The Past and Future of Electronic Monitoring: Common Methods Utilized in the Workplace
By Charles L. Appleby IV
Collins and Lacy, PC, Columbia

Monitoring an employee at work isn’t that novel an idea. In fact, employers have utilized electronic monitoring and surveillance in the workplace for more than a decade. The method of monitoring varies among employers but includes activities such as phone use, computer use and general employee activity.

A survey conducted by the American Management Association in 2005 revealed employers monitor in the following ways:

Phone use

• 31 percent monitor the amount of time employee’s spend on the phone and track the numbers called (up from nine percent in 2001);
• 19 percent tape employee phone calls (up from nine percent in 2001); and
• 15 percent tape or review employee voicemail.

2005 AMA Survey, Electronic Monitoring & Surveillance Survey.

Computer use

• 76 percent monitor Web site connections (26 percent have fired workers for misusing the Internet);
• 55 percent retain and review employee e-mail (25 percent have fired workers for e-mail misuse); and
• 36 percent track content, keystrokes and time spent at the keyboard. Id.

Even if an employee is not on the phone or using his computer, the employer may still be watching. In 2005, 51 percent of employers used video monitoring to counter theft, violence and sabotage, up from 33 percent in 2001. Id. In addition, as technology has improved, so has the employer’s ability to monitor employees.

While employers have been slow to adopt emerging monitoring/surveillance technologies, they have not been completely adverse to the idea, as technology we thought only available to the FBI and CIA has begun to enter the everyday workplace. Employers are now using Global Positioning Systems (GPS) to monitor cell phones (five percent), track company vehicles (eight percent) and monitor employee ID/Smartcards (eight percent). 2005 AMA Survey, Electronic Monitoring & Surveillance Survey. There is also evidence of employers using fingerprint scans (five percent), facial recognition (two percent) and iris scans (0.5 percent). Id. A new patent, for which Microsoft is seeking approval, can even monitor “the user’s … galvanic skin response, EMG, brain signals, respiration rate, movement, facial movements, [and] facial expressions.” United States Patent Application 20070300174, December 27, 2007; paragraph 0045. As technology allows us to monitor more and more in depth, the question becomes: When is monitoring helpful, and when does it go too far?

Back to top

South Carolina Passes Immigration Reform Act
By C.F.W. Manning II
Fisher & Phillips, LLP, Columbia 

On June 4, 2008, Gov. Mark Sanford signed into law the South Carolina Illegal Immigration Reform Act. The legislation places South Carolina among the few states that require public and private employers to take affirmative steps to verify the legal status of new employees. The Act creates a new implied South Carolina employment license that applies to all private employers in South Carolina. The imputed employment license remains in effect as long as the business abides by the hiring requirements set forth in the Act. If an employer’s employment license is suspended or revoked, the employer may not hire a person to do work during that period. The legislation provides for both civil and criminal penalties for employers who violate its provisions. For employers that have service contracts with a department, an agency or other instrumentality of the State of South Carolina, compliance with the new Act begins as early as January 1, 2009. For private employers who have 100 or more employees, compliance with the new law begins on July 1, 2009. For private employers who employ less than 100 employees, the time for compliance does not begin until July 1, 2010.

New verification requirements
The new verification procedures for private employers require the following:

1. Completion and maintenance of the federal employment eligibility verification form, otherwise know as the Form I-9; and either
2. Registration and participation in the E-Verify federal work authorization program; or
3. Employment of workers who at the time of employment:
   (a) possess a valid South Carolina driver’s license or identification card issued by the South Carolina Department of Motor Vehicles;
   (b) are eligible to obtain a South Carolina driver’s license or identification card; or
   (c) possess a valid driver’s license or identification card from another state whose eligibility criteria are approved by South Carolina.

Therefore, employers are provided a choice. An employer may comply with the Act if it fills out and maintains a Form I-9 on the employee and verifies the employee’s work status through the federal E-Verify program. This verification must take place within five business days after employing the new employee. Alternatively, an employer may comply with the Act if it fills out and maintains a Form I-9 on the employee and verifies that the employee possesses either a South Carolina driver’s license or identification card, or is qualified to obtain such, or has an out-of-state driver’s license from a state having qualification requirements as strict as those in South Carolina.

