Episode Transcript
Speaker 1 00:00:12 Welcome to the quick getting spruiked podcast, where we talk about everything related to contractors, construction and information to help you run better businesses.
Speaker 1 00:00:24 Hey guys, this is Carolyn chroming and welcome to the quick getting screwed podcast, where we talk about all the things to stop your company from getting screwed in the construction industry. And today we have a big one, a big one that most people don't realize how dangerous the situation is. And what we're talking about is employees versus subcontractors and what can happen if you classify them the wrong way. And the first thing I can tell you before we dive into this conversation is that it doesn't matter what you call them. It matters what the law calls them. And so today we have an expert on this topic, but it helps our clients, all their employment issues. And hopefully before they get sued in federal court or employment issues, as you know, our, our plan to help you, we have Ms. Kelly Stamey, who is our resident expert on employment log and morning with Kelly. How are you?
Speaker 2 00:01:15 Good morning. I'm doing well. Thanks for having me
Speaker 1 00:01:18 All. Thank you for being here, sharing your expertise because you know, I know some things, but I know you knew a lot more, so we're kind of ready to dive in, but before we dive into the subject matter, why don't you tell everybody a little bit about yourself, how you got here, where you started from all the good stuff?
Speaker 2 00:01:33 Sure. I am a born and raised Houstonian diehard. All of those Houston sports teams, um, really love this city and the people who work in live here. And so I went to school here, college here, and then law school here in downtown Houston. Um, I graduated law school in 2015, and then I started working at, uh, a small employment law firm that just specialized in all things, employment, uh, both sides of the spectrum. So I do know the arguments that, you know, a plaintiff will make or an individual make and you know how it goes both ways. So I worked there for about three and a half years, and so that's kind of where my knowledge base came from. And then I joined the chromium law firm in early 2019.
Speaker 1 00:02:17 Cool. So when you were in employment, law did for you in court much, what kind of was the practice there and like, what was your favorite case that you remember?
Speaker 2 00:02:27 It's a unique case. It's a one, a lot of people, their ears perk up when I say it, but I represented about 20 strippers in a wage and overtime lawsuit. You know, I wasn't court just as much as, you know, every litigation, this one happened to be an arbitration. Um, and employment arbitrations have some very different rules than a construction, uh, governed arbitration, I guess. But, you know, we had, uh, a stripper call her office and said that she was fired unfairly. And we have a script in our, in our old office where we would ask every person who called, how were you paid? How many hours did you work? Cause we would try to sniff these cases out. And she, we found out that she was only paid tips and our senior associate at the time did a quick Google search and found that across the country and every federal circuit and almost every state, they were deemed to be employees owed minimum wage and overtime. And you know, some of these girls were working 70 hours in a workweek and it was a huge overtime, uh, amount that could be gathered there. But that first hurdle was establishing that they were employees and not independent contractors. And so through that fight is how I learned the most about these issues.
Speaker 1 00:03:45 So who determines what an employee is and what a sub contractor is, who makes that determination
Speaker 2 00:03:53 The court system or the government? Um, it is a test that kind of varies as you move across the nation, but the results typically become the same. Um, and I'm going to kind of preface with what we're talking about today with this idea that there are two sets of law you have to be worried about in every state that you're in, that state's particular laws and in the federal law. So when I talk about today, um, I'm talking about this federal level law. Um, fortunately if you are in the state of Texas, Texas does not have separate wage and hour laws. Everything we do here in the state of Texas matches, uh, with the federal laws, there are some states, New York, um, California, Minnesota, I believe just some off the top of my head that have a different test that is applied to your workers to determine which side of the spectrum they're gonna fall on. Um, so in the fifth circuit, which covers Texas, Louisiana, and Mississippi, there are five factors. Um, I'll run through them real fast it's degree of control, permanency of relationship skills and initiative, extensive investment and ability to control profit and loss and courts like to pretend that all five matter. But the reality is that first one, that degree of control is the most important thing. So how much control do you have over this worker is really, what's going to determine if they're eligible for minimum wage and overtime.
Speaker 1 00:05:23 So what does that mean in plain English control? I mean, what factors do we look at? What are the facts that we look at to determine that?
