–by Jewell Lim Esposito, Esq.
Timeshare companies, hotels that sell fractional ownership, their resorts, and their owners must be quaking…
April 2011. We already know that timeshare and hotel companies that think their sales force is made up of independent contractors and not employees have exposure, as the April 2011 case of Whitehead et al v. Kalins (August term 2008, No. 03764) (Court of Common Pleas of Philadelphia County, PA) demonstrated. In that case, the IRS and a Pennsylvania court each concluded that timeshare sales people are indeed employees of Split Rock Resorts (owned and operated by W. Jack Kalins, DBA Vacation Charters, Ltd.): Timeshare Employee Determination.pdf . Class plaintiffs sued the timeshare company and won over $2.2 million in wages, benefits, penalties, and interest for the employees.
September 2011. Since then, though, the IRS has been independently scrutinizing the employ/independent contractor issue — and just began to offer in late September 2011 a generous settlement program to encourage timeshare operations and the like that have hesitated in the past on the classification issue to pay a meager penalty but then agree prospectively to classify as “employees” workers whom they improperly had classified as “independent contractors.” See “Gambling on the Employee/Independent Contractor Issue” about the IRS’s new program at 2011 Voluntary Amnesty Employee Classification.pdf.
September 2011. On the heels of that, we have the Department of Labor and 11 state governments (Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah, and Washington) announcing in the same September 2011 week that they are working together to fight improper classification of workers, including resort sales people, as “independent contractors.”
October 2011. And now, California — which is NOT a state listed above — has enacted October 2011 legislation effective beginning 2012 that imposes as high as a $25,000 per violation penalty for companies that willfully misclassify “employees” as “independent contractors.” See CA Penalties.pdf. Imagine. Penalties to the state of California, on top of wage-and-hour liability, federal/state employment taxes, Medicare, unemployment insurance, workers compensation, and coverage under employee benefit plans (health/401(k)/stock option).
Surely plaintiffs’ lawyers for those “independent contractors” are salivating!
Jewell Lim Esposito is a Partner at the law firm of Constangy, Brooks & Smith, whose attorneys have counseled employers since 1946. She is admitted in DC, NY, and PA and can be reached Direct: 571.522.6108 Direct Fax: 571.281.2856
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