In early June, 2014 several franchisees launched a lawsuit against home care franchisor Griswold International LLC, claiming the company bilked them out of more than $3 million in franchise start-up fees by promising a unique independent contractor model for home caregivers that was plainly illegal in many states.  According to the group of franchisees who are the plaintiffs in the suit, Griswold promoted its business model as being free of employment taxes and other tax withholdings because it used a unique and time-tested independent contractor model, but in reality, the company knew the IRS and state tax authorities were cracking down on the practice.

The franchisees sued Griswold for fraud, negligent misrepresentation, fraudulent concealment that violated the California Franchise Investment Law, and breach of contract, and they asked for the court to reverse the franchise contracts and award them $3 million in actual damages and $5 million in punitive damages.

The case is Mark Andersen, et al. v. Griswold International LLC, et al., case number 3:14-cv-02560, before the U.S. District Court for the Northern District of California.

Plaintiff:  Thelen Enterprise, Inc., James Thelen, Ledgewood Enterprises Inc., Dwayne Redmon, Charlayne Redmon, The KPeters Group, Kerry Peters, Ken Peters, Michael McKaig, South Bay Care, LLC, Wade Luders, CSAB Management, Inc., CS Family Ventures Inc., Christopher Jenkins, Gigi Howland, Barry Howland, Hinders Home Care Inc., Dave Hinders, M & E Family Care, LLC, Michael Geisler, James Carlson LLC, Marilyn N. Roach-Carlson, James J. Carlson, MHA Family Holdings, Inc., Holly Anderson and Mark Andersen

Defendant: Griswold International, LLC, Graham Weihmiller, Thomas Monaghan, Diane Walker, Patrick Spaan, Greg Bast and Michael Magid.

Home care companies in California should be aware that misclassification of workers now faces enhanced enforcement efforts by federal and state agencies and increased penalties under California law.  Since December 21, 2011 the US Dept. of Labor’s Wage and Hour Division and the California Labor and Workforce Development Agency have agreed through a formal Memorandum of Understanding to join forces to reduce the practice of misclassification.

Also, the implementation of the Affordable Care Act is causing the IRS and other government agencies to explore companies classifying workers as independent contractors to get around the requirements of Obamacare.

“In California, classification of workers as independent contractors or employees ultimately comes down to the degree of control exerted by the employer over the worker—the more control that an employer exerts, the more likely the worker is an employee,” says Leonard Emma of the law firm of Randall Crane. So the more you are told what to do and how to do it, the more you resemble an employee. Emma also points out that a signed contract stating that the worker is an independent contractor does not determine the matter; “Courts look beyond the contract to the actual conduct of the parties.”

In addition to “control,” California Courts consider other factors in determining whether a worker is properly classified as an employee or independent contractor. The following factors, among others, suggest that you are an employee and not an independent contractor:

1. You perform work that comprises the core business of the employer and is not a distinct occupation or business from that of the employer. “For example, if you are a cab driver working at a taxi company, then your occupation is not distinct from that of the employer and actually comprises the core business of the employer. That suggests an employment relationship,” says Emma.

2. The employer supplies the instruments, tools and the place for you. “If you work from the employer’s office and make use of the employer’s computers, machinery and infrastructure, then you are more likely to be an employee,” explains Emma.

3. You are not permitted to subcontract or hire employees of your own to complete the work. “If you are not permitted to outsource your work to others or employ helpers, then you may not be truly independent and may actually be an employee,” notes Emma. “Similarly, if you have no opportunity to profit from effective management of your business, then you may not truly be operating an independent business and may actually be an employee.”

4. You perform the same work as employees. “If you find yourself doing the same work as employees and reporting to the same managers as employees, then you are probably also an employee.”

5. You work at-will, on a full-time basis, for an extended period of time. “Independent contractors are typically engaged by employers on a project-basis or for a limited period of time specified by contract. If you have been working full-time for months or years without any specified termination date, then you resemble an employee and may be misclassified.”

6. You are paid the same amount on a regular interval without submitting invoices. Emma says that “Independent contractors typically bid on projects or specify an hourly rate and then submit invoices to the employer. Employees, on the other hand, simply show up to work and are paid for their time on a weekly or bi-weekly basis. If you are routinely paid the same amount without having to submit invoices and regardless of the project or work your are performing, then you are more likely to be an employee.”

7. You work exclusively for one employer on a full-time basis. Emma explains that “Independent businesses typically provide services to multiple customers and clients at any given time. If you work exclusively for one employer on a full-time basis, this fact suggests an employment relationship.”

If you read these seven statements, what would you conclude regarding home caregivers as employees or independent contractors?

What are you seeing in your state with regard to the ongoing issue of employer versus registry model in private duty home care?