As many (most? all?) of you know, I’m an attorney. I have been with the same firm since May 2012. Or, well, I was with them through 4 PM January 13, 2017.
As background, I have wanted to be an attorney for quite a while, since high school in fact. During the 2008 recession, the legal industry was hit hard. Come graduation from law school in 2011, I did not have a job. I was unemployed for 51 weeks from graduation until I started with my last job. I was very depressed and in a rather dark place during all that, burdened with thoughts regarding self-worth and the like. I think part of my actions (or rather inactions) detailed below were in response to a fear of not wanting to be unemployed again, not wanting to slip back into those dark times. I had reasons to quit, but I wanted to have something to go to - a new job.
The firm I was with specialized in labor and employment law. More specifically, it specialized in representing labor unions and employee-side employment law. It prided itself on fighting for the little man against the abuses and greed of evil management. Turns out, they were hypocrites.
When I was hired, they represented the job as being an associate attorney position. During the entire hiring process (job listing, interview, initial hire, post hire, etc) they represented the job as your normal employer-employee relationship. It turns out, though, and unbeknownst to me for too long, they were misclassifying me as an independent contractor.
For those of you that don’t know, defining whether a worker is an employee or an independent contractor is the single most fundamental element of labor and employment law. It is building block upon which ALL of labor and employment law are built. Protection under the EEOC, National Labor Relations Act, Family Medical Leave Act, Fair Labor Standards Act, ERISA, USERRA (protection for workers who are also in the military), unemployment benefits, workers compensation, and countless other labor and employment laws depends, at their most basic level, upon the worker being an employee. The only employment-related law I can think of which does depend on that determination is OSHA. A labor and employment attorney misunderstanding the distinction between an employee and an independent contractor would be akin to a chemist not knowing that atoms are the building blocks of all chemistry.
When a worker is an employee, he owes income taxes and the employee-side of FICA and Medicare taxes (7.65% of all income up to some amount around $120k), all of which are withheld from his paycheck. His employer then owes the employer-side of FICA and Medicare (7.65% again), unemployment taxes (I think federal is 6% with up to 5% of that able to be offset by state unemployment taxes), and must withhold and remit income taxes. On the flipside, an independent contractor owes all of the employee AND employer-side taxes, except for unemployment which isn’t collected.
Anyway, my job. Like I said, they hired me as an associate attorney. They gave me an office in their office. They provided business cards. They provided all of the research resources. They provided the computer. They provided the support staff. They provided my work e-mail. They listed me on their letterhead and on their website as an Associate Attorney. They trained me as an attorney, even paying for some continuing legal education courses they required me to take. They set the hours I was required to work (9 to 6 each week day). They set when I was to take lunch. They required that they okay any and all absences, late arrivals, early departures, PTO, etc. They paid bonuses. They paid the malpractice insurance. They exercised an almost micromanaging amount of control over how the work was to be done. Any and all letters, e-mails, pleadings, etc. had to be reviewed by them first. I think the only letter I had freedom to send on my own without their review was a service letter (basically, a letter enclosing pleadings to the opposing side), and even then they sometimes demanded to review those. However, as an employee, I considered that their prerogative.
When I received my first paycheck, I noticed that there were no withholdings. I approached the managing attorney and asked about this. She responded by saying that they thought it was easier if everyone in the office paid their own estimated taxes but further stated a quote along the lines of “But don’t worry. We still pay the employer taxes on you.” She lied. Over the years, they docked half days and full days. If they closed the office, they did not pay me. If they sent me to required training, they did not pay me. They nickel and dimed the shit out of my paycheck. They were greedy.
In 2013, I received a 1099. At the time, I was admittedly naive as to what that meant. The 1099-Estimate forms had you estimate your income taxes, which I did. The 1099-Estimate forms then had a spot to estimate your share of Self-Employment Taxes (employee and employer sides of FICA) but stated to do that if you were self-employed. As I did not think I was self-employed, I didn’t do that portion. So, when I got my 1099, I thought that was just a different form to report my employee income because the firm had the associate attorneys (and paralegals actually) file their own estimated taxes. I did the same thing in 2014 (for tax year 2013) and 2015 (for tax year 2014).
