Warner, Inc., 56 F. Supp.2d 411 (S.D.N.Y. 1999) (denying defendants motion to dismiss). 1. There have been a number of cases with pro-defendant outcomes. These cases include: Martin v. Public Serv. Electric & Gas Co., 39 Employee Benefits Cas. (BNA) 1721, 2006 U.S. Dist. LEXIS 87480 (D. N.J. 2006) (finding that plan language excluded independent contractors and so plaintiffs were not participants and lacked standing); Moxley v Texaco, 2001 U.S. Dist. LEXIS 3930 (C.D. Cal. Feb. 15, 2001) (finding that plan language excluding leased employees is permitted under ERISA sec.202; following Casey, discussed infra); Wolf v. Coca-Cola Company, 200 F.3d 1337 (11th Cir. 2000) (plan permitted exclusion of leased employee who may have been a common law employee); Admistrative.Committee of the Time-Warner Inc. Benefit Plans v Biscardi, 2000 U.S. Dist. Lexis 16707 (S.D.N.Y. Nov. 20, 2000) (following Wolf and finding exclusion from benefits reasonable even if workers were employees); Montesano v. Xerox Corp. Retirement Income Guar. Plan, 117 F. Supp. 2d 147 (D. Conn. 2000) (following Wolf; permitting plan to exclude leased workers despite the fact that they qualified as common law employees); affd in part, vacated in part, 256 F.3d 86 (2d Cir. 2001); Casey v. Atlantic Richfield, 2000 U.S. Dist. LEXIS 6836 (March 29, 2000 C.D. Cal.) (plan permitted exclusion of putative class of leased employees who may have been common law employees. Decision leaves several interesting questions unanswered: (1) did SPDs conflict with plan documents; (2) was Benefits Eligibility Policy part of plan documents; and (3) did effective date of Benefits Eligibility Policy pre-date hire dates of class members.) revd 21 Fed. Appx. 727, 728 (9th Cir. 2001) (holding that the plaintiffs presented issues of material fact related to standing and that the 12(b)(6) dismissal was improper); Smith v. Torchmark Corp., 82 F. Supp. 2d 1006 (W.D. Mo. 1999) (granting summary judgment for defendant plan; finding that workers written 14

agreement that they were independent contractors precluded claim for benefits and citing Capital Cities, discussed infra); Bronk v. Mountain States Telephone & Telegraph, Inc., 140 F.3d 1335 (10th Cir. 1998) (ERISA does not prohibit exclusion of employees for reasons other than age and service); Capital Cities/ABC v. Ratcliff, 141 F.3d 1405 (10th Cir. 1998), cert. denied 525 U.S. 873 (1998) (plan not required to cover all employees, and plaintiffs had knowingly waived their right to benefits); Clark v. E.I. DuPont de Nemours & Co., Inc., 105 F.3d 646 (4th Cir. 1997) (exclusion of contingent workers does not violate ERISA); Abraham v. Exxon, 85 F.3d 1126 (5th Cir. 1996) (ERISA does not prohibit exclusion of leased employee from plan); Trombetta v. Cragin Federal Bank for Savings Employee Stock Ownership Plan, 102 F.3d 1435 (7th Cir. 1996) (plans not required to cover all employees); Roth v. American Hospital Supply Corp., 965 F.2d 862 (10th Cir. 1992) (loaned employee who negotiated the terms of his employment was not entitled to benefits); Laniok v. Brainerd Manufacturing Co. Pension Plan Advisory Committee, 935 F.2d 1360 (2d Cir. 1991) (waiver of participation in plan was enforceable); Boren v. Southwestern Bell Telephone Co., Inc., 933 F.2d 891 (10th Cir. 1991) (plaintiff had agreed that would not be covered by plan). 2. There have also been a number of cases with pro-plaintiff outcomes. These cases include: Yak v. Bank Brussels Lambert, 252 F.3d 127 (2d Cir. 2001) (workers contract agreeing that was independent contractor was not dispositive; remanding to district court for determination of employment status); Burrey v. PG&E, 159 F.3d 388 (9th Cir. 1998) (plan which excluded leased employees as defined by Internal Revenue Code Section 414(n) did not exclude common law employees because that Code section defines leased employees as other than common law employees);

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Vizcaino v. Microsoft, 120 F.3d 1006 (9th Cir. 1997) (en banc), cert. denied 522 U.S. 1098 (1998) (contingent workers were entitled to participate in stock purchase plan; claim for 401(k) benefits remanded to plan administrator); Epright v. Environmental Resources Management, Inc. Health and Welfare Plan, 81 F.3d 335 (3d Cir. 1996) (construing ambiguous eligibility provision in favor of plaintiff); Daughtrey v. Honeywell, Inc., 3 F.3d 1488 (11th Cir. 1993) (agreement stating that plaintiff was independent contractor not controlling); Renda v. Meldrum & Anderson Co., 806 F. Supp. 1071 (W.D.N.Y. 1992) (ERISA prohibits exclusion of employees for reasons other than age and service case not followed by other courts); Holt v. Winpisinger, 811 F.2d 1532 (D.C.Cir. 1987) (plaintiff found to be employee during first year of service instead of independent contractor despite written contract describing her as contractor); Short v. Central States, Southeast & Southwest Areas Pension Fund, 729 F.2d 567 (8th Cir. 1984) (finding that application of common law employment test favored plaintiffs). In addition to claims for retroactive benefits, companies face potential liability when they lay off employees and convert them to independent contractors or leased employees. If it can be shown that the motivation of the company was to deprive the workers of their entitlement to benefits, the company might be subject to liability under ERISA 510. See Gitlitz v. Compagnie Air France, 129 F.3d 554 (11th Cir. 1997); Seaman v. Arvida Realty Sales, 985 F.2d 543 (11th Cir. 1993); Burditt v. Kerr-McGee Chemical Corp., 982 F. Supp. 404 (N.D.Miss. 1997). See also, Inter-Modal Rail Emp. Assn v. Atchison, Topeka & Santa Fe Railway Co., 520 U.S. 510 (1997) (discussing the scope of ERISA 510). Not all employee benefits are governed by ERISA. For example, many companies offer employees the chance to participate in qualified stock plans. Misclassified employees may seek retroactive benefits under these plans as well. See Vizcaino v. Microsoft, 120 F.3d 1006 (9th Cir. 1997) (en banc), cert. denied 522 U.S. 1098 (1998).

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