Uber recently settled—for US$100 million—two class-action cases involving some of its drivers, and one of the issue points in the litigation was whether Uber drivers are independent contractors or employees under relevant US law. The contractor/employee distinction is a huge issue in the US, and it has flow-through effects on tax withholding, health insurance, employee rights, collective bargaining, employee eligibility for employment under US immigration laws, etc. It is one area where the US Department of Labor is focusing its compliance efforts. In the Uber case, the distinction was important because if an Uber driver were an employee, he or she could be entitled to minimum wage, certain benefits, and Uber’s ‘no tip’ and termination policies might be inapplicable. Those concerns do not exist for independent contractors, both generally and in the Uber case.
So, what does this mean for Irish and Northern Irish companies operating in the US? Bottom line: Be sure you’re correctly identifying someone as an employee or as an independent contractor.
I’ve seen a lot of non-US companies (so it’s not just an Irish/NI thing) expand to the US using people that they deem as ‘independent contractors.’ An agent or representative, for example. The thinking is that using boilerplate independent contractor language in an agreement is enough. Nope. As to this question, the Labor Department looks to the substance of a relationship, not just the paper—it’s a lot of factors. The Department could cause someone to be reclassified from ‘independent contractor’ to employee, and then the employer (as reclassified) could be responsible for back taxes, unpaid minimum wage claims, etc. And if a non-US company has an employee in the US, the question arises as to whether that company has a taxable ‘permanent establishment’ in the US and/or has so-called branch profits tax liability. That’s a lot of unwinding to do—and a lot of cost—on something that could be avoided in the first instance by spending the time/effort to determine if your ‘US person’ is an employee or independent contractor.