Attorney general Ellison forms task force on worker misclassification

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The Office of Minnesota Attorney General Keith Ellison
July 6, 2023

Minnesota Attorney General Keith Ellison announced today that he is forming a new Advisory Task Force on Worker Misclassification. He is soliciting applications to serve on the Task Force through the State of Minnesota Open Appointments process. Applications are being accepted now through August 2, 2023.

“Misclassifying workers hurts not only those who are misclassified and their families, it hurts all Minnesotans, including businesses who do the right thing by their employees by playing by the rules, and every Minnesota taxpayer who has to make up the slack for law breaking employers,” Attorney General Ellison said. “I’ve created this task force to gather the best thinking about the problem and make practical, workable recommendations to the Legislature, State agencies, other levels of government, industry, nonprofit organizations, and advocates about how we can put an end to the problem. It’s another way we can help create a more level playing field and a fairer economy, which helps all Minnesotans better afford their lives and live with dignity, safety, and respect.”

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US Department of Labor Announces Proposed Rule on Classifying Employees, Independent Contractors; Seeks to Return to Longstanding Interpretation

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Agency: Wage and Hour Division
Date: October 11, 2022
Release Number: 22-1526-NAT

Misclassification continues to deny workers’ rightful wages; hurt businesses, economy

WASHINGTON – The U.S. Department of Labor will publish a Notice of Proposed Rulemaking on Oct. 13 to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.

The proposed rule would provide guidance on classifying workers and seeks to combat employee misclassification. Misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large.

The NPRM proposes a framework more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the FLSA. The department believes the new rule would preserve essential worker rights and provide consistency for regulated entities.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labor Marty Walsh. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

Specifically, the proposed rule would do the following:

  • Align the department’s approach with courts’ FLSA interpretation and the economic reality test.
  • Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
  • Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
  • Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
  • Assist with the proper classification of employees and independent contractors under the FLSA.
  • Rescind the 2021 Independent Contractor Rule.

The department is responsible for ensuring that employers do not misclassify FLSA-covered workers as independent contractors and deprive them of their legal wage and hour protections. Misclassification denies basic worker protections such as minimum wage and overtime pay and affects a wide range of workers in the home care, janitorial services, trucking, delivery, construction, personal services, and hospitality and restaurant industries, among others.

Before publication of today’s proposed rulemaking, the department’s Wage and Hour Division considered feedback shared by stakeholders in forums during the summer of 2022 and will now solicit comments on the proposed rule from interested parties. The division encourages all stakeholders to participate in the regulatory process. Comments, which must be submitted from Oct. 13 to Nov. 28, 2022, should be submitted online or in writing to the Division of Regulations, Legislation and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Ave. NW, Washington, DC 20210.

Learn more about the Wage and Hour Division.

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Investigation Recovers $246k In Back Wages for 306 Painters, Drywall Workers Denied Overtime by Misclassification as Independent Contractors

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Agency: Wage and Hour Division
Date: August 4, 2022
Release Number: 22-1562-DAL

​​​​​​​Department of Labor finds errant pay practices hurt workers jointly employed

NEW ORLEANS – The U.S. Department of Labor has found that the wages of hundreds of painters and drywall workers employed by a Louisiana contractor on construction projects, including work at New Orleans’ Superdome, were tackled for a loss when their employer misclassified the workers as independent contractors, a common industry violation.

Investigators with the department’s Wage and Hour Division found that PL Construction Services misclassified its workers as independent contractors. Many of the employees worked on projects involving Lanehart Commercial Painting – operating as Lanehart – including work at the Superdome. PL Construction Service paid the misclassified workers straight-time rates for all hours, including those over 40 in a workweek which violated the Fair Labor Standards Act’s overtime regulations. They also failed to maintain complete and accurate records of hours their employees worked, another FLSA violation.

The division determined that during the investigation period, a joint employment relationship existed between PL Construction Services and Lanehart for workers employed on Lanehart projects. Among other factors, they found the following conditions:

PL Construction Services employees worked almost exclusively for Lanehart.
At work sites, Lanehart supervised PL Construction Services’ workers, determined the number of workers needed and when, and kept records of hours PL Construction Services’ employees worked.
PL workers’ labor was essential to Lanehart’s operations and occurred on Lanehart’s projects.
The investigation led to the recovery of $246,570 in overtime back wages for 306 employees. Lanehart paid $199,342 to 243 employees for which the division found them jointly liable. PL Construction Services paid the remaining balance of $47,228 to 76 employees.

PL Construction Services LLC is based in St. Rose, and Lanehart Inc. is based in Baton Rouge.

