Lawsuit Demonstrates the Perils of Using IC's in California -

Independent Contractor decides he is an employee after fee dispute arises

In theory, California's infamous ABC test can be met if your independent technology consultant:

A. controls his own work.

B. performs work outside the usual course of the hiring entity's business, such as a one-time software implementation.

C. has a long-established business that he customarily performs work through.

However, there is a problem: this is California, and the difficulty of doing business there is illustrated by the recent case of Seibert Consulting Group, LLC and Paul Seibert vs. Marx Companies, LLC and Frank Recruitment Group. Contractor Paul Seibert sued the end-client Marx and the staffing agency he subcontracted with, seeking W-2 employee wages and the penalties that come with them. The Complaint also includes his limited lability company as a co-plaintiff on the wage claims! In other words, Seibert apparently wants his LLC to be treated as an employee, as well as himself. Very strange, but again, we are in California.

According to its website, Seibert Consulting Group "can work with you to transform your business with NetSuite...." Paul Seibert, the owner and apparent sole employee, is an accomplished consultant in his field, with over 28,000 followers on LinkedIn. The biography on the Seibert Consulting Group website is impressive:

Paul Seibert has over two decades of experience providing clients with 100% unbiased advice, making him one of the most well-known and respected independent ERP & eCommerce systems experts in the world. Paul has devoted his career to delivering keynote addresses at industry conferences and academic institutions throughout the nation. Paul is a certification instructor for the PMI and SCRUM Foundations, and he has also been cited in dozens of pieces in periodicals and books, including CIO Review and CIO Magazines. He has represented both public and private companies across the country as an expert witness in some of the most high-profile litigation matters in the sector. Paul is a veteran of several publicly traded companies, including IBM, NetSuite, and Oracle Corporation. Paul is the co-host of the "SCG Team Podcast", available on Apple iTunes and Spotify, and he is also the author of the highly regarded books "Digital Transformation with NetSuite ERP", "NetSuite Implementation Secrets Revealed", "SuiteCommerce Unleashed", "Shopify and NetSuite Integration Handbook", and "SuiteCommerce Programmer's Reference Guide".

The end-client, Marx Companies, LLC, is a family-owned specialty meat and seafood purveyor with main offices in New Jersey and Seattle.

The Frank Recruitment Group styles itself as "Global specialist technology recruitment experts" and operates through multiple brands in approximately 11 countries.

The dispute revolves around a not-uncommon scenario - a NetSuite software implementation with various unanticipated issues that required extra work by the consultant. The 14 count Complaint (attached below) goes into great detail about the problems encountered on the project, with bottom line allegations as follows:

SCG completed over 143 hours on NetSuite ERP installation, configuration,
development and consulting work, the activities timeline documentation, including:

Invoice #         Date         Hours
238671        22-Mar-20        80.5
243901        29-Mar-20        22.5
247463        5-Apr-20         26
249251        12-Apr-20         9.5
19-Apr-20        5
TOTAL    143.5

The SCG Team provided custom software, consulting services, and Google technical support and was not compensated for this time, violating California wage and labor codes. A disagreement developed between SCG and MARX, and MARX ceased approving SCG’s timesheets.

MARX failed to approve or, alternatively, reject the time reports and submitted hours as stipulated in the RFG employment contract.

In an ordinary independent contracting scenario, Seibert Consulting Group, LLC would sue Frank Recruitment Group for payment, who would in turn sue the end-client Marx. But perhaps there was an impediment to this approach, such as a "pay when paid" clause in the subcontract agreement between Franks Recruitment and Seibert Consulting. This might explain the strategy taken here to go directly after the end-client as an employee, using the California's extremely punitive employment laws as leverage to extract payment.

Well, it worked. On July 26, 2023, just weeks after the suit was served, the case was settled. Seibert's notice of settlement is attached below. My guess is that end-client Marx took one look at the Complaint (see below) and paid Seibert's bill in full, maybe even with a premium on top to avoid California legal hell. See my earlier story on a how a simple wage/hour violation can yield damages up to 40 times the actual underpayment. No wonder they call it The Golden State.

Lessons learned

1.) In California, the rule of law is so distorted that an independent contractor who meets all aspects of the ABC independent contractor test, and who agreed to work as an independent contractor, can successfully claim to be an employee and win a settlement when it is to their advantage.

2.) In California, even head-scratching claims, such as a lawsuit by an LLC seeking to be treated as an employee, are potentially viable. And more often than not, these claims will prevail to some degree, because no employer wants to face a trial in a California court, even if they could afford the hundreds of thousands of dollars in legal fees it takes to get there. I call this the "California ransom effect."