Speaker 2 00:05:31 Right. So, um, is, are you telling them when to show up, do they have a set work schedule with you? Um, are they working for only you or are they allowed to just pick up a shift on Tuesday and they work for someone else Wednesday, Thursday, Friday, uh, do they have to wear your uniform? Do they have to wear a company shirt? Um, are you providing them with all of the, let's say you're on a big construction job. Are you providing them with the hard hat with the boots, with the safety goggles or do they have to bring all of that themselves? Um, did you train them or are they coming to you? Do you need them just as much as they need you? That's a great way to think about it because let's say I know how to do a lot of things to fix my house, but I do not know how to do electrician work.
Speaker 2 00:06:20 So I need someone who can not, who has to fill that void for me in this project. But yet if I have an electrician company on the other hand and I am just pulling in guys that I help them get licensed, they work for me every day. I tell them which job to go to. Um, I tell them how to do their work, how fast to do their work, um, that sort of thing. They're not buying materials on their own. That's a, that's a bigger control piece. That's going to kind of lean you over towards employee. And the problem here is I can't really give you, oh, this category is always employee or this category is always an independent contractor because it's very fact intensive, which is, which is where a lot of the danger comes in. Um, so
Speaker 1 00:07:03 If somebody came to you and said, here, here's what my people do and here's their responsibility. You could tell them whether under the law, most likely they would be an employee or a subcontractor.
Speaker 2 00:07:14 Correct. And so just to, just to throw this out there, just for some knowledge for people, um, I think we've got, gotta be careful with a terms use. Cause I think there's, there's actually really, especially in the construction field, we have three categories. We have employees, we have independent contractors, which is an individual and then we have sub contractors. And so if you're, if you're engaged in a subcontractor relationship with a contract and there's payment terms in there, then that's, that's really, what's going to govern. But where we start getting sticky is when we have an individual doing business as kind of a company name. And it's like, Ooh, am I dealing with the individual? Or am I dealing with a company? If they're representing themselves to be a company they're going to scooch over into that subcontractor bucket. And we're going to be less worried about how you're paying them, versus if they're just a straight employee coming to you only using their name. Now we have to do kind of a bigger analysis here of how you should pay them.
Speaker 1 00:08:12 But still the big thing is the level of control. The more control you have, the more likely they are to be an employee. And if someone is an employee, then you need to pay them overtime and withhold taxes. Correct? That is correct. And so the big danger in misclassifying is first, do you owe overtime? Right? Because you try to get out of bore a true sub-contractor. They have a contract amount and it doesn't matter how many hours they worked, but for somebody who actually an employee, um, who you have control over, regardless of how you think they should be paid, if they're working overtime, you need to pay them overtime, right?
Speaker 2 00:08:51 And regardless of what that worker or individual chose, and especially in Texas, you can pretty much make a contract for almost anything. As we know, our subcontractor clients have seen that is feels unfair, but it's still a legal contract clause, but this is totally different. And not even if I wanted with all of my heart to be an independent contractor, to be a 10 99, I would give up my overtime rights. I'm fine with that. The courts and the law have said, no good can't pass, go do not collect your $200. You know, you have to be paid overtime. You don't have a choice. And so
Speaker 1 00:09:26 You can't wait, correct. It doesn't, it doesn't matter what you sign or what you say that if they have control, you really are an employee. Regardless. If you want to give them a 10 99, um, then you have to pay them overtime. And so I guess, what is the danger of class and find somebody as an independent contractor or subcontractor when they're actually in a,
Speaker 2 00:09:46 Well, that is a great question. And the it's because the damages are going to be huge. So if we look at, if it was just one individual, what that individual could be entitled to is every cent,
Speaker 1 00:09:59 Okay, hang on, let me stop you there. So, so here's the thing. If you misclassify them and they call an attorney and they figured out you're going to owe them the overtime that they didn't pay. Right?
Speaker 2 00:10:10 Correct. And it could be even more than that, because if you paid someone straight, hourly rate and they weren't getting paid overtime for hours over 40, you owe the overtime. However, you have dangerous. If you pay your worker a day rate, the law considers that day rate only for eight hours in that day. And because of math calculations, what that does is then it shoots up what the regular hourly rate is going to be, and then shoots up the overtime. And now the damages just start to sky rocket, depending on what payment scheme you had for this person that was misclassified. So it could be even more than just this halftime overtime rate, you fail to pay them. Yeah.
Speaker 1 00:10:49 So the, the main thing is, is that if you classify somebody incorrectly and they go, and they're working for you for a number of years, um, they can go back for that whole time period and seek the overtime that you should have been paying them. What, what does that mean?
Speaker 2 00:11:05 Yeah, so they definitely get two years, no question from, or from the date. And it's measured from the date, they filed the lawsuit. So if they wait and wait and wait and wait. And in those last two years from the day they filed their lawsuit, they never worked from you. You're fine. Um, so it's measured from the date the lawsuit is filed. Um, and if you have been penalized for this before it, they find out that you just disregarded attorney's advice to pay correctly, uh, that you did research and just ignored it. If any of those facts start to come out, we can extend back to that third year. Um, and so now you're looking to the last three years,
Speaker 1 00:11:42 If it was done intentionally, basically they could add
Speaker 2 00:11:45 On it's called willful. Um, it's the willfulness and you've just kind of been like, I know what I should do, and I'm refusing to do it. And, and that's something that, again, for, as a, if you're defending against one of these, it becomes expensive to fight against that. Right? Cause now you've got to prove there's a presumption that we can go back that third year and it's going to be on this employer now to prove I just didn't know any better. And so that, to kind of in what happens in settlement is, you know, sometimes we end up splitting the difference and looking back two and a half years, um, to avoid that fight, you know, what's the more expensive route. What's the least expensive route. And, um, at the end of the day, you're paying previous employees and your attorney and it just can get very,
Speaker 1 00:12:32 And so that you bring up an interesting point. Once one employee files this overtime claim against you, is that it is that just that one employee what happens in the court system.
Speaker 2 00:12:43 So, um, it's called a collective action. It's different than the class actions you see on TV. And that could advertise for, you know, possible cancer exposure and stuff. Um, but notice will go out to every employee or wrongfully classified, independent contractor that does the same or similar job of this person that kicked it all off the first plaintiff. And they have an option to join in and band together. And you go from one person to now being allowed to send notice out to 40, 50, 60, however many people. And then they can opt in within the next 60 days. And now you're fighting. However many people have chosen to join.
Speaker 1 00:13:28 So wait, it goes from one employee to the fact that now I have to open all my books and records for how many, how many years back for all the people I'm employed in that same range, how many years, three years
Speaker 2 00:13:39 They, the courts will automatically force you to turn over information for three years because that'll be the maximum. If you violated everything possible, the max would be three years. So we start by looking back for the whole three years.
Speaker 1 00:13:52 So the court requires you to turn over out, here's all these employees for the last three years. And then they get sent a letter that says, Hey, you can Sue me if you want.
Speaker 2 00:14:01 Yeah, it's actually worse than that. Uh, it will be a letter. It will be an email. It will be a telephone text, um, that, you know, this is moving just as fast as social media these days. And so technology allows for a quicker and possibly higher numbered groups because everyone checks their cell phone. Not everyone checks their mail, you know, oh, this is just garbage from a law firm, right. I don't, I'm not going to open it, but being able to have emails and phone and text available now makes that the likelihood just way higher
Speaker 1 00:14:36 That people will join in. And then it's their penalties and interests along with overtime. Or would you, would you just, oh, the overtime? What is the actual exposure?
Speaker 2 00:14:46 Yeah, so it gets even worse. There is an almost doubling of the overtime owed to the employees. And that's because the law looks as this as such a horrific act that this employer has done. Um, which when I have dealt with it feels pretty unfair because a lot of my clients have said, I was just trying to do what the employee wanted. And it just, unfortunately is not a defense pretty much the only way that you can show or prevent this doubling of the damages is, Hey, I literally called the us department of labor. I explained to them what my question was. They gave me this written letter back and I followed it to the T and that hardly ever happens. And that's pretty much the only way you get out of it. Um, so now let's say you owed an employee $5,000 in overtime without a question, it becomes 10. And then it becomes the attorney's fees that were on the other side. And so now what you're at 15, 20,000 when really the damages were only 5,000. So it's a very punishing
Speaker 1 00:15:57 And that's just for you good times that by how many people decided to join your class and how long have you been doing this? Um, so it really becomes a legal landmine basically.
