Paul L. Caron
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Tuesday, January 17, 2023

Morse Reviews Wilking's Independent Contractors In Law And In Fact

Susan Morse (Texas; Google Scholar), Terms of Employment (JOTWELL) (reviewing Eleanor Wilking (Cornell), Independent Contractors in Law and in Fact: Evidence from U.S. Tax Returns, 117 Nw. U. L. Rev. 731 (2022):

Jotwell (2023)Under tort and agency common law, the more control a firm exerts over its workers, the more likely that workers will be classified as employees rather than independent contractors. The need to determine control prompts a line-drawing exercise and offers opportunities for firms and/or workers to manipulate the result, rather than choosing the best abstract analysis on the facts. In Independent Contractors in Law and in Fact: Evidence from U.S. Tax Returns, Eleanor Wilking constructs a huge tax-return-based dataset and uses it to show that firms appear to game the employee/independent contractor distinction, that evidence of manipulation is stronger when lower-income workers are involved, and that the tendency to classify workers as independent contractors has likely increased over time.

A lot turns on whether a worker is an “employee.” Access to retirement plans, health insurance, certain government benefits and antidiscrimination protections follow from employee status. Tax, tort, contract, intellectual property and other legal results often differ based on whether a worker is an employee. Most, although not all, legal features require firms to offer more protections and benefits for employees, as opposed to independent contractors. Thus a firm’s incentive to manipulate generally tilts towards independent contractor classification, holding all else equal, particularly for lower-income workers.

Wilking created two datasets for this project. Both take advantage of the fact that different tax reporting forms for compensation are required according to worker status. An independent contractor receives a 1099-MISC or 1099-K, while an employee receives a W-2. ...

Wilking offers an imaginative use of a huge treasure trove of tax return data. Her results are powered not only by the enormous datasets she creates, but also by her creativity in fashioning quantitative proxies for the question of control posed by the common law of tort and agency. As compared to, say, the outcomes of reported cases, patterns of firm and worker planning are difficult to discover and describe. They are buried in countless private contracting and planning decisions that rarely receive any public attention. Wilking has figured out how to use tax return data to excavate patterns of private ordering that are usually hidden from view. What a contribution — both because of Wilking’s specific findings and because of her clever, large-dataset matching methodology.

To this original empirical contribution Wilking adds some tentative normative remarks. She invokes Professor David Weisbach’s classic criticism of line-drawing and reviews the incentive to manipulate or intentionally misclassify when discrete and different legal results lie next to each other on a continuum. She suggests that some such line-drawing exercises might eventually become obsolete. If they did, the question would arise of what should replace existing binary paradigms, like those that give firms and workers different benefits and responsibilities under many areas of law depending on how much control the firm has.

https://taxprof.typepad.com/taxprof_blog/2023/01/morse-reviews-wilkings-independent-contractors-in-law-and-in-fact.html

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