The Act creates an inducement for employers to use the E-Verify authorization program by establishing a presumption of compliance for those employers who “in good faith” verify the immigration status of the new employee pursuant to E-Verify. No such presumption is created for employers who elect only to use the Form I-9 and verification of the employee’s driver’s license or identification card. For those employers who elect to verify employment status by requesting proof of a valid South Carolina driver’s license or identification card, it is important to understand that the federal Immigration Act of 1990 makes it illegal for an employer to specify what documents an employee may present to prove identity or employability. Moreover, an employer may not insist upon presentation of more documents than are minimally necessary to complete the Form I-9. These infractions are referred to as “document abuse.”

The South Carolina Illegal Immigration Reform Act does not require employers to use a South Carolina driver’s license or identification card to fill out the I-9 Form. Therefore, completion of the I-9 Form should follow established federal procedures. Presumably, after the employee has presented appropriate documents to be used for the I-9 process the employer may then request proof of a South Carolina driver’s license or ID card (or other approved license or ID card). Otherwise, employers who demand presentation of a South Carolina driver’s license or ID card in order to fill out the I-9 Form will run afoul of federal immigration law.

Penalties for violations of the Act
The Act expressly states that a private employer shall not “knowingly or intentionally” employ an unauthorized alien. The legislation establishes a system of penalties for employers who violate either the verification of employment provisions or the prohibition on hiring an unauthorized alien. For violations of the procedures for hiring and verifying the authorization of an employee, a private employer can be assessed a civil penalty of not less than $100 and not more than $1000 for each violation. However, in the instance of a first violation, the employer can avoid assessment of a penalty if within 72 hours of notification of a violation the employer complies with the verification provisions. For any subsequent violation, the employer will be assessed a civil penalty.

If an employer knowingly or intentionally hires an unauthorized alien, the penalties involve either suspension or revocation of the employer’s imputed license, thereby preventing the employer from hiring new employees within the state of South Carolina. Additionally, in order to obtain reinstatement of the employer’s license, the employer must terminate the unauthorized alien and pay a reinstatement fee of not more than $1000. Subsequent violations of this provision of the Act can result in revocation of the employer’s license for a period of five years.

Other provisions affecting employers
The Act creates a new cause of action for wrongful termination against an employer who discharges an employee authorized to work in the United States if the discharge is for the purpose of replacing that employee with a person who the employer knows or should reasonably know is an unauthorized alien. An aggrieved employee can recover his or her former position, lost wages and other actual damages, including attorney’s fees. The employee has one year to bring a lawsuit for violation of the Act. Again, the legislation creates a “safe harbor” for those employers who verify work authorization through the E-Verify program. Employers who use the E-Verify program have an absolute defense against any cause of action alleging wrongful termination arising under the Act.

Other provisions of the Act allow the State to develop a random auditing program to inspect private employers for compliance with the provisions of the Act. State agents will be authorized to enter the employer’s premises and question any employer, owner, agent or employee and to inspect, investigate, reproduce or photograph business records relevant to determining compliance with the provisions of the Act. This right of inspection is broader than that accorded to federal immigration agents.

Finally, to those employers who may not be deterred by civil penalties or short periods of suspended licenses, the Act provides that the State will maintain a list of all private employers who have been assessed a civil penalty or who have had their license revoked, and that the list will be published on a State maintained Web site.

Conclusion
South Carolina legislators hail the new legislation as the “toughest bill in the United States.” Regardless of the truth of that assertion, what is apparent is that employers doing business in South Carolina will have to tighten their hiring procedures and decide which employment verification process works best with its operations. Using E-Verify carries its own concerns; however, under South Carolina’s new Immigration Reform Act, South Carolina employers that do not use the federal verification program are exposed to greater liability than those that do. How aggressive South Carolina officials will be in enforcing the Act remains to be seen.

Back to top

Worker Classification: Will the IRS and Others Agree With You?
By Mike Brittingham
Nexsen Pruet, LLC, Columbia

Employers often face a business decision about how to treat a particular worker or group of workers: Are the individuals independent contractors or employees? Often, the independent contractor classification is attractive to employers because it affords certain flexibility. However, there are a number of factors that must be considered when deciding how to classify workers.

Why is worker classification important?
Ensuring the proper classification is important for many reasons, not the least of which are substantial tax consequences for the business. Specifically, an employer must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to employees. Also, an employer must provide workers’ compensation coverage and may be responsible for the cost of providing employee benefits such as retirement income, health insurance and life insurance.

