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Misclassification Battles in the Skies

By Jon Olafson

A battle rages concerning worker classification in the aviation and aerospace industry, and employers with private aircraft are often on the defensive in a surprise attack by the IRS.  The IRS is a particularly formidable foe, and seeing the IRS across the battlefield is never a welcome sight. 

For employers in the aviation and aerospace industry or for those that own their own aircraft, this battle involves another potential foe:  the FAA.   The FAA has standards and requirements for the operation of aircraft used for commercial purposes.  In some instances, employers are required to pick a side – do you want to be in compliance with the FAA or the IRS?  A battle victory over one may mean a crushing defeat with the other – or a defeat at the hands of both.

Historically, employers and private aircraft owners do not directly employ an aircraft’s pilots or crewmembers or those who perform key safety-sensitive functions.  As such, companies have retained such workers on an independent contractor basis.  These businesses meticulously document this relationship to ensure compliance with all IRS and state-specific regulations.  The FAA, however, requires that these functions be performed by those who work under the direction of the aircraft owner.   If an employer retains control over the worker for FAA purposes, then the worker may be deemed by the IRS an employee, not an independent contractor.  If the business gives control over to the worker for IRS purposes, then the company may run afoul of FAA regulations. 

An employer, however, has weapons it can use to fend off attacks from both the IRS and the FAA and ultimately prevail on both fronts.  A business can either employ those critical workers or it may use a crewmember agency agreement. The agency agreement must be clear as to the exercise of operational control and safety-sensitive functions.  Another option is an aircraft management company but even then the business must be careful on the language of the agreement. 

A business can comply by ensuring that the aircraft’s critical functions are being performed by a worker who has a clearly defined relationship with the business and that all critical functions are being performed by the people who are categorized correctly. In addition, a business should review all of its aircraft agreements to ensure operational control and safety-sensitive functions are properly addressed.  When facing off with the IRS or the FAA, careful advanced planning is the best defense (and offense).