U.S. DOL And California Team Up To Crack Down On Misclassification Of Workers As Independent Contractors

By Michael Kun

Last week, the U.S. Department of Labor’s Wage and Hour Division and the California Secretary of Labor announced that they were teaming up to crack down on employers who classify workers as independent contractors.  http://www.dol.gov/opa/media/press/whd/WHD20120257.htm

The announcement that the two groups would work together on such an initiative should not come as much of a surprise to employers.  Shortly after Hilda Solis took office as the U.S. Secretary of Labor, the Wage and Hour Division announced that it would be focusing on this issue.  And California has enacted a new statute that provides additional penalties in cases where workers are found to have been misclassified as independent contractors.  Simply put, the classification of workers as independent contractors is today’s “hot issue.”

While last week’s announcement may not be a surprise, it serves as a valuable reminder to employers that contract out services that they should review those relationships closely to ensure that workers are properly classified as independent contractors – and to make careful changes to the relationship should they not be.  Why must those changes be careful?  Because in some jurisdictions, including California, changes to practices can be construed as evidence that the past practice was unlawful.  In this way, seeking to correct a problem can lead to the very lawsuit you were seeking to avoid.

Unfortunately, there is not a single, universally accepted definition of “independent contractor.”  The IRS has one definition.  The DOL has another.  Various federal and state agencies have their own definitions, and the courts have crafted even more definitions in the tort and employment contexts. What the various definitions all have in common is the element of control.  To the extent an employer controls the manner in which a worker provides services – setting hours of work, providing the tools for the work, directing the manner in which the work is performed, or otherwise controlling the worker’s activities – those could all be indicia of an employment relationship, rather than an independent contractor relationship.  Similarly, if the worker wears the employer’s uniform, wears a badge with the employer’s name on it, or provides the worker with business cards bearing the company’s name, that could also suggest that the worker in fact is an employee, not an independent contractor.  The fact that you may call the worker an “independent contractor,” or that you have a contract using that term, ultimately means little.  It’s the actual relationship that will govern in any analysis.

Employers who have independent contractors performing the same work as their employees should be particularly concerned about these issues.  And those who reacted to the recession by laying off employees, only to bring back those same persons to perform the same job as independent contractors – without benefits, payroll withholdings and workers’ compensation – are squarely within the crosshairs of federal and state agencies.  And plaintiffs’ lawyers.

But they are not the only ones who should review their relationships with persons or companies with which they contract for the provisions of services.  Employers who contract with janitorial services -- or office management services, or catering services -- should also review those relationships, particularly if they are with companies whose funding is suspect.  If the employees of those companies don’t get paid, or don’t get paid properly, it’s not unusual for them to claim that they in fact were employed not just by that company, but you.  And if you give directions to that janitor – or office services person, or server – don’t be surprised if the DOL claims that he or she is your employee. 

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