Friday, May 27, 2016

States Join U.S. Department Of Labor in Fierce Battle Against Misclassified Independent Contractors

May 2016
Nancy E. Joerg, Esq.


States across the United States have been signing up, one by one, to join forces with the U.S. Department of Labor (“U.S. DOL”) to root out independent contractor misclassification.

OREGON IS 29TH STATE TO JOIN FORCES WITH THE U.S. DOL: Oregon is the 29th state to enter into a written Memorandum of Understanding with the U.S. DOL’s Wage and Hour Division. The partnership agreement is a three year agreement beginning April 4, 2016 between the Oregon Bureau of Labor and Industry and the Wage and Hour Division of the U.S. DOL. The agreement sets forth mutual goals to establish clear, accurate and easy-to-access outreach to employers and employees and to share resources and enhance enforcement (by conducting joint investigations and sharing information).

LISTING OF 28 OTHER STATES: The other 28 states that have entered into Memorandums of Understanding over the past five years with the U.S. DOL are: 
  1. Hawaii
  2. Alaska
  3. California
  4. Washington
  5. Idaho
  6. Montana
  7. Wyoming
  8. Utah
  9. Colorado
  10. New Mexico
  11. Texas
  12. Minnesota
  13. Iowa
  14. Missouri
  15. Arkansas
  16. Louisiana
  17. Wisconsin
  18. Illinois
  19. Kentucky
  20. Alabama
  21. Florida
  22. New York
  23. Maryland
  24. Vermont
  25. New Hampshire
  26. Massachusetts
  27. Connecticut
  28. Rhode Island
Some of these joint enforcement agreements with various states include provisions whereby the U.S. DOL cooperates with OSHA and other government agencies.

On the U.S. DOL’s website (https://www.dol.gov/whd/workers/misclassification/), each state’s agreement with the U.S. DOL is connected by a link in an interactive map.

The U.S. DOL asserts that this collaboration with states is making a difference - noting on its website that in Fiscal Year 2015, the U.S. DOL investigations resulted in more than $74 million in back wages for more than 102,000 reclassified workers.

U.S. DOL’S MISCLASSIFICATION INITIATIVE: It was back in 2011 that the U.S. DOL launched the Misclassification Initiative, announcing its increased efforts at reducing the misclassification of workers as independent contractors. As part of the Initiative, the U.S. DOL and IRS executed a Memorandum of Understanding which allows the IRS and U.S. DOL to work together and share information on misclassification issues.

The U.S. DOL loudly proclaims that the improper classification of employees as independent contractors deprives the misclassified workers of overtime compensation, unemployment insurance, and workers’ compensation coverage, and results in lower tax revenue for the government.

CONCLUDING THOUGHTS: Companies who use independent contractors should brace themselves for increased government scrutiny and legal challenge. As always, it is wise for any company who uses independent contractors to have a careful legal review of their website, their independent contractor agreement, and the actual way in which the independent contractor relationships are structured.

It may occur to some readers that it would be awkward or unworkable for various government agencies to work together on battling independent contractor misclassification. Those readers might wonder how different government agencies with different independent contractor tests could effectively join forces.

Even though these various government agencies have distinctly different factors in their tests defining independent contractor status, they have many factors in common when one carefully analyzes the nature of their independent contractor tests. For example, all of the tests look into such issues as: does the independent contractor promote his/her own business through advertising, websites, online listings, etc.; does the independent contractor own his/her own equipment, tools, etc.; does the independent contractor pay for his/her own business expenses.

It remains to be seen whether these various government agencies do in fact join forces and then take action to attack perceived independent contractor misclassification (or whether this is essentially a massive public relations assault to scare those companies who use independent contractors).

For assistance in evaluating (and possibly restructuring) all aspects of your use of Independent Contractors, including a review of your independent contractor agreement, contact Attorney Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com. Nancy will help you significantly lower your risk in using independent contractors.