By mid-2014, I was suspicious and thought there might be something going on, just given a few ambiguous comments made. But at that point, I was already dissatisfied with my job. Low pay (a legal recruiter has told me I was in about the 15th percentile for the Georgia market), no PTO, a rather horrible boss, etc. In October 2014, the IRS contacted me and said that there were employee and employer-side taxes due for 2012. After speaking with tax attorneys over the misclassification issue, they advised me as to the statute of limitations and forms to file with the IRS to request a determination (Form SS-8). They also advised that if I were to challenge the classification with the IRS, that my case would be a “slam dunk,” a term which attorneys NEVER use as we almost always hedge our bets. As I was still well within the statute of limitations, I decided to pay everything at that time and search for a job before filing. The same thing happened in September 2015 (for taxes due from 2013). I was still within the SoL, so I paid and continued to search (the legal market has been rather bad).
During this time, I was starting to get depressed again. I knew the way out. I knew the forms to file. I knew where the light at the end of the tunnel was, but I had no clue how long it would take for me to get to said light. I felt trapped because I was having no luck in getting a new job. I didn’t want to go back to being unemployed again. I didn’t have that something to move on to. I did not sleep well. I gained weight. Many of the things that had brought me so much joy in the past no longer did. I had to get out, but was paralyzed into inaction.
In early 2016, my bosses fucked around with my paycheck. I was running up against the SoL. I had calculated out that if by that time I was on the hook for about $20k in employer-side taxes (both paid and in the future plus various interest and penalties), and that that figure was going to keep going up. I couldn’t afford that. So in March of 2016, I filed Form SS-8 with my supporting evidence (which I later supplemented). I also filed amended returns for 2012, 2013, and 2014 along with my returns for 2015 stating they misclassified me. Internet anecdotes indicated that the IRS would typically take 6 to 18 months (usually about 12) to issue a determination once it sent a notice stating it was investigating, so I thought I had some time.
On July 5, 2016, I received notice from the IRS that they were investigating it. On Monday, July 11, my bosses brought me into their offices to… discuss what I filed with the IRS. They were mad. They were going to fight it with the IRS. They tried claiming that they classified me as an IC because it was a benefit for everyone involved - they paid less taxes and I could offset any additional FICA taxes by taking business deductions. They tried claiming that on my sub-$55k a year income that I could somehow take $30,000 in legal, business-related tax deductions every year. They did not fire me though (despite me having zero anti-retaliation protection under the Internal Revenue Code or Georgia state law). They did not hire outside counsel. They had the other associate in the office draft the response (which is dumb; there is an old legal saying - an attorney who represents himself has a fool for a client; I went to outside counsel and got advice). They filed their response around August 10. On September 7th, the IRS issued its Determination Letter.
I won.
The IRS has a three part test: Behavioral Control, Financial Control, and Type of Relationship. Behavioral Control refers to facts that show whether there is a right to direct or control how the worker does the work (types of instruction given such as when and where to work, tools to use, who hires assistants, who ultimately purchases supplies, etc; degree of instruction where more instruction means more likely to be an employee; evaluation system of how work is performed; and training). Financial Control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job (whether the worker has a significant financial investment in the job, unreimbursed expenses, the opportunity for the worker to realize profit or loss beyond the pay for the job, whether the worker can offer his services to the market free of the employer’s direction, and whether the pay is guaranteed per some certain time period). Type of Relationship refers to facts that show how the worker and business perceive their relationship to each other (whether there is a written contract, employee benefits, permanency of the relationship, and whether the services provided are a key aspect of the employer’s business). The IRS looks at all these factors and weighs them when it makes its determination.
I must point out now that the IRS has dealt with associate attorneys being misclassified before. In fact, one such determination went to the Tax Court and later the Fifth Circuit Court of Appeals in the past ~8 years, both courts finding that associate attorneys are employees. See Cave v. Commissioner.
Anyway. I won. In its Determination Letter, the IRS applied the following analysis:
Factors that illustrate whether there is a right to control how a worker performs a task include training and instructions. In this case, you retained the right to change the worker’s methods and to direct the worker to the extent necessary to protect your financial investment.
Factors that illustrate whether there is a right to direct and control the financial aspects of the worker’s activities include significant investment, unreimbursed expenses, the methods of payment, and the opportunity for profit or loss, In this case, the worker did not invest capital or assume business risks, and therefore, did not have the opportunity to realize a profit or incur a loss as a result of the services provided.