Speaker 2 00:16:10 And you know, like I said, with how we found the strippers is on, is not the reason she called our office at all, but a good employee or employment law firm knows these questions. It's only five. They give it to her, a receptionist or a legal assistant to just screen all the calls. And I have found in many of these. And in fact, two cases that I have right now, um, is exactly why this overtime case got sniffed out. Cause the employee got upset at something or hurt on a job or whatever the answer may be. And they went to an employment attorney who sniffed it out. And now there's a bigger problem on our hands because the employee was unhappy about something else.
Speaker 1 00:16:51 Is that the employee, the one that's suing you is not paying any out-of-pocket attorney's fees generally
Speaker 2 00:16:57 Never. Um, I have never seen that it is done on a contingency basis. And that's because for these workers, this is free found money. Like they were fine with what they were getting paid by you. And now all of a sudden they're being told, oh, you're owed money. Then you're owed a doubling of that amount of money. Plus I get to cover my attorney's fees. And so they just, you know,
Speaker 1 00:17:18 Well, and the attorney gets a cut of the, of the whole recovery. So the bigger the pot, the more that the attorney's gonna
Speaker 2 00:17:26 Correct. And I have in both of my current wage and overtime cases I'm handling right now, I approached the attorneys immediately and said, Hey, let's just settle this plaintiff right now. Here's his time cards. Here's the amount he's owed. And neither of them at the beginning wanted to settle. They wanted to wait till they could see how big the pot was going to be.
Speaker 1 00:17:47 And in your two current cases without saying the client's name, but what type of client are they, what do they do for a living? You know,
Speaker 2 00:17:54 One is what R one is an electrical subcontractor and the other is an interior and drywall subcontractor.
Speaker 1 00:18:03 So, you know, cause I happen to know the same people too, is that, you know, their business started out mom and pop. We're going to do the work. And then all of a sudden they started growing and I just started, they don't know, you don't know that you need to do these things or you, that you can't just give everybody a 10 99 and now they're in these open, huge liabilities that it could cost them hundreds of thousands of dollars. So this dangers out there, we get it. So what can you do to protect yourself? How, how can, like, if somebody's like that electrical contractor you're representing right now would have come to us and said, you know, Hey, I don't know. You know, I have these, I've had all these employees now I have some guys that are licensed. Some guys that are not, what do I need to do? What
Speaker 2 00:18:46 Right. And so what's interesting about that. One is they had different levels of electricians, you know, unlicensed licensed have different degrees and like master electrician. So we were able to keep the class already small at the bottom level, but it was still going to be a potential 50, 60 individual class. Um, so if they had come and we could talk through each levels, job description and job duties and compare it to how they were paid, we could decide if they needed to be employees and paid overtime. And or there are some exemptions available under the FSA. And that's another danger to, uh, for everyone to keep in mind, this affects not only your workers, but if you have people in the office that are paid salary, there is still potential for overtime exposure there as well. So it's kind of a full overhaul here of what's your workforce. Like, do we need to overtime them? What is your internal looking like? Um, make sure we're complying with all the exemptions necessary there. And then that way we can know that you in compliance from bottom to top essentially.
Speaker 1 00:19:57 And so you can go through and based on their description of their employers or them, their employees, or the people that are working for him, subcontractors, and you can decide what they need to do and then you can help them up, set them up, how to do it correctly.
Speaker 2 00:20:08 That's correct.
Speaker 1 00:20:10 Okay. And then you brought up another interesting point that we haven't touched on yet. So if I have somebody in the working in the office and they're working overtime, but I just pay them salary aren't they just covered by their salary and they wouldn't have any overtime claim.
Speaker 2 00:20:23 Unfortunately, no salary. People can still get overtime and unless they fit into one of the named exceptions under federal law. But in order to fit into that exemption, you have to meet two tests. The first one is the salary test. And then the first one is a job duties test based on every exemption has kind of a different test for that. So you, the box, if they're paid salary, that's great, but you're only halfway there. So if you're paying a receptionist, you know, her salary and she's working 45, 50 hours a week and she can't work, I can't make an argument to fit her into one of these categories based on what she does on a day-to-day basis. And then she is going to be entitled to overtime. So,
Speaker 1 00:21:13 And so, and that brings up a great question. Practically people come see you and we go through this and we're correcting things. How do you handle that? Right. Cause now if you're like, oh, I'm going to pay you overtime. Do we, do you offer to pay them what you should have pay them already to just tell them here's the change in pay? Because if you don't fix it, you're still, if you don't fix what you've already paid them, you're opening yourself up to liability. So potential liability that they'll realize, oh, there's this pain. Why is there this change now? And then they'll, they'll find somebody that will sniff it out. So practically what should you do?
