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Independent Contractors Under Attack by State Governments and the Department Of Labor

Expect attacks on the alleged misclassification of independent contractors at the federal and state levels to intensify in 2015.

Secretary of Labor Thomas E. Perez declared that this is one of his department’s top priorities during a speech he gave Dec. 4 at the leftwing think tank Center for American Progress.

“Jobs we’ve always considered good jobs are not providing the security they once did”, he said. “Cable installers, truck drivers, IT workers and others — they’re all working hard, they’ve invested in their skills, but they’re not getting ahead.”

Perez said these are among the workers most likely to face what he characterized as “the abusive and growing practice” of worker misclassification.

Independent Contractor status may be Wage Theft or Fraud

“When you call your employees independent contractors — stripping them of rights and benefits in the process, dodging your own tax obligations as an employer — what you’re doing is committing fraud, plain and simple.” -Thomas E. Perez

Perez believes that independent contractor status in these situations is nothing less than a form of wage theft by other terminology.

“We might as well call it what it is,” he said. “I’ve never much liked the term ‘misclassification’ anyhow — it suggests nothing more than a harmless clerical error. But there’s nothing harmless about it. It’s a triple whammy, really. It rips off the workers,

of course; it cheats all the employers who are playing by the rules; and it also undermines the treasury.”

A direct way to attack the perceived problem is through increased enforcement by the Labor Department, he believes. The federal budget passed at the end of last year calls for DOL hiring hundreds of enforcement personnel for this purpose.

“We want to ratchet it up to the next level, Perez said of his enforcement activities. “That’s why his 2015 budget calls for hundreds more Wage and Hour investigators,” he said. “We need an even bigger and better toolbox.”

The other way of attacking the perceived abuse of independent contractor status is through the states, and that is where federal agencies are engaging in ongoing cooperative efforts with state governments. This includes including funneling tens of millions of dollars in federal financial aid to help the states fund their own attacks on independent contractor status.

On Jan 13 Florida was the latest state to renew its Memorandum of Understanding with DOL for both sharing information and conducting joint compliance activities aimed at misclassification. On Dec. 5 Colorado and on Nov. 11 New Hampshire signed similar agreements with the department. In all, 19 states have MOUs with DOL.

Independent Contractors and their Employers should prepare for Change

It’s not difficult to divine the states’ interest in eliminating independent contractors – doing so can substantially increase the employment taxes and unemployment insurance fees a state can collect.

On Nov. 12, one day after New Hampshire signed its DOL agreement, a Massachusetts appellate court affirmed a lower court ruling that Subcontracting Concepts, Inc., had misclassified its drivers.

SCI, which provides drivers and vehicles to perform delivery work for client courier and trucking services, was held liable for contributions to the state unemployment insurance fund by allegedly misclassifying drivers as independent contractors.

Evidence of just how important this is issue can be to a state can be seen in the creation last June in Rhode Island of a multi-agency task force charged with eliminating independent contractor misclassifications. The effort includes the state’s Labor Department, the Division of Taxation, Department of Business Regulation, Attorney General’s Office, Public Safety Commission and Workers’ Compensation Division.

In addition to mailing material to now fewer than 32,000 employers within our smallest state, the Rhode Island task force created an anonymous telephone tip line that allows workers and others to report employers whom they believe are misclassifying employees.

A major impetus behind the “misclassification” campaign have been the labor unions like the Teamsters, which foresees the addition of hundreds of thousands of new dues paying members if they can eliminate owner-operators from the nation’s ports and big companies like FedEx Ground.

Last August the Ninth Circuit Court of Appeals found that FedEx Ground delivery drivers were not independent contractors under California and Oregon laws, encouraging other states re-examining drivers’ contractor status (AA, 10-31-14, P. 3).

On Oct. 31 the Ninth Circuit Court of Appeals refused to stay an injunction against port drayage carrier Green Fleet Systems obtained by the National Labor Relations Board, ordering reinstatement of two port truck drivers who were allegedly terminated for challenging their classification as independent contractors, filing wage claims with the California labor agency and publicly supporting the Teamsters union.

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