Global Retail: Classifying workers as employees vs. independent contractors

Retail multinationals face numerous challenges while trying to stay compliant. For example, a large multinational fashion company asked us to advise them after they experienced new and unexpected challenges each time they opened a store in a new country. They reported to us that they received a fine within one week after opening a store in Portugal for failure to report to the employment authorities; were confronted with strict rules in France regarding the hiring of disabled employees in the store; and had to train employees in the United Kingdom to recognize discrimination on the work floor. 
 
Every country presents unique compliance concerns such as these. Being compliant with working time regulations can be particularly challenging for many employers. In addition, choosing the right type of temporary contract, and dealing with overtime and holiday regulations can be burdensome for retailers. Another potential compliance challenge for retailers is observing the health and safety rules in different countries. Employees more and more work alone in stores. Also retail companies in some countries must provide specific facilities in stores for disabled and pregnant employees.
 
But the legal issue that most frequently keeps retail employers awake at night is the classification of workers as employees vs. independent contractors. I will try to shed some light on this below. 
 
As in many other industries, retail companies face shifting attitudes in how workers view their relationship with employers. The new, more on-demand economic model aims to bridge this gap, giving workers flexibility to choose when to work and connecting employers with available skilled labor when they need it most. This model meets the needs of both workers and employers. But a more flexible workforce is not without challenges and each continent, region and country deals with this issue differently. 
 
Recent legal challenges highlight potential conflicts between the requirements for flexibility in the economy and existing legal structures. Misclassifying workers is a major issue for the retail industry, and can result in significant costs to a company. So, what are the key issues for determining whether a store is hiring employees or engaging independent contractors?
 
Independent contractor or employee? 
The number and type of IC workers are rising, and so are the discussions surrounding this development. In general, control is the most important factor in IC classification. The more control the employer exercises or reserves the right to exercise, over the worker’s means and methods of work, the more likely it is that the worker will be considered an employee. Numerous other factors also are important in evaluating IC status.
 
Globally speaking, courts use some, or all, of the following factors to analyze the economic reality of the parties’ relationship: 
 
• Who has the right to control the work? If the company can tell the worker how, when and where to perform the work, the worker is likely an employee. The company’s level of supervision or requirement that the worker report to a supervisor also is considered. 
 
• Is the work an integral part of business operations? If the worker’s services form an integral part of the company’s business, the worker more likely is an employee. 
 
• Did the worker make an investment in the business? If the worker has invested in the worker’s own equipment, supplies, facilities, or training, the worker is more likely an independent contractor. Generally, courts will compare the worker’s investment with the company’s investment. 
 
• Is there an opportunity for profit or loss? Is the worker’s opportunity for profit or loss determined by the company, or the worker’s own managerial skill? For example, if the worker can make a profit by being more efficient or hiring helpers, the worker likely is an independent contractor. On the other hand, if the worker can increase earnings only by working more, is the worker likely is an employee. 
 
• Does the work require specialized skill? This factor is often dependent on the industry and the company’s business. Employees often are highly skilled, depending on the nature of the work or the industry, but in general, it is more likely that a worker can be correctly classified as an IC if the worker possess a unique or developed skill.
 
• Lastly a new factor that seems to be gaining momentum with government agencies and courts is whether the work involves low-paid activities.  Lower paid workers tend to be considered employees, perhaps not because they fail to otherwise meet the standard for IC’s, but because trade unions and some legislators aggressively claim they should be employees.
 
These key points may provide some guidance for the retail employer. Many companies have tools and procedures to help them address the IC classification challenge.  Despite the good faith efforts of many companies to address this issue, my prediction is that the issue will remain on the agenda for the foreseeable future.
 

Stephan Swinkels, shareholder, Littler Mendelson | Littler Global, the largest global employment and labor law practice devoted exclusively to representing management.

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