Warning to Employers – Your Worker Asked to Be Paid on a 1099. That Still May Not Protect You from Misclassification Claims

Small businesses often hear some version of this: “Please do not put me on payroll. I want to be paid as a 1099 contractor.” The owner agrees, the worker seems happy, and everyone moves on. Months or years later, the same worker files a lawsuit claiming they were really an employee and were misclassified.

Many employers assume that the worker’s request should be a defense. In most cases, it is not. Under the Fair Labor Standards Act (“FLSA”), employers are responsible for determining whether a worker is an employee, and the analysis turns on the real facts of the relationship, not just the label used by the parties. New York law follows the same general approach.

Why This Surprises So Many Employers

From a business owner’s perspective, the arrangement may seem fair. The worker specifically asked for 1099 treatment. The employer did not force it. Sometimes, the worker even signed an independent contractor agreement, asked for no tax withholding, and filed taxes that way.

That still does not settle the issue. The Department of Labor’s guidance says there is “no single rule” and that courts look to the facts of the actual working relationship, rather than assuming that “a written label, contractual arrangement, or form of business” decides whether the worker is an employee or independent contractor.

What Courts Actually Look At

Under the FLSA, the basic question is whether, as a matter of economic reality, the worker is economically dependent on the business for work or is truly in business for themselves. The Department of Labor’s current guidance frames the test that way and identifies several nonexclusive factors, including the worker’s opportunity for profit or loss, investment, permanence of the relationship, degree of control, whether the work is integral to the business, and the worker’s skill and initiative.

New York focuses heavily on control. As the Court of Appeals explained in Bynog v. Cipriani Group, Inc., 1 N.Y.3d 193, 198 (2003), “the critical inquiry” is the degree of control exercised by the purported employer over the results produced or the means used to achieve them. Courts applying Bynog look at facts such as whether the worker worked at their own convenience, was free to work elsewhere, received fringe benefits, was on payroll, and worked on a fixed schedule.

The Worker’s Request Is Usually Not a Defense

This is the point many employers get wrong. There is no recognized safe harbor that says: “the worker asked to be a 1099, so the employer is protected.” The legal question is still whether the worker was actually an employee under the governing tests.

New York cases say the same thing in slightly different words. In Hernandez v. Chefs Diet Delivery, LLC, 81 A.D.3d 596 (2d Dept 2011), the court treated tax documents calling the workers independent contractors as relevant, but not dispositive. That is an important distinction. The paperwork matters. The worker’s own conduct may matter. But neither one automatically wins the case.

Federal cases in the Second Circuit are similar. In Saleem v. Corporate Transportation Group, Ltd., 854 F.3d 131 (2d Cir. 2017), the court concluded the drivers were independent contractors, and the drivers’ tax treatment and business choices helped that result. But the case still turned on the full economic-reality analysis, not on some separate rule that the workers had “waived” employee status by asking for 1099 treatment.

Why New York Employers Should Be Especially Careful

New York’s wage statutes are not friendly to private side deals that run counter to wage protections. Labor Law § 663 provides that if an employee is paid less than the wage required by law, the employee may recover the underpayment, costs, attorney’s fees, prejudgment interest, and liquidated damages unless the employer proves good faith. The statute also states that “[a]ny agreement between the employee, and the employer to work for less than such wage shall be no defense to such action.” That language reflects the broader New York rule that wage protections generally are not defeated by private agreement.

Labor Law § 198 is also significant. In wage claims under Article 6, a prevailing employee may recover the full underpayment, reasonable attorney’s fees, prejudgment interest, and liquidated damages unless the employer proves a good-faith basis for believing its pay practices complied with the law. For small businesses, that means a misclassification case can get expensive very quickly.

What This Can Cost an Employer

If the worker is found to have been an employee all along, the employer may face claims for unpaid minimum wage, unpaid overtime, liquidated damages, attorney’s fees, and costs under the FLSA. The federal statute of limitations is generally two years, but it extends to three years for willful violations.

Under New York law, the lookback period can be six years for wage claims under Article 6, along with attorney’s fees, prejudgment interest, and liquidated damages. In practical terms, that means a “friendly” 1099 arrangement can turn into a substantial liability later, especially once fees are added.

Does the Worker’s Request Matter?

Yes, but only in a limited way.

A worker’s request to be treated as a contractor can still be useful evidence if the worker truly operated an independent business. For example, it may help if the worker sets their own schedule, works for multiple clients, makes meaningful business investments, can accept or reject work, and bears real profit-and-loss risk. That is the kind of broader factual picture that mattered in Saleem. But the worker’s request is only one fact in that larger analysis. It is not a stand-alone defense.

The fact may also help on damages if the employer can prove genuine good faith. But that is a demanding standard. In Herman v. RSR Security Services Ltd., 172 F.3d 132, 145-46 (2d Cir. 1999), the Second Circuit said the employer bears a difficult burden and must take “active steps” to learn the FLSA’s requirements and act to comply with them. In other words, “the worker asked for it” is usually not enough on its own.

What Small Businesses Should Do Instead

If a worker requests payment on a 1099, do not treat that request as the end of the analysis.

Ask a more basic question: is this person really in business for themselves, or are they functionally part of your own company? If you control the schedule, supervise the work, require regular attendance, limit outside work, provide the core tools, or rely on the worker to perform a central part of your business, those facts may indicate employee status even if the worker requested 1099 treatment.

A written contractor agreement is still worth having where contractor status is legitimate. So is a record of the reasons for the classification decision. But neither substitute for a real legal analysis of the actual relationship. The safer course is to classify based on the facts and not on convenience, the worker’s tax preference, or the parties’ assumptions.

Bottom Line

For New York employers, the message is simple: if a worker is really an employee, the fact that the worker asked to be paid on a 1099 will usually not protect the business from a later misclassification lawsuit.

That fact may still help as part of the overall evidence. It may support contractor status in the right case. It may help on good faith if the employer also took real steps to comply with the law. But standing alone, it is not the defense that many employers think it is.

If your business uses freelancers, consultants, commission-based workers, or other non-payroll labor in New York, it is worth reviewing those relationships before a dispute arises. A short classification review now is usually far less expensive than defending a wage-and-hour lawsuit later.

Need help reviewing a worker classification issue in New York? Contact Thompson & Skrabanek to assess the relationship before it becomes a wage-and-hour claim.