Most companies that use independent contractors are aware that the legal definition of "independent contractor" basically means that the independent contractor is self-employed and not under the control and direction of the company. It is very important for a company to have the proper legal relationship with the independent contractors. The company might be audited by the IRS, Illinois Department of Employment Security (IDES), workers’ compensation insurance carrier, etc., and be liable for hefty taxes, penalties, payments, etc. (if the auditor reclassifies the independent contractors to employee status).
Most companies try to be careful about the written documents (such as independent contractor agreements, independent contractor orientation materials, IRS Forms 1099, etc.) that the company uses in order to do business with the independent contractor. However, there is a NEW DANGER AREA that could easily threaten the independent contractor relationship – the company’s web site!
Recently, a client of our law firm who uses many highly compensated independent contractors was audited by the IRS on the issue of the independent contractor status of these workers. These workers have many strong indicia of independent contractor status: business cards in their own business name, heavy business expenses that they pay for themselves, their own business offices, and well respected business reputations of their own. Some of these independent contractors are even incorporated. But the IRS auditor, without the knowledge of the company, took it upon himself to check out the company’s web site. The company never told the IRS auditor that it had a web site, but the IRS auditor was enterprising enough to locate it for himself. Sure enough, he discovered a rather elaborate web site (with much information on it in order to attract customers).
The company never once thought about the information on its web site affecting its independent contractor relationship with its owner-operators. The company only thought about impressing potential customers with its web site. Unfortunately, what the IRS auditor saw when he looked at the company’s Web Site was information reassuring potential customers that the company took special pains to oversee the services of the independent contractors in order to ensure the highest quality performance. There were many phrases in the web site that led the IRS auditor to firmly believe that the company exercised the kind of control and direction over the independent contractors such as an employer would exercise over an employee.
This IRS case has not been resolved yet, and, hopefully, the company will ultimately prevail on the independent contractor issue. But, in the meanwhile, we have to deal with a highly motivated IRS auditor who is completely convinced, due to the unfortunate wording of the company’s web site, that these independent contractors are misclassified.
MORAL OF THE STORY… Check your web site carefully if you use independent contractors. Make sure that your web site shouts to the world that your independent contractors are not your employees in any way. It would be best for a qualified legal professional experienced in the issue of independent contractor status to carefully review your web site and make sure that, in your enthusiasm to advertise your services to prospective customers, you are not undermining your independent contractor relationship.
This story originally appeared in the July 2000 Keep On Truckin' News, the publication of the Mid-West Truckers Association. It is reprinted here with permission both of the publication and Nancy E. Joerg.
Nancy E. Joerg is a senior attorney and shareholder at Wessels & Pautsch, P.C., a labor and employment law firm concentrating exclusively in the representation of management. Wessels & Pautsch, P.C. maintains offices in St. Charles and Chicago, Ill.; Milwaukee, Wis.; Davenport, Iowa; and Minneapolis. Ms. Joerg can be reached at the St. Charles, Ill., office at (630) 377-1554.
Ms. Joerg writes and speaks nationally on the subject of independent contractor status, particularly in the trucking industry. She is the author of "Welcome to the World of Independent Contractors and Other Contingent Workers," Commerce Clearing House.
Ms. Joerg defends trucking companies before the IRS and various state agencies (including the Illinois Department of Employment Security) on the issue of independent contractor status and other issues of employment law. She also reviews and drafts IDES owner-operator leases.