Speaker 2 00:21:49 Yeah. So that, that is kind of like a, something that you need to fill out on a case by case basis, uh, you know, your employees the best. Um, and you know, it could be very simple for if you're looking at the workforce, um, saying, Hey, we got to switch you over from a 10 99 to a W2. And that won't necessarily trigger as much because to them, it's like, oh, we're going to be giving you a whole bunch more overtime. You know, you have been working with us for such a long time. You know, you can package it in certain ways that it's not going to flip off that light bulb for people in house. Um, you know, it can be, Hey, we kind of have a budget change and I looked at your salary and that breaks down to a 40 hour work week, hourly rate of this much, but because you're working so much, I want to really help you out and I want to make sure you're fairly compensated. And so now you're going to start getting overtime and package it as a raise of versus a, oh, I've made a mistake. And then hopefully you're not raising any red flags. If red flags are raised, you are definitely protecting yourself, better doing it this way than just holding your breath and hoping it doesn't happen and getting popped on the backend.
Speaker 1 00:23:03 So it's better to fix it. When you realize you have your issue then to not fix it at all and just see if anything
Speaker 2 00:23:08 Absolutely. Because every day you do it, right. It takes off a potential day of damages that someone can come after you for.
Speaker 1 00:23:17 Gotcha. Gotcha. Well, this has been all so great information. And so just so I get out there, how can people get ahold of you if they want to contact you directly and have you look through their things and help you save them from a legal landmine and, and, you know, not lose hundreds of thousands of dollars. Although, you know, you're paying attorneys is, you know, it is part of the job. I just don't want you to have to pay us to do this.
Speaker 2 00:23:39 Exactly. And you know, we really look at some of our cases and I I've had to tell a client like, who thought I wasn't fighting hard enough against one of these claims. Like I'm not going to pick a fight that I'm going to lose for you guys. So it's good for y'all to contact me, having the experience that I do in this area, you know, to, to either fix it or get you out as cheaply as possible. Um, so, you know, give us a call at the chromium's all from 7 1 3 7 1 5 7 3 3 4. Again, my name is Kelly asked for me, we can do a hour consultation, you know, kind of talk about your business. We really try to tailor here what we have for you. So not only do we have, um, you know, hourly stuff that I do, we also have several things that we can provide your business out of flat rate, makes it easy for your budget.
Speaker 2 00:24:28 You know what you're getting. Um, they're great deals if I, you know, can tell you that. So you can also follow us on Instagram, Facebook, LinkedIn. Um, I'll tell you in June, we are going to be doing a big employment law focus. Um, so I really encourage you to, uh, log on to that because I'm sure this podcast is just going to lead to people, having more questions, because it's a vast area of law that really is driven by the what ifs. Well, what if I pay my guys this way or what if this is what they want? Um, and so by logging in and doing that, you'll be able to see educational videos, webinars, blogs, things like that, that are gonna really give you more concrete information. Um, but the best thing is to get on the phone with an attorney because, um, mistakes can be made. It's every different and a small mistake is a big consequence in these situations. And so, um, it's just really best to make sure you're covered from start to finish.
Speaker 1 00:25:35 I appreciate it so much. Kelly, thank you for being here and guys, Hey, you're not alone in this. I know it seems overwhelming and dangerous and it is, but we can help you get through this. And this is, this is what we do. We know this. We don't want you to get wormed cause we've seen so many people get burned, but you gotta pick up the phone and call so we can help you. Well, thanks so much, Kelly, and I'm sure we'll have you on again and see you next
Speaker 2 00:25:55 Time. Yes, ma'am
Speaker 1 00:26:00 Thank you for listening to this episode of quick getting screwed. I hope you found it helpful if you like what you hear, please like us and follow our podcast. If you want further information. So you can find us. Subcontractor is two.com. We're also on Facebook, LinkedIn and Instagram, and the book is available on Amazon tune in two weeks now for a new episode. Thank you.