“Too often we find workers denied wage protections such as the right to overtime pay and other benefits – including unemployment insurance, workers’ compensation and health insurance – by employers who misclassify them as independent contractors,” said Wage and Hour District Director Troy Mouton in New Orleans. “Our investigation shows the costly consequences employers face when they or their subcontractors fail to comply with the law. When we determine a joint employment relationship exists, the Wage and Hour Division will hold all responsible employers accountable for the violations.”

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Lost taxes and salaries: RI unions kick off a campaign to make wage theft a felony

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Patrick Anderson
The Providence Journal
Feb. 16, 2022

In a renewed campaign to make wage theft a felony in Rhode Island, union leaders are pointing to new research that says more than 9% of the state’s employers misclassify workers as independent contractors.

The paper from academics at the University of Massachusetts Labor Center and a construction-industry research group analyzed the results of state labor department unemployment insurance audits of Rhode Island employers from 2016 to last year.

It estimated that that $185 million in workers’ wages and salaries went unreported to the Department of Labor and Training in 2019, and that it cost the state from $25 million to $54 million in lost taxes that year.

‘Restoring worker rights’
The paper’s authors, Russell Ormiston of Allegheny College and Tom Juravich of UMass Amherst, conclude that changes in state labor law “offer considerable promise in restoring worker rights and ensuring greater justice in Rhode Island’s workplaces. The first is to make wage theft a felony.”

That’s music to the ears of the Rhode Island AFL-CIO, which has put making wage theft a felony offense at the top of its legislative priorities for this year.

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Maine Voices: Proper worker classification is a vital foundation of Maine’s economy

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BY LAURA A. FORTMAN AND JOHN C. ROHDE – SPECIAL TO THE PRESS HERALD
December 23, 2021

Misclassification deprives employees of needed protections, puts other employers at a disadvantage and affects taxpayers as well

A recent court case (“Scarborough roofing contractor found not guilty in death of worker,” Dec. 9) has raised the issue of worker classification. We, along with Maine State Chamber of Commerce President Dana Connors and Maine AFL-CIO President Cynthia Phinney, are writing to explain why the proper classification of workers is so important.

When an individual or business hires another person to perform work for them, that person will either be an employee or an independent contractor. Misclassification occurs when an employer hires an employee but treats them like an independent contractor.

Why does it matter if an employer treats an employee like an independent contractor? There are several important reasons.

• Independent contractors who do not purchase workers’ compensation insurance do not have access to lost wages and medical benefits under the Workers’ Compensation Act if they are injured on the job. An employee misclassified as an independent contractor can file a claim with the Workers’ Compensation Board. However, in addition to showing they were hurt at work, the misclassified employee will also have to prove they were an employee. This almost always means the injured employee’s claim will take longer to resolve.

In the meantime, and maybe permanently if the employer does not have workers’ compensation insurance, an injured misclassified employee will have to find a way to pay for the medical treatment they need. If the injury is serious, they may have to do this without any income.

• Similarly, if a misclassified worker loses their job through no fault of their own and files for unemployment insurance, it will take longer for the employee’s unemployment claim to be resolved.

• Employers that misclassify employees as independent contractors are probably not following federal and state employment laws that regulate minimum wages, overtime, paid leave and safety, among other protections. Misclassified employees may receive less pay than they are entitled to and work in conditions that are not as safe as they should be.

• Misclassification also adversely affects other employers. Employers that properly classify their workers – as the vast majority do – will find themselves at a disadvantage when bidding for jobs or otherwise competing against employers that do not. Employers that follow the law may also pay higher workers’ compensation rates if the pool of workers they are insuring is smaller because their competitors have misclassified their employees.

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You Say Independent Contractor; Virginia Says Employee (VA)

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Michael Marr
May 14, 2020

Effective July 1, 2020, Virginia will expand its reach into the employee versus independent contractor misclassification issue. Previously, Virginia had focused its efforts on the construction trade, where the Commonwealth believed most misclassifications occurred and workers were most vulnerable. With this new law in place, the cost to business owners of getting the classification of their workers wrong has grown exponentially and has unfortunately become potentially, financially catastrophic. See Va. Code §§ 40.1-28.7:7

…

The law contains two key elements that represent a real sea change in Virginia’s labor and employment law. First, the law establishes a presumption that a worker is an employee, not an independent contractor. In other words, Virginia law will now deem a worker to be an employee until proven otherwise by the business owner. That presumptive status of the worker as an employee can only be rebutted if the business owner can prove that the worker meets the Internal Revenue Service’s test for an independent contractor. Please see https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation and the IRS SS-8 form for guidance.

The IRS test is complicated and anything but a bright-line rule. The only easy answer, and quite frankly the one Virginia is apparently compelling business owners to make, is every worker is an employee; there are no independent contractors unless it is unmistakably, inarguably, and unambiguously obvious that the worker is an independent contractor.

