In a precedent setting class action case, a court in Pennsylvania recently found that the owners and operators of the Split Rock Resort in Pennsylvania’s Pocono Mountains had misclassified 259 salespersons as “independent contractors” and that those salespersons were entitled to over $2.2 Million in wages, benefits and penalties plus interest under Pennsylvania’s Wage Payment and Collection Law.
The case– Whitehead, et al. v. Kalins – is one of the first nationwide cases where salespersons have, at trial, successfully challenged the compensation structures for persons who sell interests in vacation and timeshare resorts such as Split Rock. The case has far-reaching implications for the timeshare industry as the use of Independent Contractor status for sales people is increasingly coming under attack.
Timeshare salespeople, for decades, have worked as Independent Contractors, also referred to as “1099 status” and “contract workers”. This classification, however, mainly benefits the developers or affiliated companies that hire them because it saves the companies millions of dollars each year in Social Security taxes, FICA taxes and other financial obligations which they would have had to contribute if the salespeople were classified as employees. As an Independent Contractor, however, all of those various tax obligations become the responsibility of the sales people themselves.
In the case of Split Rock Resort, the salespeople had originally been paid as Independent Contractors, but were changed to employees in order to take advantage of a retirement plan that was only available to employees. When that failed, the owner reverted them back to Independent Contractor status.
The significance of misclassifying sales people as Independent Contractors is significant in that it addresses the long-standing issue of timeshare salespersons’ rights and protections such as minimum wage, unemployment compensation, workers’ compensation insurance, health care insurance, protections under Title VII of The Civil Rights Act, and more.
The court’s final ruling can be found by clicking here.