On the other hand, an independent contractor classification may be more attractive to an employer because there is no requirement to withhold or pay any taxes on payments to these workers. Similarly, a business is not responsible for workers’ compensation or employment benefits for independent contractors.

However, if a business misclassifies a worker as an independent contractor when that individual should be treated as an employee, significant tax and other liabilities can result. The problem grows exponentially if the misclassification occurs with respect to multiple individuals over an extended period of time.

Heightened governmental focus
While the Internal Revenue Service and state tax authorities have had enforcement mechanisms regarding worker classification, the IRS recently has developed new tools to identify non-compliance with the Tax Code provisions regarding such classification. It even has initiated publicity and educational efforts targeted to encourage self-compliance with the provisions. In a recent “IRS Tax Talk Today” presentation, IRS officials stated that compliance levels have decreased, citing a rise in the number of individuals or independent contractors filing Schedule C, Profit or Loss from Business (Sole Proprietorship), instead of filing W-2s as employees.

Importantly, these officials also noted that federal congressional inquiries and proposed legislation have increased the IRS’ focus on the worker classification issue. Lawmakers and the IRS believe the tax revenues lost to incorrect worker classification are substantial. Other sources report that the IRS is employing computer audit and additional tools designed to identify potential worker misclassification. Further, the IRS announced its agreement with more than half the states to share information regarding worker misclassification. Given this heightened governmental focus, businesses should review the use of independent contractors and develop a business plan targeted at compliance.

Who should be classified as an employee?
The Tax Code provides that an “employee” is any officer of a corporation or any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. Further, applicable regulations state an employment relationship exists when the person or business for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is achieved. State tax authorities and governmental entities such as unemployment agencies follow similar rules.

To assess the employer-employee relationship under common law rules, an employer should consider all documentation and information regarding the worker’s relationship with the business. The IRS will look for evidence of the degree of control over, and independence of, the worker. The considerations fall into three categories:

• Behavioral control: Does the business control or have the right to control what the worker does and how the worker does his or her job?
• Financial control: Are the financial aspects of the worker’s job controlled by the payer? (These include matters such as how the worker is paid, whether expenses are reimbursed and who provides tools/supplies.)
• Type of relationship: Are there written contracts or employee-type benefits (i.e., pension plan, insurance or vacation pay)? Will the relationship continue, and is the work performed a key aspect of the business?

The IRS will weigh all these factors when determining whether a worker is an employee or independent contractor. Generally, the greater the control the business exercises over the worker, the more likely the worker should be considered an employee. However, a business must consider that the IRS has no objective formula to assess a work relationship as an employment relationship or as an independent contractor relationship. In any given case, there is a weighing of the factors in light of business practices and prior court rulings. Because there is no set rule as to making the determination, each situation should be analyzed on its own merits.

IRS enforcement tools and safe harbor
The IRS uses two forms to enforce the Tax Code provisions and assist workers who seek assistance if they believe they have been misclassified.

Form SS-8 IRS
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, may be filed with the IRS by either the business or the worker, though workers file a majority of these forms. The form is designed to gather information and documentation from the business and the worker that is needed to analyze the three common law categories regarding control and relationship that are referenced above. The IRS will review the facts and circumstances and officially determine the worker’s status. Any business asked by the IRS to respond to a Form SS-8 inquiry should do so immediately and with knowledge of any consequence resulting from an IRS reclassification.

IRS Form 8919
For the first time in 2007, a worker who believes he or she has been improperly classified as an independent contractor can use IRS Form 8919, Uncollected Social Security and Medicare Tax on Wages, to calculate and report the employee’s share of uncollected Social Security and Medicare taxes due on his or her compensation. The worker is required to have filed a Form SS-8 or have other correspondence from the IRS stating the worker is an employee. The taxpayer uses this new IRS form in connection with the filing of his or her annual tax return (IRS Form 1040) to avoid paying self-employment tax on the contractor payments. This new form will likely result in more IRS Form SS-8 ruling requests and IRS inquiries to businesses.

Relief provisions (Section 530 relief)
Businesses that have a reasonable basis for not treating a worker as an employee may be relieved from having to pay employment taxes for that worker—even if the IRS determines the worker should have been treated as an employee.