Factors that illustrate how the parties perceive their relationship include the intent of the parties as expressed in written contracts; the provision of; or lack of employee benefits; the right of the parties to terminate the relationship; the permanency of the relationship; and whether the services performed are part of the service recipient’s regular business activities. In this case, the worker was not engaged in an independent enterprise, but rather the services performed by the worker were a necessary and integral part of your business. Both parties retained the right to terminate the work relationship at any time without incurring a liability.
CONCLUSION
Based on the above analysis, we conclude that the firm has the right to exercise direction and control over the worker to the degree necessary to establish that the worker is a common law employee, and not an independent contractor operating a trade or business. The firm represents the worker(s) as an Associate Attorney(s), and a member of the firm’s staff on their website, and via business cards provided to the worker. The worker has a company e-mail account, is provided remote access to the firm’s server. The worker is guaranteed a set rate of pay, and has been provided pay increases throughout the work relationship. All work is assigned by the firm required to be reviewed by the firm, performed under the firm’s business name, billed by the firm and collected by the firm. (Emphasis added by The 984) No other information was provided or found to indicate the worker performs services for anyone other than the firm. The firm provides office space, support staff, research vessels (The 984 Note: Research software and paper materials), equipment and supplies.
I filed the finishing touches on my amended returns and have gotten money back that I was never legally required to pay.
After they received notice from the IRS of my Request from Determination, and especially after the Determination in my favor, they gave me almost zero work. From July through my last day, I was assigned a grand total of about 5 new files. Before all of this, it was common for me to get at least five new files per week. It got so bad that in October I billed about 10 hours total. For the month. Because they refused to give me work. They also had me start wrapping up my work, or at least that’s how I perceived it. I didn’t want to quit because I wanted them to fire me so I could receive unemployment.
Despite a determination in my favor, though, they did not reclassify me as an employee at that time. They told me they couldn’t while they were challenging it. The IRS never contacted me for further evidence if they did challenge it. On December 27, they told me they were converting me over to an employee. On January 3, when I got back from a vacation, they had me fill out withholding documents and other employee forms. They had the entire office fill out these forms (the other associate attorney, the paralegals, THE RECEPTIONISTS). They started making everyone clock in and out. That same day, I gave them my two weeks notice.
In May/June of 2016, I met a girl. We clicked instantly. However, in the back of my mind, I felt a strong feeling of guilt because I was trying to leave the city and move back to Atlanta to find a new job. How could I do this to her? Make her feel emotionally connected when I knew that in a week, month, year, some unknown period of time I would leave and nothing and no one would keep me around. How selfish of me. On July 8, I came clean. I explained to her the situation and showed her the IRS letter stating they were beginning their investigation. She took it well. She wanted to continue what we had. The following Monday was when the bosses told me they had been contacted. She was afraid, but a few days later, we decided we would work through it. In September, her work informed her they would be relocating her to New York City by Thanksgiving. After about thirty minutes of thinking I wouldn’t move there, I decided I would. After all, as some people I talked to pointed out, I had no connection to where I was and was trying to leave. My job was shit. Take the flier and leave. So I decided I would leave. At first, I planned to stay with my job while looking for a job in New York.
Like I said above, I had reasons to quit. I just always thought that when I quit I needed something to go to. I never imagined that I would have someone to go to.
Then, in October, they played games with my paycheck and refused to pay me for days the office was closed due to Hurricane Matthew. I decided enough was enough and I was going to quit. My lease was up at the end of January, so I decided I would give them my two weeks starting the first week of January. And I did. And they had me serve it out, transitioning what very, very, VERY few files I had left (I think about 10?). While they did not say it, I could tell that they were pissed that I was leaving, pissed that I got them in trouble with the IRS, and very relieved that they no longer had to deal with me.
I have gotten good sleep since. It is like an incredible weight is off my shoulders. I am happy. I am relieved. And, even if things do not work out with her and do not work out in NYC (but I believe that both will), then one year, three years, five years, ten years, fifty years down the line, I will be happy I did what I did.
I fought for my rights. I fought against the excesses and greed of management. I won. And if any of you ever face a similar situation, if any of you ever face a situation where you are being wronged and feel powerless, know that you aren’t. Fight for yourself. Lean on your friends and family. They will be there for you. Make the right choice, even if it is tough. You will feel better about yourself. You will sleep better. Your soul will be at peace. And things will work out. Do not let evil people win.
Fight.