On February 18, 2012 a worker classification related lawsuit was filed in federal district court against LEO Pharma Inc. In this instance sales representatives are suing LEO Pharma because they were misclassified by LEO Pharma as salaried exempt employees and thus not eligible to receive overtime pay which they were otherwise entitled under the Fair Labor Standards Act (FLSA).

Again, this is a complex area of the law with clear tax issues central to what are otherwise ostensibly labor claims. LEO Pharma is not only facing the interest, fines, penalties, and audits that will arise from a finding that they misclassified their workers, and thus an ongoing yearly compliance burden out of all proportion to what they could have spent proactively to avoid the issue beforehand, but also could end up owing significant amounts for federal payroll and unemployment taxes not otherwise withheld plus face concurrent costs related to state and local taxes not paid where required. Moreover, this lawsuit is among a slew in the past year involving the pharmaceutical industry.

In you would like to address this issue please note that that the tests used to determine whether a worker is an independent contractor or an employee are multi-faceted, based upon subjectively analyzed facts and circumstances unique to each case, can require a different analysis for each law involved, and vary from state to state. We can help you determine whether it makes more sense to participate in voluntary IRS partial amnesty and disclosure programs or whether it makes more sense to reevaluate your policies & procedures, recraft, put new documentation policies in place, reclassiffy specific positions, and/or reassign specific workers as needed.