To establish a reasonable basis, the business must be able to show that it relied on a court case or IRS ruling issued to the business; that it was audited by the IRS without reclassification of the worker; that a significant segment of the business’ industry treated similar workers as individual contractors; and that it relied on credible advice of a business lawyer or accountant who knew facts about the business.

To be eligible for this relief, the business must: 1) file all required federal information returns on a basis consistent with the business treatment of the worker, and 2) not treat any worker holding a substantially similar position as an employee for any periods beginning after 1977.

Conclusion
The IRS is under increasing pressure by lawmakers and taxpayers to “close” the so-called “tax gap” caused by noncompliance. Other governmental agencies, including state income tax and unemployment agencies, are under similar pressures. The governmental bodies believe worker misclassification is an area where their enforcement efforts would produce tax revenues missed by noncompliance. Businesses should take notice of this increased focus and evaluate their current work arrangements, because failure to properly classify workers can have significant adverse financial consequences.

Back to top

Employment & Labor Law Section 2008 Goals

• Conduct a Section CLE at the 2009 Bar Convention. This seminar will be videotaped and offered for CLE credit at a later date.
• Sponsor a half-day or full day CLE in Columbia in May 2009.
• Continue to coordinate the NC/SC Joint Labor and Employment Law annual program. This program will be videotaped and offered for CLE credit at a later date.
• Continue to promote Employment and Labor Law specialization through communication to Section members.
• Continue to publish a periodic newsletter. In addition, and as a service to the members of the Bar and the public at large, the Section will make its newsletter available in an electronic format to all those who indicate an interest for the publication.
• Continue to strive to increase membership by offering one free year of membership to all new Bar members and compiling informational materials to be distributed at Bridge the Gap.
• Provide a discount to Section members on Labor and Employment Law for South Carolina Lawyers and any additional updates.
• Continue to update members through the Section listserv and Bar Web site.
• Continue to invigorate the subcommittee structure primarily by looking to the subcommittee chairs for substantive articles for the Section newsletter and assistance in locating speakers for Employment and Labor Law-related continuing legal education.
• Reimburse registration fees, hotel expenses and a per diem for the Section Chair to attend the annual NC/SC Joint Labor and Employment Law Seminar.
• Take a constructive look at the NC/SC Joint Labor and Employment Law Seminar to determine how, if at all, it could be improved. To this end, the Section Council will survey the attendees. The opportunity to add another state bar to the mix may also be considered. The North Carolina Bar Association will be kept abreast of any developments since it also has a substantial stake in the program.
• Explore online CLEs and distance learning programs.
• Explore partnering with ABOTA or other organizations on a practice skills seminar.

Get Published

If you are interested in submitting an article for the next issue of the section newsletter, please forward your submission(s) to:

Molly Hughes Cherry
Nexsen Pruet, LLC
205 King St., Ste. 400
Charleston, SC 29401
(843) 720-1724
Fax: (843) 414-8209
mcherry@nexsenpruet.com

In addition to your proposed article, please include your name, your firm name and your e-mail address so this information can be included in the newsletter. This newsletter is published quarterly.

Submission Deadline:
October 13, 2008

Your suggestions and input is needed for proposed speakers and topics for future online seminars and distance learning seminars. Please forward comments to Tara Smith at (803) 799-6653, ext. 146 or tsmith@scbar.org.

Back to top

Disclaimer

This is a newsletter for the South Carolina Bar’s Employment and Labor Law Section. The South Carolina Bar and the Section council members reserve the right to refuse to publish any submission which is not consistent with their goals and standards. Articles that are published reflect only the opinions of their authors; they do not represent or reflect any positions held by the South Carolina Bar or the Section officers and council members. It is the policy of this newsletter that on all submissions of original articles, the authors assign their copyright in the work to the South Carolina Bar. Publisher may reprint, or authorize other entities to reprint, the material as deemed appropriate. The publisher has the right to authorize the reproduction, adaptation, public distribution and public display of the article as a contribution to this newsletter in electronic media, computerized retrieval systems and similar forms; such authorization includes use of the article anywhere in the world by means of public display, conversion to machine readable form and reproduction and distribution of copies. The South Carolina Bar is not required to secure the consent of the author before exercising the above named rights. In addition, the Bar has no duty or responsibility to negotiate, collect or distribute any royalties in connection therewith.

Back to top