Dillingham & Murphy Successfully Defeat Misclassification Claims

Bill Murphy and associate Anna Nagornaia recently obtained full refunds of taxes and other assessments made by the California Employment Development Department (“EDD”) against clients United States Tennis Association (“USTA”) and United States Tennis Association – Player Development (“USTA-PD”). The EDD’s assessments were based on the alleged “misclassification” of coaches who attended or taught at tennis camps and provided other occasional services as “employees”.

The EDD contended that some 36 individual professional tennis coaches, trainers, consultants, and announcers who were paid as 1099-reporting independent contractors had in fact provided services to the clients as employees. The EDD assessed unemployment and other taxes against USTA and USTA-PD. Those entities paid the assessments under protest, and filed Petitions for Refund with the California Unemployment Insurance Appeals Board.

Over three separate days of hearings, Bill and Anna persuaded the ALJ that USTA and USTA-PD “did not have the right to control the tennis professionals’ decision or methods during training camps or event. Each of the individuals was a highly skilled professional in the field of tennis. They typically provided their services to other entities or employers at the same time. They needed no formal training or instructions because of their expertise. They were engaged in other ventures of their own or associated with other entities with respect to their skills. The work performed for the petitioner was in furtherance of their separate work activities.” Accordingly, full refunds were ordered.

True misclassification of employees as independent contractors can be a nightmare scenario for businesses, especially in California. However, as these two cases establish, even in California, with the right counsel and, better still, the right facts, businesses may still legitimately engage independent contractors.