Classifying Appraisers as Independent Contractors – an Issue for Appraisal Firms and Maybe Some AMCs Too

A hot legal issue that is more often affecting appraisal firms and similar businesses, such as inspection and field service management firms, is the classification of workers as independent contractors, rather than as employees.

In some lawsuits, plaintiff workers argue that they were improperly classified by firms as independent contractors and then claim that, if they had been treated properly as employees, they would have been entitled to compensation for overtime, as well as reimbursement for expenses.  In other situations, the issue is a governmental audit for unpaid taxes or disability/unemployment contributions. 

I have addressed this subject for appraisal firms in a recent article that appeared in the Appraisal Institute’s Valuation magazine. The article entitled “Independent Minded” is available digitally at this link:

In the article, I’ve summarized a case that should be considered by any companies engaged in “vendor management.” The result of the case was the re-classification of scores of “workers” (some of the workers were individuals but others had incorporated their own businesses) who worked as independent contractors to a nationwide field services management company. What happened in the case? 

After four years of litigation, the federal court ruled on summary judgment that any California field service vendor to the defendant company who derived more than 70% of his or her income from the company should be classified as an employee and was thus entitled to overtime and reimbursement of expenses. The essential reasoning was that the company had the right to so closely control the work of its contractors (and also exercised that right) and the contractors were so dependent on the company that the contractors were employees under California law. Last summer, the damages claimed by the named plaintiff and 10 class members went to a jury trial (a trial of the other class members’ claims is to follow). The jury awarded over $2 million just to those 11 individuals for unpaid overtime, unpaid expenses, penalties and interest. It’s estimated that there are 150-200 remaining class members potentially entitled to the same types of damages – the total liability to the reclassified independent contractors could be $10-$20 million.

You can read more about the case in the Valuation article. Here are a few pieces of the evidence that led the trial court to rule that the contractors were really employees:

  • The company offered assignments to vendor panelists through its proprietary software platform and panelists were required to use this platform to upload their status reports, photos and invoices.
  • Panelists were required to respond to assignment requests within 24 hours and complete assignments within a stated time period, sometimes just three days.
  • Declining too many assignments or cherry picking the best could result in fewer assignments being offered.
  • The company “score carded” panelists on their acceptance/declination of assignments, status communications, timeliness of completion and quality.

Again, more details of the case are covered in the article: