CWS 3.0: September 28, 2011 - Vol. 3.26

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Legal Eagle: No Retroactive Benefits for Misclassified ICs

A New Jersey court ruled last month that two information technology company workers who were reclassified as employees were not entitled to benefits for the time they worked as independent contractors.

Dorothy Kalksma and Barbara Beucler worked for Konica Minolta Business Solutions USA Inc. as independent contractors for several years before being reclassified as regular employees after an IRS audit. In their complaint, Kalksma v. Konica Minolta Business Solutions USA Inc., the workers argued that the company had previously misclassified them as independent contractors to deny them benefits under its 401(k) plan and a cafeteria plan.

Both plans stated that individuals who are treated as independent contractors and whose wages are not withheld by KMBS are ineligible for benefits, even if they are later determined to be employees. The New Jersey District Court found that under the plain language of the company's two plans, the classification of the workers as independent contractors rendered them ineligible for benefits when they worked under that status, even if they were later found to be misclassified.

The workers also claimed they were retaliated against under ERISA because once they were hired as regular employees, their hourly rates as employees were lower than they were as independent contractors and some of their responsibilities changed. The court dismissed that claim because the workers were never eligible for any ERISA plan.

This case emphasizes the importance of making sure that benefit plans clearly lay out the criteria for eligibility and ineligibility for plan participation, especially regarding retroactive employee status designations. In this case, the plan wording was clear and KMBS was not required to pay for retroactive benefits to the workers. However, other companies whose benefits plans were not clear or did not specifically exclude ICs from coverage — Microsoft Corp., for example — have had to pay large sums to their independent contractors following similar lawsuits.

If you have questions about your current plans or about crafting benefit plans that clearly articulate the requirements for eligibility, consult counsel.

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