By: Robert D. Martin, Esq.
The Tennessee Court of Appeals held that a Knoxville dog grooming service owed five years-worth of unpaid unemployment taxes for groomers that it treated as independent contractors, when those groomers were actually employees.
Many employers believe that if they issue workers 1099s instead of W-2s, then those workers are independent contractors. This misconception can end up being very costly for employers, as it was in Concord Enterprises of Knoxville v. Department of Labor and Workforce Development. In that case, Concord was “in the business of grooming dogs.” Their groomers each determined their own prices for services on a case-by-case basis and could work at any location they wanted, although all of their services ended up actually being performed at Concord’s place of business. The groomers were paid a 50% commission by Concord each week. Customers called Concord to set appointments, but the customers could request a particular groomer.
Tennessee’s unemployment statute provides that all workers are employees unless three distinct factors are met: (A) the worker has been and will continue to be free from control and direction of the company in connection with the performance of their service; (B) the service is performed either outside the company’s usual course of business or outside of all the company’s places of business; and (C) the worker is customarily engaged in an independently established trade, profession or business. Tenn. Code Ann. § 50-7-207(e) (paraphrased). All three factors of this so-called “ABC Test” must be met in order for workers to be classified as independent contractors for purposes of unemployment taxes and eligibility.
The Court determined that Concord failed to satisfy the B prong of the test, since Concord was admittedly “in the business of grooming dogs” which was precisely the work being done by the groomers at issue. Additionally, all of the Groomers’ work occurred at Concord’s place of business. As a result of this misclassification, Concord was forced to pay back-unemployment taxes for the years 2006-2011.
This case serves as a warning that the cost of misclassifying workers can be steep. If you own or operate a business and are worried that you might be classifying your workers incorrectly, contact Meridian Law for help.