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In <a href="http://www.elliottgreenleaf.com/documents/Final%20Judgment%20Order.PDF">White&shy;head v. Va&shy;ca&shy;tion Char&shy;ters, Ltd.</a>, a class ac&shy;tion judg&shy;ment in ex&shy;cess of $2.2 mil&shy;lion was en&shy;tered against the owner/op&shy;er&shy;a&shy;tor of&nbsp;a Poconos time&shy;share re&shy;sort for mis&shy;clas&shy;si&shy;fy&shy;ing&nbsp;sales em&shy;ploy&shy;ees as in&shy;de&shy;pen&shy;dent con&shy;trac&shy;tors dur&shy;ing a three-year pe&shy;riod.
The Court of Com&shy;mon Pleas of Philadel&shy;phia County held that Va&shy;ca&shy;tion Char&shy;ters and its own&shy;ers were jointly and sev&shy;er&shy;ally li&shy;able for de&shy;priv&shy;ing 259 class plain&shy;tiffs of their law&shy;ful wages and ben&shy;e&shy;fits un&shy;der Penn&shy;syl&shy;va&shy;nia&rsquo;s Wage Pay&shy;ment and Col&shy;lec&shy;tion Law.&nbsp; The court found that the de&shy;fen&shy;dants re&shy;quired their time&shy;share sales&shy;per&shy;sons to sign non-ne&shy;go&shy;tiable in&shy;de&shy;pen&shy;dent con&shy;trac&shy;tor agree&shy;ments in mid-2005.&nbsp; Ac&shy;cord&shy;ing to the court&rsquo;s find&shy;ings of fact and con&shy;clu&shy;sions of law, while the form con&shy;tracts stated that the sales&shy;per&shy;sons were not &ldquo;em&shy;ploy&shy;ees&rdquo; for fed&shy;eral, state or lo&shy;cal state pur&shy;poses,&nbsp;the de&shy;fen&shy;dants con&shy;tin&shy;ued to con&shy;trol all as&shy;pects of the sales staff&rsquo;s work sched&shy;ules, dress codes, mar&shy;ket&shy;ing pro&shy;to&shy;cols and day-to-day ser&shy;vices.&nbsp;
As to com&shy;mis&shy;sions/wages, the con&shy;tracts&nbsp;al&shy;lowed the de&shy;fen&shy;dants to hold back from each sales&shy;per&shy;son&rsquo;s wages and com&shy;mis&shy;sions up to 10% for any sale fi&shy;nanced on a de&shy;ferred pay&shy;ment ba&shy;sis.&nbsp; The hold back was "charged back when a cus&shy;tomer de&shy;faulted on his ac&shy;count by hav&shy;ing made less than four monthly pay&shy;ments."&nbsp; Op&shy;er&shy;a&shy;tionally, the hold back&nbsp;funds were not seg&shy;re&shy;gated, but held, with&shy;out in&shy;ter&shy;est,&nbsp;in a gen&shy;eral ac&shy;count where they&nbsp;could be spent on&nbsp;re&shy;sort ex&shy;penses.&nbsp; In ad&shy;di&shy;tion, the hold back would be in&shy;creased to 50% when the pur&shy;chaser had a low credit score and no wages/com&shy;mis&shy;sions would be earned un&shy;til the pur&shy;chaser paid 10% of the con&shy;tract price -&nbsp;poli&shy;cies that were not&nbsp;dis&shy;closed in the in&shy;de&shy;pen&shy;dent con&shy;trac&shy;tor agree&shy;ment.&nbsp;
The class ac&shy;tion was filed af&shy;ter the In&shy;ter&shy;nal Rev&shy;enue Ser&shy;vice and Penn&shy;syl&shy;va&shy;nia&rsquo;s De&shy;part&shy;ment of La&shy;bor and In&shy;dus&shy;try in&shy;ves&shy;ti&shy;gated a for&shy;mer sales&shy;per&shy;son&rsquo;s claims that he had not re&shy;ceived hold&shy;back funds.&nbsp; These agen&shy;cies found that the&nbsp;sales&shy;per&shy;son&nbsp;was an em&shy;ployee en&shy;ti&shy;tled to un&shy;em&shy;ploy&shy;ment com&shy;pen&shy;sa&shy;tion.&nbsp; As the court pointed out, de&shy;fen&shy;dants &ldquo;likely owe FICA, Medicare and FUTA to the In&shy;ter&shy;nal Rev&shy;enue Ser&shy;vice on be&shy;half of the class mem&shy;bers.&rdquo;&nbsp;
All of this means that the de&shy;fen&shy;dants are likely still on shift&shy;ing ground when it comes to as&shy;sess&shy;ing the to&shy;tal li&shy;a&shy;bil&shy;ity it may be fac&shy;ing.&nbsp; Its case il&shy;lus&shy;trates that at&shy;tempts to limit ex&shy;penses&nbsp;by re-clas&shy;si&shy;fy&shy;ing em&shy;ploy&shy;ees as in&shy;de&shy;pen&shy;dent con&shy;trac&shy;tors can of&shy;ten back&shy;fire in a big way when even one for&shy;mer em&shy;ployee at&shy;tempts to re&shy;cover un&shy;em&shy;ploy&shy;ment ben&shy;e&shy;fits.
The Bottom Line:&nbsp; Misclassifying sales employees as independent contractors can put employers between a proverbial rock and a hard place.
Please see Baker Hostetler's <a href="http://www.hospitalitylawg.com/">Hospitality Lawg </a>for a related post on the Whitehead case.

Resort Industry Finds No Refuge From Liability for Misclassification of Salespersons