The more complex the misclassification test, the more case-by-case determination required to satisfy that test, the greater the expense will be to make the correct determination at the beginning of the employment relationship-bearing in mind, of course, this law presumes your initial classification of a worker as an independent contractor is wrong. The legal expenses required to prove that the worker is not an employee are difficult to quantify but, whatever they may be, these expenses will fall squarely upon the business owner.

Please note that the business owner’s good faith and due diligence in making the right call are not available defenses under the statute as it is written. Rather, the issue framed by the statute is simple: Can the business owner prove the employee is an independent contractor based upon a multitude of IRS factors directed towards financial control, behavioral control, and the relationship between the parties? The resolution of that issue, however, is complex and uncertain, which leads to the second key element of the statute.

The new Virginia law expressly creates-for the first time-a private right of action for the worker. The new statute openly invites workers, and their labor and employment lawyers, to test a business owner’s classification determination before seven jurors, in a jury trial, in a Virginia circuit court, with no automatic right to appeal to the Virginia Supreme Court.

This private right of action expressly authorizes the worker-presumed employee to sue the employer directly for a violation of this misclassification statute and then to recover from the employer (if the employer cannot rebut the employee presumption) the full amount of any (i) wages, (ii) salary, (iii) employment benefits, including expenses incurred by the employee that would otherwise have been covered by insurance, or (iv) other compensation lost to the individual.

This statute also authorizes the court to award the employee’s reasonable attorney’s fees and the costs to file and prosecute the lawsuit, if successful. In other words, the statute allows the employee to shift the entire cost of the misclassification litigation onto the employer-that is, not only the employee’s but also the employer’s attorney’s fees if the employer/business owner is found to have misclassified the worker as an independent contractor.

Note that this civil lawsuit by the plaintiff-employee against the defendant-business owner is in addition to any sanction or penalty the Virginia state government or the U.S. federal government might impose for a misclassification. In a separate, but related law, which will take effect in January 1, 2021, Virginia may impose the following penalties (see Va. Code § 58.1-1901):

  • First misclassification offense: Up to $1,000 per individual worker.
  • Second misclassification offense: Up to $2500 per individual worker.
  • Third and following offenses: Up to $5000 per individual worker.

Note also that the business owner’s woes are still not over. In yet another new and related law, a business owner may not retaliate against a worker who reports a potential misclassification issue or who prompts a state investigation. Such an alleged retaliation will result in an administrative action against the business owner before the Virginia Department of Labor & Industry. see Va. Code § 58.1-1901

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Singleton Calls for Crackdown on Employee Misclassification (NJ)

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November 13, 2019

Moorestown, NJ – Senator Troy Singleton today called on the Executive Branch of State Government to stop the rampant and widespread illegal abuse of workers in the construction industry through employee misclassification.

Companies who misclassify full-time workers as contractors commit wage theft by paying below minimum wage, establishing illegal work weeks, paying cash and evading taxes – all to increase profits. Senator Singleton called on the NJ Department of Labor, the Attorney General’s Office, the Department of Treasury, and the Governor’s Task Force on Misclassification, to continue to address this issue.

“Employee misclassification is a problem because when workers are misclassified as independent contractors by their employers, it not only diminishes their access to labor protections, but it also has real consequences on the State’s economy and tax revenues,” said Singleton. “Ensuring workers are treated fairly is a priority for me and while progress has been made when the Governor signed my Stop Work Order legislation, more needs to be done to protect workers and hold offenders accountable.”

Singleton was the prime sponsor of Senate Bill 2557, which concerns stop-work orders related to prevailing wage and construction worker employment. S2557 was signed into law in July 2019 and would permit the Commissioner of the Department of Labor and Workforce Development to issue a stop-work order against an employer upon determining that an employer has paid a worker less than the prevailing wage. The stop-work order would apply to every site where the violation continues to occur. It could only be lifted by the Commissioner if the Department finds the employer has agreed to pay future wages at the required rate, return any back-wages owed to workers and pay any penalty assessed by the Department.

“There must be a level playing field for all New Jersey workers,” continued Singleton. “As a devout supporter of the construction trades, I call on those in the Executive Branch of our state government to use all available resources to crack down on this unfair practice immediately.”

The William J. Hughes Center at Stockton University released a study that said approximately 35,000 workers are illegally misclassified as independent contractors, while the state is losing $25 million a year in tax revenue due to the fraud.

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Sweeney Bill Would Protect Workers Against ‘Misclassification’ (NJ)

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November 14, 2019

Trenton – A bill authored by Senate President Steve Sweeney that would help protect workers from being exploited through their misclassification as independent contractors gained the approval of the Senate Labor Committee today.

“This is a pro-worker bill for the new gig economy,” said Senator Sweeney. “It will codify into law existing regulations and close a loophole that has allowed for the misclassification and exploitation of some employees. It’s all about protecting the rights of workers.”

A misclassification is the improper designation of workers as “independent contractors” rather than “employees” in order to allow employers to evade basic workers’ rights. Employers are required to contribute to unemployment and temporary disability insurance, abide by labor protections such as the minimum wage and overtime, allow employees to take maternity, paternity, and family leave, and withhold New Jersey income taxes – but they are not required to do the same for independent contractors.

“Misclassification not only hurts workers, it hurts law-abiding businesses and the state,” said Senator Sweeney. “The businesses that don’t play by the rules aren’t paying into the unemployment fund or the disability fund, which raises costs for workers and all other businesses. It shortchanges everyone else.”

Currently, the “ABC test,” adopted by the New Jersey Department of Workforce Development and affirmed by the New Jersey Supreme Court, is used to determine whether a worker should be classified as an employee or independent contractor for the purpose of labor and tax laws.

The bill would strengthen the “B prong” of the three-part test so that workers could not be deemed exempt from employee status because they perform their work “outside of all the places of business of the enterprise for which the service is performed.” It would also strengthen the “C prong” of the test by requiring that work performed to meet this standard is in an independently established trade, occupation, profession, or business in which the individual providing the service is customarily engaged.

The bill, S-4204, was approved with a vote of 3 – 1.

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SWACCA President to Testify Before House Committee on Misclassification in the Construction Industry

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Business Wire
September 25, 2019 11:22 AM

WASHINGTON – On Thursday, Sept. 26, at 10:15 a.m. EDT, Matt Townsend, the President of the Signatory Wall and Ceiling Contractors Alliance (SWACCA) and Chief Executive Officer of OCP Contractors, Inc., located in Holland, Ohio, is scheduled to testify before the U.S. House of Representatives’ Committee on Education and Labor Workforce Protections Subcommittee at a hearing titled Misclassification of Employees: Examining the Costs to Workers, Businesses, and the Economy

In his testimony, Townsend will outline how the misclassification of employees impacts the construction industry, particularly the competitive disadvantage it creates for law-abiding employers.

“SWACCA appreciates the opportunity to highlight for Members of Congress the pervasiveness of employee misclassification in the construction industry,” said Townsend. “Law-abiding employers like the ones SWACCA represents do not wish to be complicit in misclassification in order to compete. I look forward to sharing with Congress exactly how these misclassification schemes tilt the playing field against law-abiding employers in the construction industry while also harming workers and taxpayers.”

SWACCA has established itself as a leader in the fight against misclassification in the construction industry. Last Congress, SWACCA strongly opposed passage of legislation that would have eliminated barriers to misclassifying workers as independent contractors. A letter submitted on behalf of SWACCA opposing passage of the bill was cited in a House Committee report and on the floor of the House of Representatives during debate. SWACCA also fought to ensure that an IRS rulemaking initiated by the passage of the 2017 tax reform legislation did not create a financial incentive for workers to accept being misclassified in exchange for a favorable “pass-through” tax deduction.

The Misclassification of Employees: Examining the Costs to Workers, Businesses, and the Economy hearing will take place in the House Education and Labor Workforce Protections Subcommittee on Thursday, Sept. 26 at 10:15 a.m. EDT in the Rayburn House Office Building Room 2175. A livestream will be available here.

The Signatory Wall and Ceiling Contractors Alliance (SWACCA) is a national organization of signatory wall and ceiling contractors committed to working in partnership with its workforce to provide the highest-quality, most efficient construction services possible to its customers. SWACCA prides itself on representing companies that fully embrace their commitment to their customers and their employees.

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TWO MASSACHUSETTS FIRMS FALL SHORT ON $2.4 MILLION OWED OVER IC MISCLASSIFICATION (MA)

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Staffing Industry Analysts
September 18, 2019

Two Massachusetts construction companies and their officers have fallen short on payments required under a 2016 consent judgement over Fair Labor Standards Act violations that included misclassifying workers as independent contractors, the US Department of Labor reported. Now, labor officials are asking the court to hold them in civil contempt.

The consent judgment required them to pay $2.4 million in back wages and liquidated damages to 478 employees. However, they have paid only $477,900 and currently owe nearly $1.8 million plus interest to affected employees, according to the department.

“These employers conceded that they unlawfully kept the wages of 478 employees and committed themselves to paying those employees under a consent judgment and order of the court. In violation of that order, the employers have unlawfully kept $1,179,842.55 of their employees’ hard-earned wages,” said Maia Fisher, regional solicitor of labor for New England.

“After numerous attempts to resolve the employers’ continued failure to comply with the court order, the US Department of Labor now asks the court to hold the defendants in contempt and impose all sanctions required, including imprisonment if necessary, to ensure compliance with the court’s original order,” Fisher said.

Named in the original 2016 consent judgement and order are Force Corp., AB Construction Group Inc. and employers Juliana Fernandes and Anderson dos Santos.

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